Table of Contents

62. 2014.01.07 Hearing Transcripts_eng_ ............................................................................................................ 2

77. 2014.03.04 Hearing Transcripts_eng_.......................................................................................................... 44
83. 2014.02.14 Hearing Transcripts_eng_ .......................................................................................................... 74
127. 2014.09.18 Hearing Transcripts_eng_ ....................................................................................................... 131
153. 2014.10.14 Hearing Transcripts_eng_ ........................................................................................................ 155
164. 2014.10.23 Hearing Transcripts_eng_ ....................................................................................................... 216
178. 2014.11.05 Hearing Transcripts_eng_ ........................................................................................................286
261. 2015.03.09 Hearing Transcripts_eng_ .......................................................................................................325
264. 2015.03.16 Hearing Transcripts_eng_ .......................................................................................................378
289. 2015.05.27 Hearing Transcripts_eng_ ....................................................................................................... 401
316. 2015.08.13 Hearing Transcripts_eng_ .......................................................................................................423
340. 2015.09.02 Hearing Transcripts_eng_ .......................................................................................................448
372. 2015.10.01 Hearing Transcripts_eng_ .......................................................................................................460
395. 2015.10.13 Hearing Transcripts_eng_ .......................................................................................................475
424. 2015.11.06 Hearing Transcripts_eng_ .......................................................................................................483
426. 2015.11.02 Hearing Transcripts_eng_ .......................................................................................................536
432. 2015.10.20 Hearing Transcripts_eng_ .......................................................................................................542
438. 2015.11.19 Hearing Transcripts_eng_ ........................................................................................................556
446. 2015.11.13 Hearing Transcripts_eng_ ........................................................................................................572
448. 2015.11.09 Hearing Transcripts_eng_ .......................................................................................................593
470. 2015.11.30 Hearing Transcripts_eng_ ....................................................................................................... 611
483. 2015.12.03 Hearing Transcripts_eng_ .......................................................................................................649
490. 2015.12.07 Hearing Transcripts_eng_ .......................................................................................................667
496. 2015.12.11 Hearing Transcripts_eng_ ........................................................................................................675
504. 2015.12.14 Hearing Transcripts_eng_ .......................................................................................................690
513. 2015.12.18 Hearing Transcripts_eng_ ........................................................................................................709
515. 2015.05.03 Hearing Transcripts_eng_ .......................................................................................................739
517. 2015.12.28 Hearing Transcripts_eng_ .......................................................................................................750
527. 2016.01.06 Hearing Transcripts_eng_ .......................................................................................................755
533. 2016.01.12 Hearing Transcripts_eng_ .......................................................................................................767
549. 2017.01.25 Hearing Transcripts_eng_ .......................................................................................................783
569. 2017.02.17 Hearing Transcripts_eng_ ....................................................................................................... 811
662. 2017.04.05 Hearing Transcripts_eng_ .......................................................................................................854
723. 2017.05.03 Hearing Transcripts_eng_ .......................................................................................................899
728. 2017.05.11 Hearing Transcripts_eng_ ....................................................................................................... 981
 Case 1:13-cv-06326-WHP Document 62 Filed 02/05/14 Page 1 of 42 1
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1 UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x

3 UNITED STATES OF AMERICA, New York, N.Y.

4 v. 13 CV 6326(TPG)

5 PREVEZON HOLDINGS, LTD,

6 Defendant.

7 ------------------------------x

8
January 7, 2014
9 2:51 p.m.

10
Before:
11
HON. THOMAS P. GRIESA,
12
District Judge
13

14 APPEARANCES

15 PREET BHARARA
United States Attorney for the
16 Southern District of New York
BY: PAUL MONTELEONI
17 CHRISTINE MAGDO
Assistant United States Attorneys
18
BAKER & HOSTETLER
19 Attorneys for Defendant
BY: MARK CYMROT
20 JOHN MOSCOW

21 BAKER BOTTS
Attorneys for Defendant
22 BY: SETH TAUBE

23

24

25

SOUTHERN DISTRICT REPORTERS, P.C.

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1 (In open court)

2 THE DEPUTY CLERK: Kiss of United States of America

3 vs. Prevezon Holdings, Limited.

4 THE COURT: We have a motion, right?

5 MR. CYMROT: Yes, your Honor.

6 THE COURT: Would you like to speak for the motion?

7 MR. CYMROT: Yes. Mark Cymrot, your Honor, for the

8 defendants.

9 THE COURT: Thank you. Go ahead.

10 It's better to sit down. I don't know how they've

11 designed this courtroom with these microphones, but it's better

12 to keep seated and I can hear you.

13 MR. CYMROT: All right. Is that mic on? That mic's

14 on.

15 Should I begin, your Honor?

16 THE COURT: Go ahead.

17 MR. CYMROT: Okay. This is a motion by the defendants

18 to vacate or modify a protective order that was entered in

19 September of 2013 as an ex parte order based upon an

20 application and a verified complaint from the government. The

21 order restrains the defendants, which include foreign companies

22 with new US operations and eight US real estate companies, from

23 transferring any and all assets that they have anywhere in the

24 world.

25 THE COURT: What is Prevezon?

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1 MR. CYMROT: Prevezon is a holding company.

2 THE COURT: What does that mean?

3 MR. CYMROT: Prevezon, the name?

4 THE COURT: Why was Prevezon formed? What business is

5 Prevezon in?

6 MR. CYMROT: Prevezon is in the real estate business.

7 It is a holding company for eight real estate projects in

8 New York. It formed eight New York limited liability

9 companies, and they own condominiums and other real estate in

10 New York.

11 THE COURT: Where do they get the money to form that?

12 MR. CYMROT: There was two sources of money. One was

13 a Russian investor by the name of Dimitri Petrov, and the other

14 money comes from the owner, Dennis Katsyv, K-A-T-S-Y-V.

15 THE COURT: What was the name?

16 MR. CYMROT: Dennis Katsyv, K-A-T-S-Y-V.

17 THE COURT: Who was he?

18 MR. CYMROT: He is a Russian citizen who invests in

19 real estate around the world. He's about 40, in his early 40s,

20 I believe. He was a young man, went out and had a business in

21 the transportation business. He sold that. He had some money

22 and he went into real estate, has real estate projects in

23 Russia. He's invested in real estate in Europe, and he decided

24 to invest in real estate in the United States.

25 THE COURT: Well, the complaint alleges -- I'm turning

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1 to paragraph 101 and so forth, pages 37 and so forth.

2 MR. CYMROT: Yes.

3 THE COURT: The essence of those allegations, if I'm

4 reading them right, is that Prevezon was in the business of

5 helping to launder the money from this Russian fraud. That's

6 what the government alleges, is that right?

7 MR. CYMROT: That is correct. That's what they --

8 THE COURT: Can I hear from the government?

9 MR. MONTELEONI: Yes, your Honor. Good afternoon.

10 Paul Monteleoni for the government. And with me at counsel

11 table is my colleague, Christine Magdo.

12 The complaint alleges that in addition to simply

13 holding real estate, one of the activities of Prevezon and the

14 Prevezon entities was the laundering of money. The complaint

15 doesn't make allegations about what percentage of their overall

16 business volume that was, but that that was an activity that

17 the business is engaged in.

18 THE COURT: Okay. Go ahead.

19 MR. CYMROT: Your Honor, what the complaint alleges is

20 that $857,000 of a $230 million fraud on the Russian treasury

21 was transferred through 90 different transactions and ended up

22 in Prevezon Holdings, according to the complaint. The

23 defendants deny that, but I'm going to put that aside and deal

24 with the money laundering issue, because once the money went

25 into Prevezon Holdings, the government alleges it was a money

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1 laundering operation. It was a business. If it was $857,000

2 that went in that turned out to be tainted money, then the

3 government could forfeit that.

4 But they're going further and they're claiming this is

5 a money laundering operation. And they don't have any

6 allegations that would support that allegation, the basis for

7 this protective order. They have no allegations that

8 Mr. Katsyv or anybody involved in the defendants were a member

9 of what they call the organization that committed the fraud.

10 They don't have any allegations that they knew any members of

11 the organization. They can trace members of the organization

12 back to 2006 at meetings in Cyprus. They have never made an

13 allegation that anybody associated with Prevezon had a

14 communication with or was a member of the organization or had

15 an agreement with the organization.

16 So this allegation that they were money laundering for

17 the organization has no factual basis in the complaint. There

18 are major holes in that, and let me give you one example.

19 There is no allegation that Prevezon had an agreement with any

20 member of the organization to invest their funds or to money

21 launder their funds. It's been six years since this money went

22 into Prevezon, and there hasn't been any tracing of money back

23 to any member of this alleged organization.

24 So there's no benefit to the organization from this

25 alleged money laundering, which would be a major indication

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1 that there was some agreement to money launder, but there is

2 none here. What the complaint alleges is that there was this

3 $857,000, and it went in a single transaction into an

4 investment in Germany. And it stayed in Germany. There was no

5 false statements made about it. It was a direct transaction.

6 It wasn't hidden in any way.

7 They then allege that between two and five years after

8 that German investment with the $857,000, they allege that

9 Prevezon Holdings began --

10 THE COURT: Where is the allegation of the 857,000 in

11 the complaint?

12 MR. CYMROT: It's 101. There's two deposits. One is

13 paragraph 101; it's $410,000. And then paragraph 102 is

14 $447,000.

15 THE COURT: Okay. Thank you.

16 MR. CYMROT: And then if you go to paragraph 103, they

17 say those funds went in as an investment in this German real

18 estate. And that's where the money stayed.

19 So then if you go to paragraphs starting with 107, I

20 think it is -- it's actually 111 -- they start investing it,

21 but it's two years later. Two to five years later they invest

22 in New York real estate. And there are eight investments in

23 New York real estate between 2009, November 2009, and 2012.

24 And there is no money that's been traced from that $857,000

25 into the New York real estate.

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1 And what's really telling, in the application, the

2 ex parte application for a protective order, they say the money

3 was commingled, the money for the New York investment was

4 commingled with the money, the $857,000. But in their brief in

5 response to our protective order, they say it may have been

6 commingled, that Prevezon Holdings may have accepted commingled

7 funds.

8 It's pure speculation, and there is no facts to back

9 it up, your Honor. There is nothing in this case that shows

10 that anybody involved with Prevezon had anything to do with the

11 organization, had anything to do with the theft of money in the

12 Russian treasury and had anything to do with members of the

13 organization ever communicated and had any agreement. And

14 there is nothing that shows that they treated the money any

15 different than any other real estate investment.

16 They compare -- the cases they cite compare Prevezon

17 Holdings to a chop shop where thieves would deliver cars. They

18 would get paid for them. They would get a benefit. And there

19 were false statements made in the books and records of the chop

20 shop and the cars were broken down into pieces so that the

21 theft could be hidden.

22 There's nothing like that in this case. They have

23 another case that talks about an arsonist who used his business

24 to make false insurance applications. There's nothing like

25 that here. This is a real estate company. It has been treated

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1 like a real estate company. There are no false statements

2 attributed to the defendants. There's no hiding. There's no

3 intent. There's no knowledge that it's been alleged that the

4 defendants knew about the Russian theft or knew any of the

5 people involved. There is no facts that would support an

6 allegation that they had intent to disguise the funds. They

7 didn't do anything to disguise the funds. There were nine

8 total transactions in this complaint, and they are all direct

9 purchases or investments in real estate. There is simply

10 nothing here that satisfies the requirements of 18, U.S.C.,

11 1956 or 1957.

12 If you look at the complaint, if you start looking at

13 the claims, for instance, starting on page 46, the claims, they

14 are nothing -- 45 and 46 -- they are nothing but quotes from

15 the statute. They haven't identified a specified unlawful

16 event. What specified unlawful event in the United States

17 would occur as a result of a theft on the Russian treasury?

18 They don't specify that. That's an element of the claim under

19 1956 and 1957. They don't specify any facts that would show

20 that the defendants knew about the fraud. They don't specify

21 any facts that show the defendants intended to promote the

22 fraud or to disguise the fraud or anything of that sort.

23 Most of these cases are brought after a criminal

24 indictment or a trial. There has been no criminal case here.

25 There's been no criminal case in Russia. This is a Russian

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1 citizen who has not been accused or investigated by the Russian

2 government for any participation in a theft on the Russian

3 treasury. It seems to me that's very telling that there is no

4 link here.

5 THE COURT: Can I get back to you?

6 But what's the government say?

7 MR. MONTELEONI: Well, your Honor, there are several

8 just factual corrections that I'd like to make to some of the

9 points that counsel raised.

10 First, his claim that the specified causes of action

11 actually don't include any facts is just incorrect. The first

12 paragraph of each of the causes of action incorporates by

13 reference the entire statement of facts. And I'm a little

14 surprised that he raised that standard pleading practice as a

15 problem.

16 THE COURT: Well, what are the factual allegations?

17 MR. MONTELEONI: That the --

18 THE COURT: How do you respond to what has just been

19 said?

20 MR. MONTELEONI: Yes, your Honor. The complaint

21 plausibly alleges that there was an elaborate Russian tax fraud

22 scheme, and that --

23 THE COURT: We're all familiar with that. The

24 question is about Prevezon.

25 MR. MONTELEONI: Yes, your Honor. Now, the tax fraud

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1 scheme --

2 THE COURT: And what we've got about Prevezon, as far

3 as I know, really begins with paragraph 101, isn't that right?

4 MR. MONTELEONI: Well, it does in the sense that

5 paragraph 101 describes when Prevezon began to receive the

6 fraud proceeds. The paragraphs preceding it do describe why

7 these are proceeds of a specified unlawful activity. The

8 specified unlawful activity is wire fraud under the Supreme

9 Court case of United States vs. Pasquantino --

10 THE COURT: Oh, please -- don't.

11 MR. MONTELEONI: I'm sorry.

12 THE COURT: I want to stick to the factual issues.

13 And the way I read it is that -- let's look at paragraph 101.

14 MR. MONTELEONI: Yes.

15 THE COURT: It says that on or about February 6, 2008,

16 the Bunicon Banco De Economi account made a wire transfer to

17 Prevezon. Now, is there anything about where in the complaint,

18 about where this money, this Bunicon money came from?

19 MR. MONTELEONI: Yes, your Honor.

20 THE COURT: Where is that?

21 MR. MONTELEONI: Paragraphs 77 through 94 --

22 THE COURT: Just a minute. Just a minute. Go ahead,

23 a little slower.

24 MR. MONTELEONI: Sorry.

25 THE COURT: Where does it talk about Bunicon?

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1 MR. MONTELEONI: The first mention of Bunicon is

2 paragraph 91.

3 THE COURT: Let me find that. Okay. I see 91.

4 MR. MONTELEONI: And then paragraph 93 sets forth

5 grounds for believability that Bunicon is a shell company and

6 not a legitimate business entity.

7 THE COURT: Well, it would seem that if you look at

8 paragraph 91, etc., this is a pretty good allegation of money

9 laundering involving the Bunicon. And then --

10 MR. MONTELEONI: So next on paragraph 97, your Honor,

11 it describes that Bunicon sent funds not to Prevezon but to a

12 series of companies that sent the funds back to one of the tax

13 authorities that actually authorized the tax refund.

14 THE COURT: Say that again.

15 MR. MONTELEONI: So paragraph 97 and 98 indicate that

16 Bunicon sent out funds to a series of entities --

17 THE COURT: Bunicon?

18 MR. MONTELEONI: Bunicon did. And those entities --

19 THE COURT: Sent it to what?

20 MR. MONTELEONI: They sent out several hundred

21 thousand dollars to a series of entities, which transferred it

22 ultimately to the then husband of one of the tax officials who

23 approved the fraudulent refund. That is, we think, a clear

24 allegation of a kickback to the members of the organization.

25 THE COURT: I just have to say, Mr. -- is it Cymrot?

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1 MR. CYMROT: Yes, your Honor.

2 THE COURT: I just don't find it very -- let me put it

3 a different way. It seems to me that the complaint in the

4 action is completely different than what you've characterized.

5 The complaint in the action is an enormously detailed complaint

6 going back to the fraud on the Russian government, and then

7 carrying on with detailed allegations about money laundering.

8 And those detailed allegations about money laundering involve

9 Prevezon.

10 MR. CYMROT: No, your Honor. I'm sorry.

11 THE COURT: And that's what it says. And to sit there

12 and say it doesn't say that, it doesn't help me one bit.

13 MR. CYMROT: Your Honor, if I could try to help you.

14 They have $857,000 that they said went into Prevezon. If that

15 was what they had, they could forfeit $857,000.

16 We contest that's what they have. If you follow their

17 chart --

18 THE COURT: You're getting off on to something --

19 MR. CYMROT: No, no --

20 THE COURT: -- different from my question.

21 MR. CYMROT: Your question is why isn't Prevezon --

22 THE COURT: I'm not talking about 857,000. I'm

23 talking about the broader allegation of Prevezon participating

24 in money laundering in a broad sense, not about $857,000.

25 MR. CYMROT: All they trace into Prevezon is $857,000.

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1 And Prevezon is not alleged to have known about anything that

2 predates that. And they even acknowledge, if you look at

3 paragraphs 101 and following, Mr. Katsyv explained that they

4 got the money from an investor, Mr. Petrov. And that comes

5 from the -- is possible from the government's own chart.

6 If you would look at Exhibit B, your Honor, to the

7 complaint. This is the government's tracing. And it doesn't

8 involve Prevezon at all until the end. And there is no

9 allegation that Prevezon knew anything about what preceded the

10 $857,000 going into Prevezon.

11 And if you look at chart B, and you follow the

12 allegations -- if you remember, I handed up a chart, which I

13 can hand up again, which is our notes on this B. They trace

14 $47 million, the equivalent in rubles, into this Bank Krainiy,

15 which is down in the middle right above Bunicon in Elenast. Of

16 that, they admit $19.5 million is not treasury funds. It's

17 untainted funds by the fraud. And Prevezon says the $857,000

18 came from those funds or other funds that are not on this

19 chart.

20 This tracing does not trace money into Prevezon. It

21 requires -- and what the government said in their brief was

22 they don't have to use a consistent accounting to do this

23 tracing. In other words, they don't have any member of the

24 organization that stole the money directing money to Prevezon.

25 And no member of the organization ever got a benefit from

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1 transferring, supposedly transferring this money from Prevezon.

2 Prevezon got money from an independent investor, and this chart

3 would show that that's very possible; that there are

4 $19 million by the government's own counting that doesn't come

5 from the treasury.

6 What they have done is they have put on this complaint

7 a huge amount of details, you're correct, your Honor, about a

8 Russian fraud. Huge amount of details about that. But when it

9 gets to Prevezon --

10 THE COURT: Take a look at paragraph 103.

11 MR. CYMROT: Yes, your Honor.

12 THE COURT: That is clearly an allegation that

13 Prevezon was participating in money laundering, and it's very

14 detailed.

15 MR. CYMROT: I don't see that it says anything about

16 money laundering or anything about -- other than an investment

17 in Europe. It's exactly our point, your Honor. There was --

18 $857,000 went in. It went into a German real estate

19 investment, with a major partner. And we say that was for an

20 investor from unrelated funds. There's nothing here that says

21 that Prevezon knew that anything about the Russian fraud.

22 There's nothing here that says that they transferred or that

23 this transfer somehow benefited the Russian fraud and the

24 people who did it. That's our point.

25 THE COURT: I don't read the complaint the way you're

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1 reading it at all.

2 MR. CYMROT: Well, your Honor, what they say is that

3 Prevezon supposedly received this 857,000 from the Russian

4 treasury. We contest that. But find something in paragraphs

5 101 and further on that is a fact that says that anybody at

6 Prevezon knew anything about the Russian fraud. There's no

7 fact in there that says that. There's no fact that would

8 support a finding that they wanted to benefit the Russian

9 fraud. There's no fact in there that said that they did, in

10 fact, benefit the Russian fraud in any way.

11 So if you go from 101 on, that's exactly our point.

12 It's only 101, a few more paragraphs talking about Prevezon.

13 And none of it is facts that would support a finding that they

14 participated in any way in the Russian fraud. They transferred

15 money to Germany.

16 THE COURT: I just completely disagree with your

17 reading of the complaint.

18 MR. CYMROT: Well, I could go paragraph by paragraph,

19 your Honor.

20 THE COURT: Look, it may be true that there's certain

21 things that are not said, but a lot is said.

22 MR. CYMROT: Well, not about our clients, though.

23 THE COURT: Yes, it is.

24 MR. CYMROT: Well, let's look at 103.

25 THE COURT: These paragraphs are all about your

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1 client.

2 MR. CYMROT: Well, it says on May 23rd and June 23rd

3 of 2008, that Prevezon converted millions of dollars into

4 Euros. All they did was transfer dollars into Euros. That's a

5 normal commercial transaction, which were transferred to

6 Prevezon Holdings' 8170 account. In other words, they had two

7 accounts that UBSs -- or 8160 was a dollar account. 8170 is a

8 Euro account. It's nothing unusual about that.

9 Then they say Prevezon Holdings 8170 then transferred

10 over 3 million Euros to AFI Europe. AFI Europe is a major real

11 estate company with real estate investments all over the world.

12 It's not some shady company. It's a major real estate company.

13 You could look it up on the web. It has a website. It has

14 investments everywhere. So in order to purchase a 30 percent

15 interest in a Netherlands based company, and that company

16 invested in a German company, I mean, that's the way real

17 estate transactions work. There's nothing unusual about that

18 transaction.

19 THE COURT: Nothing unusual except where they got the

20 money is unusual.

21 MR. CYMROT: Well, that presumes that -- it presumes

22 two things, if I may, your Honor: One, that the money didn't

23 come from the $19 million of untainted, honest funds. And

24 Prevezon has an investor, Dimitri Petrov. He's a man, he lives

25 in Russia. He's somebody they knew. He was transferring

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1 money. It came in when he said it was coming in, and there's

2 nothing the government has said that excludes that from the

3 $19 million of honest fund money that went into the account.

4 THE COURT: What about the honest funds allegation?

5 Mr. --

6 MR. MONTELEONI: Yes, your Honor. Well, one very

7 clear indication that the funds that Bunicon had weren't honest

8 funds --

9 THE COURT: Were not?

10 MR. MONTELEONI: Were not honest funds is that they

11 transferred some of it as alleged in paragraph 97 back through

12 intermediaries to the tax official who authorized the corrupt

13 refund. That right there is ample evidence that the funds that

14 they had were not honest.

15 MR. CYMROT: But that has nothing to do with -- what

16 does that have to do with Prevezon?

17 MR. MONTELEONI: May I be heard?

18 THE COURT: Because the Bunicon money ultimately came

19 to Prevezon?

20 MR. CYMROT: No, no, no. They don't allege that.

21 They do not allege that. Let's look at 97. They don't allege

22 that.

23 THE COURT: I'm looking at paragraph 101.

24 MR. MONTELEONI: Your Honor, if I may be heard to

25 explain several additional facts.

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1 THE COURT: Right.

2 MR. MONTELEONI: I think that I may be able to clear

3 up some confusion Mr. Cymrot may have.

4 The funds that went from Bunicon back to the tax

5 officials in paragraph 97, those funds didn't go to Prevezon,

6 but those were funds received by Bunicon, and those were

7 clearly the proceeds of the fraud, because they went back to

8 one of the perpetrators of the fraud. But now, not all of

9 those funds went back to the perpetrators of the fraud. Some

10 funds that Bunicon had went to Prevezon, as we allege in

11 paragraph 101. And --

12 THE COURT: For what purpose?

13 MR. MONTELEONI: For what purpose? Well, your Honor,

14 the complaint sets forth three different theories of money

15 laundering. One possibility is concealment money laundering.

16 That, I think, is quite amply supported by the fact that --

17 THE COURT: Where is that alleged?

18 MR. MONTELEONI: That is in one of our claims for

19 relief. I think it -- simply, in our first in rem --

20 THE COURT: Is it in the complaint?

21 MR. MONTELEONI: Yes, your Honor, paragraph 122 and

22 121.

23 THE COURT: Go ahead, please.

24 MR. MONTELEONI: And one I think very telling fact

25 that gives rise to the inference of concealment money

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1 laundering is that AFI Europe is a large company that is

2 established in the legitimate economy. And I think that the

3 complaint sets forth a very fair inference that AFI Europe

4 probably wouldn't do business with Bunicon or Elenast. If you

5 look at Exhibit C and Exhibit D, these are companies that are

6 purportedly run out of dilapidated buildings in Moldova.

7 Prevezon has real real estate and is the type of company that

8 can partner with more legitimate funds. That gives rise to an

9 inference that the moving the funds into this more legitimate

10 seeming entity served to conceal.

11 Additionally, under Section 1957, which we cite at

12 paragraph 123, simply engaging in a financial transaction above

13 $10,000 involving a financial institution with criminally

14 derived property, that itself constitutes money laundering.

15 That is amply alleged by the complaint.

16 And then finally, the complaint alleges a promotion

17 theory, which is that the Prevezon entities did intend to

18 return the funds to further other specified unlawful activity.

19 Now, that, I think, that is a theory that would, I think,

20 require the most discovery to flesh out, but it does meet the

21 standard applicable here: That the facts in the complaint set

22 forth a reasonable belief that discovery would reveal evidence

23 of this for the following reasons.

24 One is that the very representative of Katsyv that

25 talked about these funds said these funds were eventually going

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1 to be returned to the Mr. Petrov. The funds came apparently

2 from a Mr. Petrov. Since we believe that these are treasury

3 funds, there's a reasonable inference that Mr. Petrov has some

4 type of association with the organization. The complaint

5 doesn't set forth definitively beyond a reasonable doubt what

6 his role is, but it raises an inference that there's a

7 reasonable belief that discovery will reveal evidence of that.

8 And another reason that supports that belief is the

9 transactions in paragraphs 97 and 98. The same company that

10 sent money to Prevezon also sent money to back through

11 intermediaries to the person who initiated the tax fraud in the

12 first place, and -- or one of the people, one of the tax

13 officials who approved a refund on the same day or the next

14 business day, and then didn't report a massive increase in her

15 wealth after the incident.

16 Additionally, there is reason to believe, as the

17 complaint alleged, that members of the organization continued

18 to engage in tax funds -- sorry, in tax frauds in 2009 and 2010

19 after these transfers. That also supports an inference that

20 the money going back to these participants would be used to

21 promote further unlawful activity.

22 Now, as to that, we think that the complaint sets

23 forth facts which give a reasonable belief -- not a certainty,

24 but a plausible inference -- that discovery would reveal

25 evidence of that type of promotion. But even if it didn't, the

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1 protective order would be amply justified on the theory of

2 concealment and on the theory of monetary transaction with a

3 financial institution with a value of over $10,000.

4 And I just would like to correct another statement

5 that was made by defense counsel that there's not an allegation

6 that goes to Prevezon's knowledge. I direct the Court both to

7 paragraphs 109 and 110, where a representative for Katsyv said

8 that after Katsyv's review of these transactions, Prevezon

9 didn't actually --

10 THE COURT: What paragraph?

11 MR. MONTELEONI: Sorry. Let's say 108, 109 and 110.

12 THE COURT: Okay. Go ahead.

13 MR. MONTELEONI: So the representative said Prevezon

14 did not actually have direct commercial relations with Bunicon

15 or Elenast. And paragraph 110 says that actually, the wire

16 transfers were described as prepayment for sanitary equipment.

17 So the actual descriptions of the funds that were wired to

18 Prevezon was false.

19 Additionally, the paragraph 93 and paragraph 94 and

20 Exhibits C and D showing the purported headquarters of Bunicon

21 and Elenast show that a plausible inference that these are

22 shell companies, which immediately raises an inference of

23 illegality for a supposedly legitimate --

24 THE COURT: What companies are shell companies?

25 MR. MONTELEONI: Bunicon and Elenast, the companies

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1 that directly wired the money to Prevezon. And for a

2 legitimate real estate company to receive third-party payments

3 from some unknown entities that don't actually have any real

4 business also gives rise to a suspicion of illegality.

5 And regarding the nature -- the level of knowledge

6 that needs to be proved, we think it's amply met here. Because

7 you might not know this from reading defendants' reply brief,

8 but the standard is just that they have to know or be willfully

9 blind to the fact that the funds constituted the proceeds of

10 some type of unlawful activity; not specified unlawful

11 activity, not a particular Russian tax fraud with all the

12 details. They just have to know or be willfully blind that

13 there is some type of illegality afoot in that it tainted the

14 funds coming in. And that knowledge can be satisfied by

15 willful blindness.

16 Willful blindness doesn't require certainty. Willful

17 blindness just requires awareness of a high probability of the

18 fact. So in this case, all that has to be shown in this

19 complaint is that the defendants were aware of a high

20 probability that these funds that came from shell companies

21 that were falsely described as prepayments for sanitary

22 equipment were the proceeds of some kind of unlawful activity.

23 Now, reading the complaint in the light most favorable

24 to the government, which is the applicable standard here, it

25 amply supports that level of knowledge.

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1 MR. CYMROT: Your Honor, may I go?

2 THE COURT: Yes.

3 MR. CYMROT: First of all, that is not the standard

4 for a restraining order. But let me put that aside.

5 Mr. Monteleoni points to paragraphs 121 and 122 as

6 allegations of concealment. They are nothing but quotes from

7 the statute.

8 So we go back to where he next went, to paragraph 97,

9 which is before Prevezon Holdings' involvement with anything

10 having to do with this. And this is transfers from Bunicon to

11 other people, that there's no allegation that Prevezon Holdings

12 had anything to do with it or knew about it. And it's not

13 money -- and I may have misheard him. That was going back into

14 Bunicon for people who were members of the organization. It

15 was going from Bunicon to other places. There is $47 million

16 that they have traced, but $19 million is untainted money. And

17 these paragraphs don't explain that.

18 This explains some of the $47 million. And it says

19 nothing about Prevezon Holdings. When the money gets into

20 Prevezon Holdings, starting on 101, there are no allegations

21 that Prevezon Holdings knew anything about what preceded it.

22 And as Mr. Katsyv said when he was approached by a reporter,

23 the money came from an investor, Mr. Petrov.

24 Now, Mr. Monteleoni just made a statement that he has

25 never made, the government has never made, in the application,

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1 in the complaint, in his brief, that Mr. Petrov must have had

2 something to do with the organization. It's all very circular.

3 And it is unsupported by any fact. It is not alleged in the

4 complaint. It wasn't in the application. It wasn't in the

5 reply brief. And there is not a single fact that would support

6 the idea that Mr. Petrov is anything other than a Russian

7 citizen who is investing in real estate.

8 So this is all new, and it tells you something. It

9 tells you that they realize they don't have a case here,

10 because they have just come up with something totally new, and

11 they can't find it anywhere.

12 THE COURT: Please. Please. Do you think I'm

13 somebody sitting here that can't read?

14 MR. CYMROT: No, your Honor.

15 THE COURT: What you say is -- it isn't that there's

16 no merit in anything you say, but most of it is contrary to

17 what is in the record, flatly contrary to what is in the

18 record. Do you think I can't read?

19 MR. CYMROT: Could Mr. Moscow address that, your

20 Honor.

21 THE COURT: This is just shocking.

22 MR. CYMROT: Your Honor, we put this together very

23 carefully, our position. And I haven't said anything --

24 THE COURT: It doesn't seem to me it's very careful at

25 all.

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1 MR. CYMROT: Well, I think what you've done, your

2 Honor, is you've accepted the idea that the government alleges

3 there is this huge Russian fraud.

4 THE COURT: No.

5 MR. CYMROT: Which they did in great detail.

6 THE COURT: Now, what I would like to get to is the

7 extent of the restraint, and is it too broad.

8 MR. MOSCOW: Might I speak to that, your Honor?

9 THE COURT: Yes.

10 MR. MOSCOW: John Moscow, also Baker Hostetler.

11 The restraint is of Prevezon Holdings, its assets

12 here, its assets abroad, any and all assets, whether known or

13 not known, specified or not. The restraint is of all of the

14 holdings of the domestic holding companies which are here and

15 are effectively restrained. The restraint is of the assets of

16 Ferencoi and Kolevins, whose actions in this complaint are that

17 they put money into Prevezon at some point. That is what is

18 alleged.

19 Now, that is not enough to restrain the assets, to

20 start with the easy ones, of Ferencoi and Kolevins. They are

21 foreign. The assets are unspecified and they did not launder

22 this money. They're not even accused in the factual

23 portions -- before you get to the legal conclusions, they are

24 not accused in the factual portions of this complaint of doing

25 anything but putting money into Prevezon. I suggest that the

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1 order should be modified to vacate the freeze on Ferencoi, on

2 Kolevins and on the foreign unspecified assets of Prevezon.

3 We were speaking in terms of the factual allegations

4 of the complaint before we got to the claims in paragraphs -- I

5 believe it's 120, 119. There we have conclusory language which

6 alleges all sorts of things. But if you look at the facts,

7 which are incorporated, as Mr. Monteleoni said, if you look at

8 the facts, they do not deal -- they do not set up any

9 knowledge, intent or anything else for the people involved.

10 But they don't set up anything at all for the foreign assets of

11 these companies. There's no substantive claim.

12 And to the extent that the Court is looking to modify

13 its order, as it should, the order should be modified to

14 exclude all assets other than those specified in the caption as

15 being in New York. The real estate and the banks --

16 THE COURT: What about the --

17 MR. MONTELEONI: Well, your Honor, I think that there

18 are two important questions here. One is can the United

19 States, if it prevails at a trial, ultimately forfeit all of

20 these assets? And the second is, can it restrain the assets

21 that it could ultimately forfeit before the trial?

22 As to the former, we set forth that when a business

23 entity facilitates money laundering and has a substantial

24 connection to that money laundering, it becomes property

25 involved in money laundering, and thus its assets are subject

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1 to forfeiture, subject both to the substantial connection

2 limitation and to ultimately the Eighth Amendment. And --

3 THE COURT: Well, what about assets located in a

4 foreign country?

5 MR. MONTELEONI: Yes, your Honor. So the defendants

6 have made a series of broad and categorical statements

7 regarding how the international aspects of this case work that

8 I don't think are really supported by the cases.

9 They initially stated that worldwide restraining

10 orders are not permissible in the United States, citing the

11 Grupo Mexicano case, which actually does not say that at all.

12 Then they say, well, the Maza case, where the Second

13 Circuit said that the only way to forfeit assets abroad is with

14 the cooperation of the foreign government. That's actually not

15 exactly what the Maza case said. What the Maza case said was

16 it analyzed this statute that had been enacted, 28, U.S.C.,

17 Section 1355, which appeared to provide worldwide jurisdiction

18 for forfeiture. But it said, you know, Congress can't have

19 intended to eliminate the traditional requirement that a court

20 have some -- excuse me, some actual or constructive ability to

21 actually affect the property, some way of having its orders be

22 enforceable. It said, we're going to continue to read that

23 into the statute.

24 And in that case there was cooperation of a foreign

25 government, even though the foreign government had no legal

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1 obligation to cooperate, but they said that's close enough.

2 Even though the foreign government doesn't have to cooperate,

3 it has indicated that it will cooperate.

4 So we feel that the property is sufficiently within

5 the control of the Court. What didn't come up in that case was

6 whether other means could be used to bring foreign assets

7 within the constructive control of the Court. And those other

8 means are in this case the restraining order. And the reason

9 that that didn't come up in the Maza case is because

10 18, U.S.C., Section 983(j), which allows for a restraining

11 order in these cases, hadn't been enacted when the Maza case

12 was decided. So at that time there wasn't any authority for

13 this type of broad pretrial restraint of assets subject to

14 forfeiture. So it had no occasion to address whether or not

15 some statute that would be enacted five or so years later would

16 eventually provide another --

17 THE COURT: That statute is applicable here, right?

18 MR. MONTELEONI: Yes, your Honor. The protective

19 order is authorized pursuant to -- it says protective order

20 pursuant to 18, U.S.C., Section 983(j)(1). Section 983 was

21 enacted in 2000 as part of the Civil Asset Forfeiture Reform

22 Act. So it gives the courts a power that just didn't exist in

23 forfeiture cases at the time that Maza was decided.

24 And what does that power allow? Well, in criminal

25 cases, analogous forfeiture language has been authorized to

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1 allow a Court to order a defendant who is before the court to

2 take actions to bring the defendant's assets abroad back into

3 the United States, to repatriate assets. We haven't even asked

4 for that in this case, but that's something that courts in

5 criminal cases have found that the analogous language conveys.

6 We've just asked at this time for a restraint, to preserve the

7 status quo pending the ultimate outcome.

8 Now, there's an additional case that supports that

9 broad statutory grants of pretrial restraint authority can

10 reach assets abroad when those assets are controlled by people

11 within the personal jurisdiction of the Court. And that's the

12 First City National Bank case.

13 And in that case there was a different statute. It

14 was a tax statute which also provided for broad pretrial

15 restraint authority. And in that case the property that the

16 government wanted to reach was in a foreign bank account, and

17 the Court authorized an order directed at the bank which had a

18 branch in the US to restrain those foreign funds. And it says

19 as long as the Court has personal jurisdiction over the person

20 to be restrained, can stop that person, that person who's

21 before the Court, from dissipating assets that are outside of

22 the country. And it did that, even though there was a question

23 whether the United States would eventually be able to get that

24 money. There's a question whether the defendant who owned

25 those funds would ever be effectively served with process, but

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1 they said, well, we're not going to let the assets be

2 dissipated in the meantime. So that, I think, very clearly

3 stands for the proposition that the Court has the authority to

4 issue orders to people who are before the Court. All of the

5 defendants here are subject to the personal jurisdiction of the

6 Court.

7 As to the nine Prevezon entities, that's quite simple,

8 because they actually own real estate that's sitting here in

9 Manhattan, or did recently own that real estate and sold it.

10 As to Ferencoi and Kolevins, they put money of theirs

11 into New York real estate in transactions that we allege are

12 money laundering transactions. So they are subject to at the

13 very least transactional personal jurisdiction. And the case

14 for personal jurisdiction here is actually much more compelling

15 than in the Licci v. Lebanese Canadian Bank case that we cite

16 in our brief. There they found that a bank that just had a

17 correspondent account in New York and used a correspondent

18 account a few dozen times, that that could be the basis for

19 personal jurisdiction where the case was about those uses of

20 the correspondent bank.

21 THE COURT: All right. All right. What I am asking

22 is, is there any -- let me scratch that.

23 Contrary to what the defense argues vigorously, the

24 Court believes that the government has come forward in the

25 complaint and other papers with allegations which are

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1 sufficient for present purposes to the effect that the

2 defendants, Prevezon entities, Ferencoi, Kolevins, participated

3 in laundering of funds which were originally obtained from the

4 Russian government through fraud. Now, however -- starting

5 again.

6 That is the basis properly for believing that the

7 government can ultimately obtain forfeiture, and in the

8 meantime, it is the basis for restraint. But what I'm asking

9 is, is there anything that is reached by the current order

10 which is lawful business? I do not want to restrain lawful

11 business. And is there anything that is lawful business that

12 is now being restrained?

13 MR. MOSCOW: Yes, your Honor.

14 THE COURT: Who's speaking?

15 MR. MOSCOW: John Moscow.

16 THE COURT: What is that?

17 MR. MOSCOW: Without beginning to describe all the

18 properties, there is at least one property in Russia which is a

19 functioning business, which is on the face of this order

20 subject to this order. You issued an order barring

21 transactions in the business of a hotel. I don't think you

22 were told that. I don't think you were told it was in Russia,

23 but that's the import of what you have decided. And I say no

24 more.

25 There are other properties outside the United States.

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1 I don't want to go through them. I'm not prepared to list them

2 all. When we say it's a large real estate holding company, we

3 really do mean it's a large real estate holding company. The

4 AFI relationship in Europe is mirrored by the AFI relationship

5 in New York, where they were buying apartments in an AFI

6 building. This is a genuine investment. It has many different

7 areas, and I don't want to list for the United States where the

8 properties are, but, yes, there are many such properties.

9 MR. MONTELEONI: Your Honor, if I might make a

10 suggestion. We do agree that the restraining order has some

11 effect on legitimate businesses. It quite undoubtedly has an

12 effect on the pieces of real property that are here in the

13 United States. And the way that we have been handling it so

14 far is with the United States properties, defendants have been

15 willing to present us with indications of what their expenses

16 are, their necessary expenses. And we've authorized them under

17 paragraph 3 of the order, which gives us the authority to do

18 that without making any applications to you every time. We've

19 authorized the release of the funds so that they can continue

20 to make their order and necessary payments, but we do that when

21 they can document, we do have an expense, here's what it is,

22 and under that we've authorized over $100,000 of funds to be

23 released. We actually did it while this very motion was

24 pending and in the works. And that's something that we'll

25 obviously continue to do in good faith when we're presented

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1 with an indication of a lawful business activity, of a lawful

2 business activity that has necessary expenses.

3 And defendants haven't provided us with that

4 information for property outside the United States, I assume

5 because they -- I think counsel just said they don't want it to

6 be restrained. They want to keep it from the jurisdiction of

7 the Court. I don't think that that is a legitimate basis for

8 them to withhold it, but perhaps if they do have any expenses

9 that they want to present to us, we will look at it in good

10 faith. If we can't agree on an appropriate restraint, then we

11 can come before the Court and the Court can adjudicate whether

12 these are legitimate lawful expenses, whether it is appropriate

13 for them to be paid during the pendency of the case.

14 But I think that it would be premature, when they're

15 not disclosing cases -- where they're not disclosing assets,

16 rather, so that they can be hidden from the Court essentially

17 to simply issue a blanket lifting of these funds. So I just

18 think it's a little premature to address this as to the

19 unspecified properties.

20 THE COURT: What about the hotel in Moscow?

21 MR. MONTELEONI: We've never heard of this hotel

22 before. If they indicate to us what the expenses are and

23 provide some documentation, invoices, that type of thing, we

24 will definitely work with them in good faith.

25 MR. MOSCOW: They allege this is a money laundering

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1 business. In fact, they don't know what the business is. Your

2 Honor, with due respect, there is a law which says that they

3 have to specify what the assets are that they're seeking to

4 forfeit. That's in Rule 5 -- G5, I believe, subdivision C. If

5 the order that you issued were to be limited to those

6 properties specified, that would be consistent with that rule

7 which governs the conduct of our own government. I think that

8 that would be appropriate at this time.

9 I disagree, obviously, with the Court's understanding

10 of the complaint, but I understand the Court's current position

11 to be what it is. I would ask that the order be modified to be

12 limited to those properties specified as required by Rule --

13 I'm sorry, it's G2C. And that will take care of the

14 properties, the offshore properties of Ferencoi, which is

15 challenging jurisdiction; Kolevins, which is challenging

16 jurisdiction; and Prevezon, which is not challenging

17 jurisdiction but which has assets outside the United States, as

18 I've already specified some of them in the complaint. That

19 would be my request.

20 MR. CYMROT: Your Honor, I would add one more point

21 that would specify in excess of between 15 and 20 million

22 dollars based upon this $857,000 transfer. That would leave as

23 restraint 15 to 20 million dollars, based upon this transfer of

24 $857,000. That is more than sufficient for what the government

25 ever would be entitled to in this case.

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1 MR. MONTELEONI: Your Honor, if I may, as we set forth

2 in our brief, the forfeiture of a business entity and the

3 description of its assets as any and all assets of that

4 business entity are sufficient, as you can tell by the Second

5 Circuit case of United States vs. All Assets of GPS Automotive

6 Company. You know, this isn't a case where there's actually

7 confusion of what assets are restrained. It's not like we went

8 up to a car dealer and said, United States vs. five cars but

9 we're not going to describe the cars. It's quite clear what

10 we're seeking to forfeit. And all of the purposes of

11 specificity are satisfied by this pleading, as is consistent

12 with the Second Circuit's holding.

13 MR. MOSCOW: There is no specificity. That's nothing.

14 When he says any and all, he doesn't know, for example, that it

15 includes a hotel in Russia. And I trust I didn't say Moscow,

16 in Russia.

17 To the extent that the government has to specify, it's

18 because they've had to do the work to get the information.

19 They have done a huge amount of work without tying it to our

20 guys. They don't know what these companies own, and they

21 should not be interfering with their business operations at

22 this time.

23 I would ask that the motion to vacate the protective

24 order as to Kolevins and Ferencoi and as to the unspecified

25 assets, only the unspecified assets of Prevezon, be granted.

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1 THE COURT: Well, as so often happens, there are

2 issues of fact. And it seems to me that what should be done is

3 to figure out a way to ascertain more of the relevant facts.

4 The government, obviously, is not as specific in some areas as

5 in others, but I think the government is as specific as it can

6 be with its knowledge of the facts. But I'm not satisfied on

7 the present record -- and what I'm referring to is I'm not

8 satisfied that the present order does not reach legitimate

9 business activities, but I'm not ready to do something and take

10 some step when I don't know the facts.

11 MR. MOSCOW: Perhaps we could have a hearing, your

12 Honor. Perhaps the agent could get on the stand and explain

13 the facts that underlie the forfeiture of the properties and

14 specify which ones he's talking about.

15 THE COURT: Say it again.

16 MR. MOSCOW: Perhaps the agent could get on the stand

17 and explain in terms of the complaint and the order which

18 properties he's talking about and how they relate to

19 the complaint.

20 THE COURT: No. No, that's not a helpful suggestion.

21 What I believe is necessary -- let me ask the government: How

22 do you respond to the problem I'm raising? How do you respond

23 to that?

24 MR. MONTELEONI: I think that you're exactly right

25 that we don't know enough about the defendants' assets for the

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1 Court to take a position on whether the restraint is excessive

2 as to them.

3 THE COURT: Say it again. I'm not hearing.

4 MR. MONTELEONI: Sorry. I think that you're right

5 that we don't know enough about the defendants' assets and

6 their needs for money and the burdens that the order is causing

7 for the Court to take a position one way or another on whether

8 there are aspects of the order that are excessive and overly

9 burdensome with respect to the defendants. And we would

10 suggest that the defendants have an opportunity to present the

11 Court with any information that they think justifies the

12 modification of the order for specific assets because of

13 specific needs and specific hardships, and that provides

14 adequate assurances that the property won't just simply be

15 dissipated, and so that both sides can have an opportunity to

16 comment on it and perhaps both sides will make an agreement.

17 And if not, the Court won't be ruling in a vacuum. I do think

18 that that is the --

19 THE COURT: Look, the proceeding that we're dealing

20 with, the order was entered in the fall. And the question of

21 whether that order remains, this is not going to turn into the

22 history of the world. I'm not going to have a huge, huge

23 proceeding about it. But what I would think is that with

24 some -- and I do not believe that the two sides are probably

25 willing to cooperate in arriving at some stipulation of facts.

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1 You're very far apart in your view of the merits of this, which

2 means, it seems to me, that some limited discovery on the part

3 of the government to deal with the question that I'm raising

4 should be carried out. I don't know any other solution.

5 And I also want to address this -- well, I won't go

6 any farther.

7 Now, where does this case go? We're now dealing with

8 an order. Where does it go now? Where does it go now to

9 conclude this case? Finish it up?

10 MR. MOSCOW: Your Honor, we have a motion on behalf of

11 Kolevins and Ferencoi to dismiss, which has been put off.

12 Government response on January 28th and our reply a couple of

13 weeks thereafter. We have motions to dismiss on behalf of the

14 other defendants. I believe they're on the same schedule.

15 After the motions to dismiss, if the Court grants

16 them, it's over. If the Court denies them, we would answer and

17 we would be moving for a -- if the property is being held, we

18 will be seeking -- I say this now so it's clear -- we would be

19 seeking an immediate trial, because we are confident that there

20 is a major disconnect between the incredibly detailed

21 investigation the government has as to the commission of the

22 crime and the 60/40 split in the money that went to our client

23 and any allegation that our client knew that this was dirty,

24 which he didn't.

25 So we want a trial. We want the properties. We want

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1 this lifted, but we want the trial. So I would ask, as we are

2 here today, if perhaps we could take three minutes to talk with

3 the government and see if we can arrange a trial schedule. And

4 if not, then we will simply make our separate applications.

5 But the way this will end, agreeing with your view on

6 the difference of opinion on the facts, the way it will end is

7 in a trial. So let's schedule it and let's get it started. I

8 don't think these properties should be restrained. I've said

9 that. I don't think that the government should act unlawfully

10 in failing to specify which properties. And the idea to say

11 everything you own, and since you know whether or not you own

12 it, therefore, we don't need to specify further, that's a very

13 cavalier attitude to take. So I look forward to a trial.

14 THE COURT: I'm not backing up such a -- I think if

15 you would -- what I've tried to say is that even as to the

16 restraint, there should be more facts presented to the Court.

17 Now --

18 MR. MOSCOW: We didn't bring on the ex parte

19 application --

20 THE COURT: Please, let me finish.

21 But the restraint is not the end of the line, as you

22 have very, very well stated. There does need to be -- unless

23 all or part of the case is dismissed on motion, there will need

24 to be a trial. But in the meantime, what I have asked the

25 government to do is to take some limited discovery to help the

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1 Court out with the facts relevant to the restraint.

2 You understand that, right?

3 MR. MONTELEONI: I think so, but let me suggest what I

4 understand it to be, and you can tell me if I'm getting it

5 wrong.

6 I think that we would request the documents evidencing

7 business operations that are unduly restrained and what

8 expenses they have that -- the restraint needs to be lifted to

9 allow them to pay. And based on that presentation, we would

10 take a position on whether we thought that we could agree to

11 just lift it without the need for further application to the

12 Court; or if there was a disagreement, then the Court could

13 view it and rule on it. And that additionally might allow

14 further specificity in the listing of the assets.

15 MR. MOSCOW: Your Honor, could I take a moment.

16 THE COURT: Yes, thank you. (Pause)

17 MR. MOSCOW: I just wanted to check to see what the

18 volume was. We have a company, a set of companies that take up

19 more than five stories. I don't know how many yet, with

20 employees keeping track of the records of the various

21 businesses. This is not a small enterprise. I just say I

22 hear -- when someone says that they're freezing all the assets

23 of a company, as I view the word "all," that means all. And

24 that has a certain carry-on impact for every company that does

25 business with. And the impact of this order exists, and I just

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1 think that it's proper to vacate the order.

2 THE COURT: I wish both lawyers would just listen.

3 Listen. As I said, we're not going to turn this restraint

4 issue into the history of the world. It's got to end.

5 But it's not, in my view, it's not ending this

6 afternoon in a satisfactory state. I believe there is a strong

7 possibility that some of what I have restrained is legitimate

8 business. I do not know the facts about that. I've said that.

9 I've asked the government to engage in some limited

10 discovery -- not some complicated arrangement that you just

11 mentioned, but some limited discovery to get me the facts. And

12 if you don't, then there's trouble with the government

13 application, because I do not want to restrain legitimate

14 business activity. And I'm concerned that I'm doing that to

15 some extent now.

16 You have the burden. You've got to clarify that with

17 some discovery or whatever means you can.

18 Now, that's the way we're going to leave it. I want a

19 further -- somehow further submission on this restraint on the

20 facts, and that's the way we'll leave it this afternoon.

21 Thank you very much.

22 MR. CYMROT: Your Honor, could we have a schedule,

23 just some general idea, because -- you know, how long this is

24 going to go on? Government discovery could take months or it

25 could take days or week. Could we have some limit on that in

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1 terms of time?

2 THE COURT: As soon as possible.

3 MR. CYMROT: Thank you, your Honor.

4 MR. MONTELEONI: Your Honor, might I inquire, just

5 what are we allowed to do in the discovery? I suggested

6 document requests because I think they're usually faster and

7 less burdensome than interrogatories.

8 THE COURT: You know what discovery means; document

9 requests, deposition. You know what discovery is.

10 MR. MONTELEONI: Understood. We will do it quickly.

11 (Adjourned)

12

13

14

15

16

17

18

19

20

21

22

23

24

25

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1 UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
2 -------------------------------x

3 UNITED STATES OF AMERICA,

4
Plaintiff,
5
v. 13-cv-6326 (TPG)
6
PREVEZON HOLDINGS Ltd., et al.,
7
Defendants.
8
-------------------------------x
9
New York, N.Y.
10 March 4, 2014
2:25 p.m.
11

12 Before:

13 HON. THOMAS P. GRIESA

14 District Judge

15
APPEARANCES
16
PREET BHARARA
17 United States Attorney for the
Southern District of New York
18 BY: CHRISTINE I. MAGDO, ESQ.
ANDREW C. ADAMS, ESQ.
19 Assistant United States Attorney

20 BAKER HOSTETLER
Attorneys for Defendants
21 BY: MARK A. CYMROT, ESQ.
JOHN W. MOSCOW, ESQ.
22 -and-
BAKER BOTTS LLP
23 Attorneys for Defendants
BY: SETH T. TAUBE, ESQ.
24

25 Also Present: Gabriella Volshteyn, ESQ.

Defendant Representative

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1 (In open court)

2 THE COURT: Let me start by talking about the trial

3 date. Last time, in response to a defense request for a very

4 prompt trial, I set a trial date of March 31. Now, in the

5 materials that I've gone over since and so forth, the issues

6 are not so simple and the government objects to such an early

7 trial date. And I think the government's objection is well

8 founded. There are issues here which have to be developed.

9 And so I'm not, we're not going to have any trial on March 31.

10 Now, what other matters, if any -- I think there are

11 some other matters, but let's start with what the counsel, what

12 counsel want to bring up.

13 MS. MAGDO: Good afternoon, your Honor.

14 THE COURT: Please keep seated, because the

15 microphones are not the best.

16 MS. MAGDO: Good afternoon, your Honor. Assistant

17 United States Attorney Christine Magdo and Assistant United

18 States Attorney Andrew Adams on behalf of the government.

19 Your Honor, the government has two pending

20 applications before the Court, one of which your Honor has

21 addressed. It was a motion or a request that the Court

22 reconsider the trial date of March 31st and that it enter a

23 discovery schedule in accordance with an adjourn trial date.

24 The second application that the government has pending

25 is an application to file an amended complaint, proposed

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1 amended complaint. The file was attached to the government's

2 submission of February 18, 2014. The amended complaint would

3 significantly narrow the scope of the assets that the

4 government seeks to forfeit. The government would then, if the

5 Court granted the government's request to file the amended

6 complaint, the government would then ask the Court to approve

7 an amended protective order that would reflect the narrowing of

8 the complaint.

9 The government believes that such an amendment is

10 appropriate because it would streamline the case. It would

11 focus the case. It would negate any claims that the defendant

12 has, that the defendants have that they are suffering from a

13 hardship to their legitimate businesses as a result of the

14 current protective order that is in place.

15 And the government also has one issue that it wishes

16 to raise with the Court. It's a conflict-of-interest issue.

17 It's not an application or a motion. It's just something that

18 the government wishes to bring to the Court's attention. It

19 was the subject of a letter that the government submitted to

20 the Court this morning.

21 THE COURT: Let's start with, have you gone over the

22 proposed amended complaint and the proposed revised protective

23 order? Have you gone over those things with defense counsel?

24 MR. ADAMS: No, your Honor. Those were submitted

25 without discussing the specific documents with defense counsel.

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1 That said, the gist of the --

2 THE COURT: You haven't shown the proposed order --

3 MR. ADAMS: Oh, yes. They have a copy of the proposed

4 amended complaint.

5 THE COURT: But you had no discussion with them?

6 MS. MAGDO: Your Honor, we had discussions about

7 trying to find an amicable amendment to the protective order

8 that would alleviate the defendants' concerns about

9 interference with their legitimate business. The defendants

10 did not wish to engage in any negotiations or discussions of

11 that sort with the government. So based on that, we are now

12 asking the Court for leave to file the amended complaint.

13 In their letters to the Court they have also

14 repeatedly opposed the government's request for leave to file

15 an amended complaint.

16 THE COURT: Can I hear from Mr. Moscow?

17 MR. MOSCOW: Your Honor, well, I was going to address

18 it.

19 MR. CYMROT: Mark Cymrot, your Honor.

20 THE COURT: Whoever. Either one.

21 MR. CYMROT: Thank you. Your Honor, we do object.

22 Yesterday we took a 30(b)(6) deposition of the government

23 witness. They designated Agent Hyman. And it is clear now

24 that --

25 THE COURT: And was his deposition productive?

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1 MR. CYMROT: Yes, your Honor. It was very productive

2 because he admitted the government has no witnesses, no

3 admissible documents, and no facts to support many of the

4 allegations in the complaint, absolutely no facts to support

5 allegations. As the assistant admitted last time we were here,

6 there are no facts to support an inference that the defendants

7 knew about that they promoted or they concealed a scheme to do

8 a $230 million theft on the Russian treasury. This case is

9 about $857,000. The tracing that was done was done not by the

10 government subpoenaing documents, by partial bank records that

11 were given to the government that they can't authenticate.

12 Essentially, Judge, if you went to trial tomorrow there would

13 be no witnesses the government could call and no documents they

14 could submit. And the amended complaint is frankly an

15 irresponsible pleading, as irresponsible as the original

16 pleading.

17 We submitted the transcript to you -- I sure you

18 haven't had time to read it -- in a letter today.

19 THE COURT: Can I interrupt you?

20 MR. CYMROT: Yes, sure.

21 THE COURT: What's the name of the witness?

22 MR. CYMROT: It was Special Agent Todd Hyman. He was

23 designated.

24 THE COURT: Mr. Hyman.

25 MR. CYMROT: Mr. Hyman, yes. He was designated by the

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1 government as their witness, under Rule 30(b)(6).

2 They have no case here, your Honor. We've been saying

3 that all along.

4 THE COURT: Wait a minute. Mr. Hyman.

5 MR. CYMROT: Yes.

6 THE COURT: Who was Mr. Hyman?

7 MR. CYMROT: He is the verifying witness on the

8 complaint. He is the special agent who leads the purported

9 investigation here. And we issued a notice, a 30(b)(6) notice,

10 to say what's the basis for these allegations, and he testified

11 for about four hours, and he acknowledged there are no

12 competent witnesses, that they have no documents they can

13 authenticate, that the tracing was done on incomplete bank

14 records, that they can't authenticate, that they have no facts

15 that would lead to an inference that the defendants knew about

16 and promoted or concealed a scheme to engage in a theft from

17 the Russian treasury.

18 Judge, if you read the transcript, it will shock you.

19 THE COURT: It seems to me that you're not talking

20 about the issue.

21 MR. CYMROT: What issue? I'm sorry, your Honor. I

22 think --

23 THE COURT: The issue is whether -- maybe I didn't

24 understand you, but it seems to me that you're saying that the

25 witness showed that the government had no case as far as

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1 participating in the original fraud on the Russian government.

2 Is that what you've just said?

3 MR. CYMROT: That's one thing, your Honor. But

4 they --

5 THE COURT: I don't think the government --

6 MR. CYMROT: But there was no --

7 THE COURT: Excuse me. I don't think the government,

8 to my knowledge, has ever charged that the defendants here

9 participated in that tax fraud. Am I right?

10 MR. CYMROT: That they knew about. Each claim in the

11 complaint alleges that they knew about the fraud, that they

12 intended to promote or conceal the fraud. Each claim in the

13 complaint alleges that. And last time you were questioning the

14 government and they said, we don't know anything about the

15 defendants' state of mind. That's one thing.

16 THE COURT: You know, we're not getting anywhere right

17 now. In the first place, I think it was a waste of time to

18 take -- I think it was a mistake for the government to

19 designate that person as the witness. And I think it was a

20 waste of time to take his deposition. And so it seems to me

21 we've got to get this litigation on track. And the kind of

22 discussion we're having right now is not on track. My

23 understanding of what this case is about is the claim that the

24 defendants participated in money laundering.

25 MR. CYMROT: Correct, your Honor.

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1 THE COURT: I don't understand the government to claim

2 that the defendants participated in or engineered or conceived

3 of or anything like that the original tax fraud on the Russian

4 government. Can the government attorney respond? Am I right?

5 MS. MAGDO: That's correct, your Honor.

6 THE COURT: All right. Now, what the case against

7 these defendants is that, it starts with the idea that after

8 the $230 million was stolen from the Russian government there

9 was, as could be expected, efforts to launder those proceeds.

10 Now, the government does not contend, as far as I

11 know, that it has a claim or a basis to claim that these

12 defendants laundered all of the $230 million, or anything other

13 right now, except the specific claim that these defendants

14 participated in the laundering of, what is obviously a very

15 small part of the $230 million, the sum of -- I never can

16 remember -- $875,000.

17 MR. CYMROT: 857, your Honor.

18 THE COURT: -- 857,000. And that right now is what

19 the government is claiming. Am I right?

20 MS. MAGDO: Yes, your Honor.

21 THE COURT: And I think there's information in the

22 record, whether it's correspondence or what, that the $857,000

23 came into the hands of the defendants through to shell

24 companies from a place, is it Moldavia or Moldava or what?

25 MS. MAGDO: Moldova.

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1 THE COURT: Moldova. Am I right?

2 MS. MAGDO: Yes. That's one of the allegations.

3 THE COURT: And so that's what this case is about.

4 MR. CYMROT: Your Honor, each of the claims say that

5 the defendants -- allege that the defendants knew about a

6 specified unlawful activity, which is the $230 million fraud.

7 Each of the claims says that --

8 THE COURT: If you want to make a bigger claim than

9 the government is making, that's a curious way for --

10 MR. CYMROT: Well, but that's what the amended

11 complaint says, your Honor. And that's what the complaint

12 says. That's what the complaint says. They allege that they

13 had knowledge of a specified unlawful activity, which is the

14 $230 million fraud, that they intended to promote it or conceal

15 it. Each of the claims says that. And what they're seeking in

16 the complaint, and in the amended complaint --

17 THE COURT: Can I interrupt you? Does the government

18 claim, now, that these defendants participated in any way in

19 the $230 million fraud on the Russian government? Has the

20 government claimed that?

21 MS. MAGDO: The government does not have, currently

22 have a basis for alleging that the defendants directly

23 participated in the $230 million theft of the Russian taxpayer

24 money from the Russian treasury.

25 THE COURT: Can you just answer my question simply?

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1 MS. MAGDO: Yes, that's correct.

2 THE COURT: Does the government now claim -- look, you

3 know as well as I do that there can be a great difference

4 between a crime, such as selling drugs or defrauding investors,

5 and reaping some amount of money from that crime. There can be

6 a big difference between such a crime and participating in the

7 laundering of the proceeds of that crime. Which are you

8 charging here? One or both?

9 MR. ADAMS: Your Honor, principally it is, as you say,

10 that they laundered the proceeds of a spec --

11 THE COURT: I don't want to hear about "principally."

12 I want to hear about what we're claiming.

13 MR. ADAMS: There are both claims in the complaint.

14 What we are, have been saying and what I believe Assistant U.S.

15 Attorney Monteleoni said last time is that there is currently,

16 before any discovery has been offered, no facts in our

17 possession that show actual knowledge of the particular

18 defendants of the $230 million fraud. There is some

19 circumstantial evidence that that might be true, that might be

20 developed through discovery. But to succinctly answer your

21 question, the complaint does allege both of those tinction.

22 MR. CYMROT: And they're seeking $230 million or more

23 from the defendants arising from the alleged money laundering

24 of $857,000. And each of the claims -- and there are seven --

25 claim that they knew about the specified unlawful activity,

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1 which is the $230 million, and they intended to promote or

2 conceal it. And they have not walked away from that. The

3 amended complaint says the same thing, your Honor. So we're

4 facing the 230 million on an admission that they have no basis

5 to make allegations about knowledge or intent. They have said

6 it repeatedly, your Honor.

7 MR. ADAMS: Your Honor, two points. First, Ms. Magdo

8 wanted to make a point about what's being sought.

9 THE COURT: You seem to me to want to make a big case.

10 I want to make a case that is properly presented to a court.

11 And in order to make a claim in a case, there has to be some

12 basis for that claim. Pleadings can contain all kinds of

13 things. They can often be very different from what a plaintiff

14 ends up claiming.

15 MR. ADAMS: Your Honor, if I may --

16 THE COURT: I feel that this is a very strange

17 procedure because the defense lawyers want to insist on the big

18 claim.

19 MR. CYMROT: We want you to dismiss the big claim.

20 They say it's included in the complaint. We want it dismissed.

21 We want the whole case dismissed because there is no factual

22 basis to make allegations. But certainly we want you to

23 dismiss the $230 million part of it, because they have

24 repeatedly admitted they have no facts. It's not that they

25 have no evidence. They have no facts. They have no basis for

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1 making the allegations. This was clear from the deposition

2 yesterday.

3 THE COURT: I don't think the deposition probably

4 solved anything.

5 MR. MOSCOW: Your Honor, if I might?

6 THE COURT: I think it was a waste of time to take

7 that deposition.

8 MS. MAGDO: Justify to clarify, your Honor, the

9 government, in its proposed amended complaint that it submitted

10 to the Court on February 18th and which defense counsel has a

11 copy, no longer seeks damages in the amount of at least $230

12 million. It seeks monetary damages in an amount to be

13 determined at trial.

14 So we do not claim that, at this point, that we have a

15 basis for saying the defendants were involved in the entire

16 $230 million fraud. But as your Honor points out, the

17 defendants keep trying to set up a straw man, where they set up

18 a case that the government is not trying to make. They say

19 that the government does not allege the defendants to be

20 members of the organization, the complaint does not allege that

21 they were involved in the death of Sergei Magnitsky. The

22 government does not need to allege that. Money laundering

23 doesn't require that a participant know all the upstream

24 participants or even the nature of the crime that generated the

25 money that's being laundered. And furthermore, knowledge may

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1 be shown by proof of willful blindness, deliberate ignorance,

2 or conscious avoidance. They are attempting to set up a straw

3 man that they are able to easily knock down.

4 MR. MOSCOW: Your Honor, if I might, this amended

5 complaint goes into the existence of an organization as

6 defendants in this case. It goes into the existence of the

7 arrangements. So it goes into the death of Sergei Magnitsky.

8 And the government now says that their case has nothing to do

9 with any of those. There is perhaps a case that they could

10 bring if they had the evidence, which they don't, if they had

11 witnesses, which they swore under oath yesterday they do not.

12 And this is a designated witness selected by the government,

13 who said, we don't have competent witnesses and we don't have

14 any verified evidence, and we've not yet sought to get evidence

15 from Russia.

16 These are the points that their witness made under

17 oath, binding the United States, as I reminded him he was

18 doing. So they want an amended complaint based on the

19 defendants' knowing something where they have no witnesses and

20 they say so. You can't do that. You can't accuse people in

21 this scandalous way and have nothing. This is totally without

22 basis. And I find it shocking, as you will when you read the

23 transcript, that this would proceed in this way. The

24 investigation was not conduced. They did not get the evidence,

25 if it exists. They did not get witnesses. And my clients

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1 assure me that there are no such witnesses because they did not

2 know that this crime was taking place.

3 THE COURT: What about the shell companies? What

4 about those?

5 MR. MOSCOW: Let me address that, very clearly. About

6 half the money that went through those companies, if the

7 government's numbers were correct, which I have -- they have no

8 basis for, but if they were, half the money came from the

9 Russian treasury and half did not. Money came in to an account

10 in Switzerland. The money which arrived was described in a

11 bank statement, in English, which was not given to the people

12 running the companies for months. It was a Coldmail account.

13 THE COURT: You're not answering my question.

14 MR. MOSCOW: I'm sorry. I'm attempting to. The two

15 companies which sent the money in were acting at the request of

16 Mr. Kim, who was sending money to Prevezon for the benefit of a

17 Mr. Petrov. That's what the government understood the

18 situation to be.

19 THE COURT: Why did he have to use two shell

20 companies?

21 MR. MOSCOW: My clients are none of them. My clients

22 were the guys who got the money --

23 THE COURT: You're not answering my question now. Why

24 did they have to use that? Why can't they -- in other words,

25 if you've got a legitimate investor, why the legitimate

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1 investor makes out a check to Prevezon?

2 MR. MOSCOW: The answer, your Honor, would be in the

3 mind of Mr. Petrov. But in my experience in dealing with

4 businessmen from Russia and other countries, some of them are

5 not wholly enthusiastic about letting their holdings be known

6 in their country. So they use secrecy jurisdictions to conceal

7 their assets. And that is how they do business. And when you

8 have an agreement with a Mr. Petrov and you know who he is and

9 you know his father and you know of him and he makes an

10 investment and the money comes in as he said it would, you do

11 not go to the bank statement, to your banker and say, could you

12 check to see from whom this money came, to see if they were

13 genuine. You simply say, OK, the money arrived.

14 This is a businessman. The money was promised. It

15 arrived. It was invested. So the guys at Prevezon did not go

16 upstream to see where the money came from. That was not their

17 job. Their job was to invest the money, which they did. Real

18 estate in Europe.

19 THE COURT: The thing is, what you say may be

20 absolutely the entire relevant facts. It may be. But there

21 are issues. And the government contends that something

22 different happened. And who is right, we'll either have a

23 dispositive motion later or we'll have a trial.

24 MR. MOSCOW: Sure.

25 THE COURT: And we're not going to have a trial today.

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1 Now, to get this back on track, number one, there will

2 be no trial on March 31.

3 (Pause)

4 THE COURT: We have at least said there will be no

5 trial starting March 31. The next thing to be discussed is the

6 proposed amended complaint. I take it that the defendants have

7 had the proposed amended complaint for --

8 MS. MAGDO: Roughly two weeks.

9 THE COURT: What?

10 MS. MAGDO: Roughly two weeks.

11 THE COURT: All right. You have a right to file

12 objections to that proposed amended complaint. Do you wish to

13 do that?

14 MR. CYMROT: Yes, we do, your Honor.

15 THE COURT: Then why don't you do it.

16 MR. CYMROT: Yes, your Honor.

17 THE COURT: And then the amended complaint will either

18 be approved or not approved. After that, if it's approved, I

19 imagine some form of amended complaint will be approved, and

20 then we have the issue of whether there will be an amendment to

21 the protective order.

22 MR. MOSCOW: Your Honor, the government's request to

23 amend protective order could be granted today. It is

24 independent of the amendment to the complaint. The protective

25 order could be limited today without waiting.

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1 MR. CYMROT: It should be limited, your Honor, to

2 $857,000. That's what you've repeatedly said this case is

3 about. And we object to any protective order. We think there

4 is no basis for it. But if you're going to have protective

5 order, it shouldn't be beyond that.

6 THE COURT: Apparently you do not have any proposed

7 amended or revised protective order.

8 MR. CYMROT: We have a motion pending to vacate, your

9 Honor.

10 THE COURT: It's really not in response to what I was

11 saying.

12 MR. CYMROT: I'm sorry.

13 MR. MOSCOW: Your Honor, we will submit by tomorrow

14 morning a proposed amended protective order.

15 THE COURT: That will be very good.

16 So then before the Court will be the proposed amended

17 complaint, proposed by the government, and a proposed amended

18 protective order, proposed by the defense. And each side can

19 respond.

20 Now, let's come to the issue of discovery. What

21 discovery does the government plan to engage in?

22 MR. ADAMS: Your Honor, we have already served our

23 document requests on the defendants. We are also anticipating

24 the need to engage a few expert witnesses and translators of

25 voluminous Russian documents. We are in the process with the

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1 Office of International Affairs of the Department of Justice in

2 preparing a number of mutual legal assistance treaty requests.

3 THE COURT: To prepare what?

4 MR. ADAMS: Some MLAT requests, your Honor, some

5 mutual assistance treaty requests to a number of different

6 countries, including Russia, Moldova, and Dubai. And we are

7 expected to have those approved finally by --

8 THE COURT: An not clear. What is it you're

9 requesting approval of?

10 MR. ADAMS: It's a mechanism for document discovery in

11 other countries. It requires the approval of the Department of

12 Justice in Washington. And they have the final say on this

13 request. They have them currently. And we're hoping to get

14 those out the door shortly. And they will be delivered on the

15 central authority for the three countries I mentioned. And

16 then we get responses back within a number of months usually.

17 My understanding, from Russia, is that when things are working

18 smoothly and diplomatic relations are not as frayed as they

19 might be currently, six months is the typical turnaround.

20 MR. CYMROT: I pose the possibility that things aren't

21 working smoothly.

22 MR. ADAMS: I would agree with that.

23 MR. CYMROT: And we question, your Honor, why this

24 wasn't done four months or even before their investigation.

25 Because they brought this case without documents and without

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1 witnesses. And now they're saying it will take six months or

2 more to get documents or witnesses. It's just irresponsible,

3 your Honor. It's been irresponsible from day one.

4 MR. MOSCOW: The request to Russia may take very long.

5 The request to Moldova, I don't know. The request to Dubai, if

6 they're seeking records that are discussed there, are

7 irrelevant to our clients. I think that this is an attempt to

8 stall the case.

9 The government is lacking what it needed to bring the

10 complaint. And when they say that they are -- I have not seen

11 what they told the Dutch court. And I would ask you to, rather

12 than have it turned over to us, I would ask you to ask the

13 government to make available to you what the Department of

14 Justice told the Dutch authorities to get them to freeze the

15 assets there, as opposed to what they told you. I'm going to

16 ask you to look at that.

17 This case is lacking in the minimum necessary to bring

18 a case. They have money coming from Moldova, of which half, by

19 their version, is from the treasury and half is not. We say we

20 know nothing about the treasury and we expected to get it from

21 Petrov. They say, we know nothing about your intentions, we

22 know nothing about your knowledge, so we will freeze your

23 properties in the United States and worldwide, and make you

24 come into the United States to defend an expensive lawsuit

25 because we don't have any evidence of your intent or your

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1 knowledge, but you do have property here, so we can move

2 against it.

3 That's not what the law provides for. That's not what

4 Rule G provides for in the in rem. That's not what the rules

5 on sanctions provide for. You can't bring a case on nothing.

6 And when they produce a 30(b)(6) witness to speak for the

7 United States and he says, no, we have no competent witnesses,

8 no, we do not have any authentic records, then you can

9 understand my client's frustration at having to defend this

10 lawsuit. This really calls out for separate action.

11 And we will be submitting a proposed order, as I said

12 we would. We will be responding to their proposed amended

13 complaint. But read the complaint as though it was addressed

14 to you and say, jeez, it talks about an organization, it talks

15 about organized crime, it talks about associates, it talks

16 about the death of Magnitsky and acts of Congress, and none of

17 it has anything to do with you; what you did was, you got some

18 money in an account in Switzerland when you were living in

19 Russia, and because of that we're going to accuse you of all

20 ambitious things -- which, by the way, ruin your bankability

21 everywhere in the world. That's harsh. It is savage. And

22 it's undirected. That's just not right. And it shouldn't be

23 put up with.

24 So we will go forward, because I understand Court has

25 procedures and everything has to be analyzed. But I believe

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1 you'll be shocked when you read the deposition. It is not a

2 waste of time. These are binding admissions on the United

3 States. This was not the agents of the verifier. This was a

4 deposition directed to the United States. And the United

5 States made admissions which, frankly, were shocking.

6 MR. CYMROT: And, your Honor, the amended complaint

7 contains all those same allegations. It names the allegations

8 about the $230 million fraud, about the death of Magnitsky,

9 about the statute. They say all they want. They're not

10 accusing our clients of being involved in that. But what's it

11 doing in the complaint then? And how is a businessman, a

12 banker anywhere in the world supposed to read that other than

13 the other than the United States associating our clients with

14 those events? And even they have admitted twice in writing to

15 your Honor that our clients have nothing to do with the death

16 of Magnitsky. It is still in the amended complaint. How is

17 anybody in the world supposed to read that except the United

18 States is accusing them of participating in that? It is

19 outrageous and irresponsible, and if you read that transcript

20 from yesterday, you will be shocked, I guarantee you.

21 THE COURT: Look, we sort of go around in circles. We

22 have a hearing. We have very strenuous protests from the

23 defense side that they had nothing to do with money laundering

24 and all that happened was a legitimate investment. And those

25 protests are made with great fervency by the counsel, and

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1 requests for a quick trial. The government does not respond in

2 kind. The government doesn't stand up here in court and argue

3 its case, because this is not the way things are generally

4 done. I imagine if the government could tell of what

5 investigation it made, of what it did within the U.S.

6 Attorney's Office or with other agencies to prepare for the

7 filing of this case, we would hear a lot of interesting things.

8 But that isn't the way it's done here.

9 Now, we have motions that can be made. The government

10 has -- I'm not sure it was a formal motion, it doesn't make any

11 difference -- the government has proposed an amended complaint.

12 The Court hasn't approved that. And the defendants have a

13 right to object to that, which you can do. We've talked about

14 that.

15 There is a protective order. The defense can move to

16 vacate or amend the protective order, which you will do. We've

17 talked about that. And the lawyers for the defense know, as

18 well as I know, there are motions available under the federal

19 rules, including a motion for summary judgment. But we're not

20 going to really continue having the merits of the case argued

21 informally in court. We're going to start being more formal

22 and we will expect, if someone wants to make a motion, they

23 will make a motion. And then the other side can respond, in an

24 orderly way.

25 On the issue of discovery, it doesn't help at all for

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1 the defense lawyers to say, the government should have done it

2 a long time ago. That doesn't get anywhere. When should the

3 government conduct investigation and so forth? The Court

4 doesn't really get into that. The Court deals with what's on

5 the record. You have an opportunity to address that. If the

6 government serves requests for documents, the defense has an

7 opportunity to object to that. This is all in the rules. If

8 the government engages in any other form of discovery and the

9 defense objects to it, those objections can be made under the

10 rules.

11 So I think this is all we can do this afternoon.

12 MR. CYMROT: Your Honor, can I make a request?

13 THE COURT: Yes.

14 MR. CYMROT: That you set a time when they will report

15 on the MLATs.

16 THE COURT: A time that they will what?

17 MR. CYMROT: Report on the status of the MLATs, that

18 you will set a discovery cutoff of a reasonable amount of time,

19 and that we'll set a trial quickly. Because we are now already

20 six or seven months into this case and they haven't done

21 anything. And I think, your Honor, I sympathize with your

22 statement that you've assumed there was a lot going on behind

23 the scenes where the government can't talk about it. But the

24 deposition yesterday said they haven't done anything. They

25 accepted information from a source. And that's it. And they

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1 identified the source. And they haven't checked on the

2 adequacy or accuracy of the information. And we have no

3 discovery we can take. There are no witnesses here for Russia

4 who can talk about this fraud. There are no witnesses from

5 these banks. They don't have authentic bank records. What can

6 we do? We want an early trial because there is no discovery we

7 can take of a fraud that occurred in Russia. There is no

8 discovery you can take of banks in Russia. And they haven't

9 done it and they should have done it. And you're presuming

10 that they acted responsibly. And I am telling you, you'll be

11 shocked when you hear what they've done. You will be shocked.

12 THE COURT: You have an opportunity to make a motion.

13 MR. CYMROT: We will, your Honor.

14 THE COURT: And the advantage of making a motion is

15 the government can -- that will be an orderly -- if you file an

16 appropriate motion, you're filing an appropriate motion and the

17 government will have the opportunity to respond. And this is

18 all much superior to the kind of discussion we get here of

19 accusations and so forth. I can't deal with that.

20 MR. CYMROT: I understand, your Honor. We will file

21 the motion.

22 THE COURT: As long as we're taking the time, what is

23 the problem about the alleged conflict of interest?

24 MR. CYMROT: Your Honor, several years --

25 THE COURT: The government has sent a letter. What's

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1 the issue there?

2 MS. MAGDO: Your Honor, the government wishes to bring

3 to the Court's attention a prior-client conflict that's based

4 on the prior representation of Hermitage by Baker Hostetler and

5 specifically by Mr. Moscow. As your Honor may recall,

6 Hermitage was the company whose subsidiaries had their

7 corporate identities stolen. And that was the beginning of the

8 $230 million Russian tax fraud.

9 Hermitage and its founder and chief executive officer,

10 William Browder, engaged Baker Hostetler in late 2008 and early

11 2009 in connection with the very same subject, it is the

12 government's understanding based on what it knows, as the

13 matter currently before the Court.

14 The government believes that --

15 THE COURT: Wait a minute. Baker Hos -- what is it?

16 The firm name is what?

17 MS. MAGDO: Baker Hostetler.

18 THE COURT: Baker Hostetler. They, that firm was

19 retained by Hermitage when?

20 MS. MAGDO: In late 2008 and early 2009.

21 THE COURT: And do you know for what purpose?

22 MS. MAGDO: It's the government's understanding from

23 speaking with representatives of Hermitage that Baker Hostetler

24 was engaged to defend against the ongoing fraud in Russia and

25 the false allegations that were being made against

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1 Mr. Magnitsky, who was an attorney working for Hermitage and

2 against Hermitage itself in Russia. And one of the tasks that

3 Hermitage asked Baker Hostetler to undertake was to attempt to

4 unravel the flow of money from the Russian fraud scheme to

5 trace the money, to try to figure out who the beneficiaries

6 were worldwide. And Baker Hostetler did in fact assist them

7 with that. Apparently they came up with the strategy of

8 issuing subpoenas and tracing the money, a strategy that led to

9 Hermitage obtaining some of the very same documents as the

10 government is currently using as a basis for its complaint.

11 THE COURT: Baker & Hostetler will be the attorney on

12 this?

13 MS. MAGDO: Yes. That's government's understanding.

14 Again, the government is not taking a position on it.

15 It just believes that it has an obligation to bring this matter

16 to the Court's attention and that the Court has the authority

17 to investigate and to issue a ruling on what it finds with

18 respect to this matter.

19 MR. ADAMS: The government, at what became very clear

20 at yesterday's, the first half of a deposition that was held

21 yesterday --

22 THE COURT: Who is speaking now?

23 MR. ADAMS: It's Andrew Adams, your Honor. William

24 Browder and the principals at Hermitage will be key witnesses

25 in this case. In particular, worrying about the possibility of

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1 a short time frame for depositions and trial, we put it in our

2 letter because we felt that this issue was now coming to a

3 head. But as Ms. Magdo said, our interest is in raising it in

4 order to make for a smooth process. But we're not taking a

5 position as to whether there is in fact a conflict.

6 THE COURT: Mr. Moscow?

7 MR. CYMROT: I'll respond, your Honor. It's

8 Mr. Cymrot. Your Honor, we were retained in 2008 for a very

9 limited purpose of doing a 1782 subpoena request, which we

10 ended up not doing. And that related to a company called

11 Renaissance. We were retained by Hermitage to get information

12 about a prior tax fraud related to a company called

13 Renaissance.

14 We only acted in that respect for a very short time.

15 For various reasons I won't get into right now, at the time

16 that we were approached to take on this representation, we

17 carefully reviewed whether there was a conflict.

18 THE COURT: The prior representation.

19 MR. CYMROT: The current representation. When we were

20 approached by Prevezon, we carefully reviewed whether we had a

21 conflict. And we came to the conclusion that we didn't have a

22 conflict. And we maintain that right now, that we have no

23 conflict. Hermitage has filed a bar complaint with the

24 Appellate Division of the New York State Supreme Court and I'm

25 told, by reading in the newspaper, with the Southern District

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1 of New York, but we haven't been served with anything by the

2 Southern District.

3 THE COURT: Repeat that last. Who filed a complaint

4 with the state bar?

5 MR. CYMROT: One with the Appellate Division of the

6 New York Supreme Court. We are told, although we haven't seen

7 it, that Hermitage submitted it to the Southern District of New

8 York here, to a disciplinary committee. We haven't been served

9 with anything by the Southern District.

10 THE COURT: Hermitage has filed something with the

11 state court?

12 MR. CYMROT: Yes. And we're responding to that.

13 THE COURT: Complaining of what?

14 MR. CYMROT: Complaining -- they are claiming -- well,

15 the complaint has shifted over time, your Honor. They are now

16 saying that we, Mr. Moscow and our firm, are involved in

17 tracing the funds from the Russian treasury. That's simply not

18 true. And we have investigated our files. That was not our

19 retention and we didn't do it. So this is something, if your

20 Honor wants to hear it, I think we should have something other

21 than a government letter. We need a motion of some sort.

22 Because it's not before your Honor now. And I want to know

23 what their basis for saying what the government just said is,

24 because it is inaccurate in many ways, particularly the scope

25 of our representation, which was very limited, to getting

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1 subpoenas relating to Renaissance.

2 THE COURT: What is Hermitage?

3 MR. CYMROT: Hermitage owned funds, hedge funds or

4 private equity funds, in Russia. At one point it was the

5 largest hedge fund in Russia.

6 THE COURT: I'll tell you, I'll tell you, the

7 government is not requesting the Court to do anything, and it

8 would be completely inappropriate for me to take any action or

9 voice any vow. And I will not do it at this time.

10 The issue in this case is whether Baker Hostetler can

11 properly represent its client in this case, Prevezon. Thus

12 far, that firm has vigorously and skillfully done such

13 representing. That's what I know, from observation. And it is

14 inconceivable that I would -- and nobody is even suggesting

15 this, but it's inconceivable that I would give any

16 consideration to what Heritage, or Hermitage, whatever the --

17 Hermitage?

18 MR. CYMROT: Hermitage.

19 THE COURT: -- might be filing in the state court.

20 And so right now, as far as I'm concerned, Baker Hostetler is

21 properly representing its clients in this case, and that's the

22 way we'll leave it. If there's some other development that

23 changes things, well, that's something that I do not know

24 anything about right now.

25 The way I think we've left it, there can be motions on

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1 the subject I've talked about, and let's leave it for the day.

2 Thank you.

3 MR. ADAMS: Thank you, your Honor.

4 MS. MAGDO: Thank you, your Honor.

5 MR. CYMROT: Thank you, your Honor.

6 o0o

10

11

12

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16

17

18

19

20

21

22

23

24

25

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1 UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x

3 UNITED STATES OF AMERICA,

4 Plaintiff,

5 v. 13 CV 6326(TPG)

6 PREVEZON HOLDINGS, LTD., et

al.,
7
Defendants.
8
------------------------------x
9 New York, N.Y.
February 14, 2014
10 12:10 p.m.

11 Before:

12 HON. THOMAS P. GRIESA,

13 District Judge

14 APPEARANCES

15 PREET BHARARA
United States Attorney for the
16 Southern District of New York
BY: ANDREW C. ADAMS
17 PAUL M. MONTELEONI
Assistant United States Attorneys
18
BAKER HOSTETLER
19 Attorneys for Defendants
BY: MARK A. CYMROT
20 JOHN W. MOSCOW
- and -
21 BAKER BOTTS LLP
BY: SETH T. TAUBE
22

23

24

25

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1 (Case called)

2 COURT CLERK: Is plaintiff ready?

3 MR. ADAMS: Good morning, your Honor. Andrew Adams

4 and Paul Monteleoni for the United States.

5 COURT CLERK: Is defendant ready?

6 MR. CYMROT: Mark Cymrot with John Moscow, Baker

7 Botts, and Seth Taube for the defendants.

8 MR. MOSCOW: Good morning, your Honor.

9 THE COURT: What are the issues for this morning?

10 MR. ADAMS: Your Honor, we're principally here on the

11 government's request for a protective order regarding the

12 noticed deposition of Special Agent Todd Hyman, that was

13 previously noticed. It was supposed to be happening today.

14 Because of the weather, it's been pushed to next week.

15 You have our letter of February 6th and the

16 defendants' letter of February 10th.

17 And essentially what the government is --

18 THE COURT: Well, it's a request for a deposition and

19 documents, so what?

20 MR. ADAMS: Today what we're asking for is just a

21 protective order regarding the timing of the deposition of

22 Special Agent Hyman.

23 THE COURT: What do you mean, the timing?

24 MR. ADAMS: We don't have an objection to Agent Hyman

25 being deposed in this matter, obviously he's the affiant on the

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1 verified complaint. Our concern that we tried to set out in

2 the letter has to do with the rationalization of this discovery

3 process. Special Agent Hyman is being deposed before any

4 documents have been turned over. We will be turning over

5 documents shortly in this case. That is one thing I want to

6 clarify, it may be I think somewhat confused in the defendants'

7 letter.

8 We're not asserting privilege or some right not to

9 turn over a huge category of documents at all. What we're

10 concerned about is questions about the sources of information

11 that underlie Agent Hyman's verification of the complaint, with

12 respect to what we believe are credible law enforcement

13 privileged claims over the sources of those information --

14 THE COURT: I'm going to interrupt you.

15 MR. ADAMS: Yes, sir.

16 THE COURT: You can sit down.

17 MR. ADAMS: Sure.

18 THE COURT: As far as I can see, the deposition of the

19 person who signed the complaint has no particular utility at

20 all in the case.

21 Now what has utility and what we've got to explore is

22 where this case goes, and that doesn't depend on the timing of

23 depositions or the order of discovery. That is substantial,

24 and that's what I want to talk about today. And we'll talk I'm

25 sure further in further times. But it's not clear to me where

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1 this litigation is going.

2 We have allegations of money laundering, but then we

3 end up with an allegation of, I don't know, 800,000-odd dollars

4 worth of property in New York City, and none of that really

5 indicates to me ultimately where the government wants to go

6 with this litigation.

7 The government can't just file a lawsuit talking in

8 kind of general terms about money laundering. The litigation

9 has to do something about the money laundering, or else money

10 laundering is obviously of interest and important, but this

11 litigation has to do something about it.

12 So where is this litigation going? And as far as I'm

13 concerned, it's really got nothing to do with the deposition at

14 all. I'm just going to order the deposition notice set aside.

15 We're going to get to the really more, in my view, substantial

16 matters.

17 Okay. What does the government say?

18 MR. MONTELEONI: If I may be heard, your Honor?

19 THE COURT: Why don't you use the lecturn.

20 MR. MONTELEONI: Yes, your Honor.

21 The parties have --

22 THE COURT: Why don't you use the lecturn.

23 MR. MONTELEONI: Oh, the lecturn, I'm sorry.

24 THE COURT: That's all right.

25 MR. MONTELEONI: Thank you, your Honor.

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1 The government believes that now that the defendants

2 have withdrawn their motion to dismiss with respect to certain

3 of the defendants, it's clear that discovery has to happen, and

4 the discovery schedule has to be set. Though there is still a

5 motion to dismiss pending as to certain defendants, but

6 whatever happens with that motion, the case will proceed with

7 respect to the others.

8 Now, the parties have had a Rule 26 (f) conference to

9 discuss a discovery schedule. We've each made proposals --

10 THE COURT: Look, I'm not talking about scheduling

11 discovery. I want to know substantially, in substance, what

12 the government is trying to do in this case.

13 MR. MONTELEONI: The government --

14 THE COURT: And it is not a matter of scheduling

15 discovery or whatever you're talking about.

16 MR. MONTELEONI: Yes, I'm sorry if I misunderstood

17 your Honor.

18 The government is seeking to forfeit the assets of the

19 defendant companies' property involved in money laundering.

20 THE COURT: What assets?

21 MR. MONTELEONI: Well, there is real property in

22 New York and there are funds in bank accounts in New York,

23 there are also funds now that are restrained in the

24 Netherlands. Additionally, the complaint does apply to other

25 further assets of the defendants that are abroad, and this is

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1 something that was raised, but not yet resolved, in the

2 protective order motion.

3 As to those assets, we've been discussing proposals

4 that would lift the restraint on large numbers of them, so long

5 as there is sufficient property restrained in the United States

6 that the government has confidence that any forfeiture order

7 will ultimately be enforceable.

8 THE COURT: Well, what property is there in the United

9 States?

10 MR. MONTELEONI: There are currently I believe four or

11 five pieces of real property with values amounting to about

12 $6 million. There are bank accounts with about $300,000, a

13 little more than that. And then there are 3 million Euros that

14 are not in the United States, but they're being restrained by

15 the Dutch authorities in cooperation with the government, and

16 they certainly --

17 THE COURT: In cooperation with the U.S. government?

18 MR. MONTELEONI: Yes, pursuant to a formal request,

19 the government of the Netherlands has restrained those funds.

20 And we would obviously transmit to the government of the

21 Netherlands any orders that this Court might enter with respect

22 to the disposition of the properties, and we would hope and

23 expect that they would honor them. They've been cooperating

24 with us pursuant to our requests.

25 So those are the properties that are actually

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1 restrained.

2 There's also the question about the properties that

3 are subject to the protective order, but not specifically

4 enumerated, and not in the United States.

5 The defendants wanted to lift the restraint on all of

6 those properties. The government is willing to lift the

7 restraint on certain of them, but requested, and would continue

8 to request, that certain additional funds be transferred into

9 the United States such that the total amount of assets

10 restrained is $15 million. This is, by the way, the

11 $15 million that at the last conference defendants said would

12 remain restrained if all of the overseas assets were lifted.

13 The only issue is that actually there aren't quite as many

14 assets in the United States as they believed at the conference.

15 So that's what we would like to happen, would be to

16 resolve the protective order motion with an order that would

17 direct that if the defendants subject several additional

18 million dollars to restraint in the United States the

19 protective order will be lifted as to all of the other

20 properties, and then we can proceed with the case seeking to

21 forfeit the --

22 THE COURT: Well, what is the case for forfeiture?

23 MR. MONTELEONI: Well, the case for forfeiture is that

24 an elaborate tax fraud was committed in Russia. The proceeds

25 of that fraud were distributed to a number of places across the

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1 world in a large coordinated pattern of money laundering, and a

2 portion of those proceeds were distributed to the defendant

3 companies, the defendant companies commingled those funds into

4 their real estate operation to allow those funds to move out of

5 the world of shell companies --

6 THE COURT: Let me back up.

7 MR. MONTELEONI: Sorry.

8 THE COURT: You've got the tax fraud in Russia.

9 MR. MONTELEONI: Yes.

10 THE COURT: And then there were proceeds of the tax

11 fraud, what 250 million or --

12 MR. MONTELEONI: $230 million was --

13 THE COURT: $230 million, U.S. dollars equivalent?

14 MR. MONTELEONI: Yes.

15 THE COURT: All right. Now, then that money has to go

16 somewhere.

17 MR. MONTELEONI: That's correct.

18 THE COURT: Now, it might go somewhere, over which a

19 U.S. court had no -- in a way that a U.S. court had no

20 jurisdiction. If it was all going through India or Germany or

21 whatever, then you might have a very interesting money

22 laundering operation, but it might not be within the

23 jurisdiction of a U.S. court.

24 MR. MONTELEONI: That's absolutely right, your Honor.

25 THE COURT: Now what is it that gives the U.S. court

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1 jurisdiction in this case, what is it?

2 MR. MONTELEONI: Well, the $857,000, a little more, of

3 proceeds of the fraud was transferred to Prevezon Holdings, the

4 parent company of most of the defendants. And Prevezon

5 Holdings invested that $857,000 into buildings that are right

6 here in New York, with the cooperation of the other defendants,

7 Ferencoi and Kolevins, which also commingled their own funds to

8 allow the real estate purchases.

9 The complaint alleges that the proceeds of the fraud

10 are, in part, right here in the Southern District of New York,

11 and the complaint also does allege that some funds were

12 transferred to the Netherlands, and those funds are now subject

13 to the constructive control of the Court because the government

14 of the Netherlands is cooperating with the Court's restraint.

15 So as to those funds in the Netherlands and as to the

16 funds in the United States, should the government prevail at

17 trial and should the court order forfeiture, those orders would

18 be fully enforceable.

19 THE COURT: Why does the cooperation of the

20 Netherlands confer any jurisdiction on this court?

21 MR. MONTELEONI: Well, the Second Circuit in the Meza

22 case which was discussed in the protective order arguments

23 actually held that it does, that property, in order to be

24 within the jurisdiction of the court, only has to be under the

25 constructive control of the court. And a pattern of

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1 cooperation by a foreign government, with indications that it

2 will cooperate in the future, is sufficient to assure the U.S.

3 courts that any order that a court might make, with the

4 disposition of the property, will be honored. And so there's

5 both the Second Circuit's holding there and also the

6 jurisdictional statute that the Second Circuit was

7 interpreting, give U.S. courts jurisdiction with respect to

8 certain properties that are abroad. And that's -- by the way,

9 that's an amendment that addressed concerns that had been

10 raised in the previous regime that courts didn't have the power

11 to give any orders regarding property outside of their

12 district. Congress wanted to change that, it wanted to give

13 the courts broader territorial authority.

14 It passed a statute that did that, and the Second

15 Circuit interpreted it to say that certainly where a foreign

16 government is cooperating, that property abroad is fully within

17 the control of the court.

18 So, as to the funds in New York and the funds in the

19 Netherlands --

20 THE COURT: Let's wait a minute.

21 MR. MONTELEONI: Okay.

22 THE COURT: It might be true that there are

23 circumstances which give a federal court jurisdiction over

24 funds, but there has to be a cause of action that would be

25 appropriately enforced by such jurisdiction, there has to be a

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1 cause of action. The mere existence of funds -- there are a

2 lot of funds in New York City that the --

3 MR. MONTELEONI: Absolutely, and we're not looking to

4 forfeit all of those ones. There is a cause --

5 THE COURT: No, I'm just making a point.

6 What is the cause of action against these defendants

7 in this court, what is the cause of action against them?

8 MR. MONTELEONI: Well, there's two.

9 As against the defendant properties, the cause of

10 action is an in rem action, under the statutes that grant

11 district courts the authority to order forfeitures where crimes

12 have been committed and forfeiture statutes authorize that. So

13 the cause --

14 THE COURT: Well, let me interrupt you. Crimes have

15 been committed? So do you allege that the defendants have

16 committed crimes?

17 MR. MONTELEONI: Well, technically what has to be

18 alleged is that the property that is an in rem defendant has a

19 certain connection to the crime. Under 18 United States Code

20 Section 981(a)(1)(A), the connection is that the defendant

21 property has to have been involved in the crime of money

22 laundering.

23 And yes, the complaint does allege that the in rem

24 defendant property is involved in money laundering.

25 Money laundering is a criminal offense under Title 18.

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1 THE COURT: In other words, those properties were used

2 for the money laundering?

3 MR. MONTELEONI: Yes.

4 THE COURT: That's what you're saying, right?

5 MR. MONTELEONI: Yes, that is the allegation as to the

6 in rem part of the complaint.

7 There's also another cause of action, if you wish me

8 to get to that.

9 THE COURT: Yes, please.

10 MR. MONTELEONI: So the other cause of action is in

11 personam. That is a suit against the defendants, which are

12 corporations, for civil money laundering penalties.

13 That cause of action is set forth in Title 18 United

14 States Code Section 19- --

15 THE COURT: Well, the cause of action is not -- in

16 other words, the complaint in this case alleges that these

17 defendants participated in money laundering, right?

18 MR. MONTELEONI: Yes.

19 And in addition to criminal penalties, Section 1956 of

20 Title 18 actually provides a civil cause of action for civil

21 money laundering penalties.

22 Only the United States can be the plaintiff in that

23 type of civil suit, but it also -- it's one of the remedies

24 that the Money Laundering Control Act enacted. And we are also

25 making those claims.

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1 So that if we were successful, we would obtain a money

2 judgment against the defendant corporations.

3 THE COURT: All right. Look, let's go back.

4 You have the tax fraud in Russia, and $230 million

5 proceeds of that tax fraud in terms of American dollars.

6 Now, money laundering means, to use that shorthand, it

7 means laundering the money that was the proceeds of the fraud,

8 right?

9 MR. MONTELEONI: Yes.

10 THE COURT: Okay. Now, the fraud was against Russia,

11 the proceeds of the fraud against the Russian government. And

12 I think you indicated, and I guess the record shows at least

13 that the government alleges, that as far as the government

14 knows there have been efforts to launder money in various

15 countries, right?

16 MR. MONTELEONI: Yes.

17 THE COURT: Okay.

18 Now, an effort to launder money in India would not be

19 a violation of U.S. law, right?

20 MR. MONTELEONI: Yes, if it had no connection to the

21 United States.

22 In this case, however, the money laundering --

23 THE COURT: Let's not go in this case.

24 MR. MONTELEONI: Oh, sorry. Yes. If there's no

25 connection to the United States, then that's not something that

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1 would give rise to forfeiture of civil money laundering

2 penalties.

3 THE COURT: Now, given that the fraud was against

4 Russia, the Russian government, the attempt to launder the

5 proceeds goes on in various countries, what is it that you

6 allege in connection with money laundering that is within --

7 you probably said it, but just please repeat it.

8 MR. MONTELEONI: Certainly.

9 THE COURT: What is it that gives rise to jurisdiction

10 of this Court?

11 MR. MONTELEONI: Absolutely.

12 With respect to the fraud against Russia, the U.S.

13 wires were used in furtherance of that fraud scheme, as the

14 complaint alleges.

15 And the Second Circuit and the Supreme Court have both

16 held that a fraud against a foreign government for tax revenue

17 that involves the use of the U.S. wires is wire fraud, and the

18 courts of the United States have jurisdiction over the wire

19 fraud and over money laundering based on the wire fraud.

20 So that's as to the fraud scheme.

21 THE COURT: So you allege wire fraud in the complaint

22 here?

23 MR. MONTELEONI: Yes.

24 THE COURT: All right. Go ahead. Go ahead.

25 MR. MONTELEONI: And as to the money laundering, the

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1 money to be laundered, or at least portions of it, actually was

2 invested in the United States and is, according to the

3 statements of a representative of the defendants, sitting in

4 United States properties. That is our allegation and --

5 THE COURT: And that's $845,000?

6 MR. MONTELEONI: Yes. The $857,000, or portions of

7 it.

8 THE COURT: $857,000. I'm sorry.

9 MR. MONTELEONI: But, yes. Our allegation is that

10 some of these laundered proceeds are right here in this

11 district, in the form of real estate.

12 THE COURT: So you're alleging that the defendants

13 participated in money laundering of the money obtained by

14 fraud, and that some phase of that participation has occurred

15 in New York through investments in New York, right?

16 MR. MONTELEONI: Yes, that is our allegation.

17 THE COURT: Now, I take it the defendants deny that

18 they engaged in money laundering, right?

19 MR. ADAMS: That's correct.

20 THE COURT: Mr. --

21 MR. CYMROT: Cymrot. Yes, your Honor.

22 THE COURT: Now, look, what I'm interested in, in

23 other words, what your clients are saying is we have engaged in

24 legitimate real estate businesses and other investments, and we

25 did not participate in any money laundering of the proceeds of

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1 a fraud against the Russian government, right?

2 MR. CYMROT: Correct. And we never received any of

3 the proceeds, this $857,000 was not proceeds from the Russian

4 Treasury.

5 THE COURT: Okay. Now look, let me go back to the

6 government.

7 MR. CYMROT: Sure.

8 THE COURT: How can we -- see, what I don't want to do

9 is to spend a lot of time on peripheral things. It seems to me

10 what we ought to do is to see how we are, either through trial

11 or motion practice, how we get to the essential, in other

12 words, did the defendants participate in money laundering? Now

13 how do we get there?

14 MR. MONTELEONI: Yes, your Honor. I believe we get

15 there through discovery, because there are factual disputes.

16 THE COURT: Discovery does not resolve the case. Do

17 we have a trial?

18 MR. MONTELEONI: Yes. A discovery schedule that would

19 lead to a time for filing motions for summary judgment in case

20 discovery reveals a basis for such motions, or a trial date, if

21 no such motions are filed or if they're denied.

22 THE COURT: Well, what is the discovery you're talking

23 about?

24 MR. MONTELEONI: Well, we have some information which

25 we intend to be disclosing to defendants in response to their

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1 discovery requests, those are due fairly soon, and we'll be

2 producing that. We also will be seeking documents from the

3 defendants that will bear on the question of whether they're

4 engaged in money laundering. And we also are in the process,

5 though unfortunately it's lengthy process, of enlisting or

6 attempting to enlist the aid of foreign governments in

7 providing other documents or information that will help

8 establish this.

9 THE COURT: How do you deal with the foreign

10 governments?

11 MR. MONTELEONI: Well, we --

12 THE COURT: In the form of requests or what?

13 MR. MONTELEONI: We think that for the purposes of

14 obtaining information that we can easily with no issues use as

15 evidence, we intend to proceed by mutual legal assistance

16 requests. If we were a private party we might ask the Court

17 for letters rogatory, but as the government we can make treaty

18 requests which are, though somewhat slow, still faster than

19 letters rogatory. And unfortunately, that's a lengthy process

20 and we have been --

21 THE COURT: How lengthy is lengthy?

22 MR. MONTELEONI: It's hard to predict with confidence.

23 We are preparing this as expedited requests, but they require

24 multiple layers of review within the United States governments,

25 and then they require the cooperation of the foreign

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1 governments.

2 We have been working diligently to prepare them, but

3 we have a proposed discovery schedule which we hope will

4 accommodate that time and set forth a matter of months for them

5 to respond, and we hope that we can secure their cooperation on

6 that type of expedited basis.

7 THE COURT: Within what period of time?

8 MR. MONTELEONI: Well, our proposal is that would set

9 forth that document discovery be complete by August 1st. And

10 we hope that is possible, but again we can't control what

11 response foreign governments will give and when.

12 THE COURT: This is request of foreign governments for

13 documents?

14 MR. MONTELEONI: Well, our proposed schedule would say

15 that the exchange of documents between the parties and the sort

16 of obtaining of other documents we hope can be complete by

17 October 1st -- by August 1st. Sorry. And then there would

18 be --

19 THE COURT: Say that just once more.

20 MR. MONTELEONI: Our proposal is an August 1st

21 deadline for document discovery, which would include documents

22 exchanged between the parties and documents that we would

23 obtain through the mutual legal assistance requests and then,

24 to the extent they're discoverable, turn them over to the other

25 side.

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1 We can't predict the future, but we think that that's

2 a realistic estimate of a good case scenario if we get

3 favorable responses to our requests for expedition.

4 THE COURT: All right. Now, what motions are still

5 pending before the Court?

6 MR. MONTELEONI: The defendants have pending a motion

7 to dismiss two companies, Ferencoi and Kolevins, from the

8 complaint, both the in rem claims against their assets and the

9 in personam claims for money laundering penalties against them,

10 based on the defendants' contention that the complaint fails to

11 state a claim with respect to them and that this Court has no

12 jurisdiction over them.

13 We have responded to that. The defense reply is due I

14 think in two weeks, and then that issue will be --

15 THE COURT: So that will dispose of pending motions?

16 MR. CYMROT: Well, there's the motion to vacate the

17 protective order, your Honor.

18 THE COURT: The what?

19 MR. CYMROT: The motion to vacate your restraining

20 order, that is still pending. You asked us to produce some

21 additional information to the government which we will be doing

22 promptly. We've been working on that, but you have not

23 formally ruled on that.

24 THE COURT: All right.

25 MR. CYMROT: Can I speak about his schedule issue?

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1 THE COURT: And the government needs to answer that

2 motion, right?

3 MR. MONTELEONI: That motion is fully briefed. We had

4 oral argument on it on January 7th. And at that time the

5 motion was a two-part motion, to vacate the protective order

6 or, in the alternative, to modify it. And I believe that from

7 the bench you stated that you did not see a basis to vacate the

8 protective order, but you authorized the government to seek

9 expedited discovery on whether it should be modified so that it

10 doesn't have as broad a scope of restraint.

11 And the government has a proposal for modification

12 that -- the government agrees that some modification would be

13 appropriate. However, the government could make a more

14 informed -- the government and the Court can make more informed

15 judgments on this once we receive the responses to the

16 discovery that you authorized, which I understand will be

17 forthcoming.

18 THE COURT: And those responses coming from what?

19 From whom?

20 MR. MONTELEONI: We've issued discovery requests to

21 Prevezon. Prevezon has said that they will respond to them and

22 provide us with information.

23 THE COURT: So we've got some motion practice and some

24 discovery relating to the motion practice, and then you've got

25 the discovery relating to the basic merits of the parties where

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1 the merits will be tried or subject to summary judgment motion.

2 It seems to me we're on about as good a schedule as we

3 can be on.

4 Please.

5 MR. CYMROT: Your Honor, our clients are adamant that

6 they received no money from the Russian Treasury fraud, that

7 they've done nothing wrong, and they want an early trial date.

8 The discovery that we had planned to take of the agent

9 was really the only witness who could give us any information

10 about this case.

11 The fraud occurred in Russia. We are not likely to be

12 able to take any deposition in the underlying fraud.

13 The tracing of funds went through eight banks, five of

14 them in Russia, two of them in Moldavia, and one in

15 Switzerland.

16 We have no basis of getting any information from the

17 Russian banks, and unlikely from the Moldavian banks. So we

18 asked the government to produce a witness who could tell us

19 what was the basis of their accounting, and we asked them for

20 the agent. He is the only one who is available to tell us do

21 they have bank records, what accounting assumptions did they

22 use? It is fundamental to our defense to be able to show that.

23 When I pointed out that their own chart shows

24 $19.4 million of non-Treasury funds, and you asked Mr.

25 Monteleoni about that, he never answered that question.

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1 When you asked Mr. Monteleoni --

2 THE COURT: I asked him what? Refresh my memory.

3 MR. CYMROT: Yes.

4 If you look at Exhibit B to the complaint, it is the

5 purported tracing of funds from the Russian Treasury through

6 five Russian banks into two Moldavian banks and then into --

7 THE COURT: Is it an exhibit to the complaint?

8 MR. CYMROT: That's Exhibit B to the complaint.

9 THE COURT: All right.

10 MR. CYMROT: And then it goes in, $857,000 allegedly

11 goes in to the Prevezon Holdings' account at UBS in Zurich.

12 And we pointed out that if you follow the tracing

13 there's, on the face of it, a lot of problems, including the

14 fact that $19.4 million of the money they allege went through

15 these accounts was money that did not go through, come from the

16 Russian Treasury.

17 MR. MOSCOW: By their version.

18 MR. CYMROT: By their version of events. Yes, this is

19 all their version of events.

20 So we say, well, why couldn't the $857,000 that we say

21 came from an investor, who we've identified, why couldn't the

22 857 be among the $19.4 million of untainted money? And they

23 never answered that.

24 Now the agent verified the complaint --

25 THE COURT: Wait, I'm lost.

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1 MR. CYMROT: Yes. I'm sorry, your Honor.

2 THE COURT: Go back.

3 MR. CYMROT: Okay.

4 THE COURT: $19 million, who's been talking about

5 $19 million this morning or --

6 MR. CYMROT: Not this morning, no. This was back in

7 early January, your Honor.

8 THE COURT: Okay.

9 MR. CYMROT: We have a chart that -- we analyzed their

10 tracing, based upon Exhibit B. And there's more money on their

11 tracing than money they traced from the Russian Treasury.

12 They don't say all of the money that went through

13 these bank accounts came from the Russian Treasury.

14 $19 million did not come from the Russian Treasury, it

15 was not as a result of the theft.

16 THE COURT: Just please refresh my memory.

17 MR. CYMROT: Yes.

18 THE COURT: How does the $19 million get into the

19 case? I'm --

20 MR. CYMROT: Only on their own chart, your Honor.

21 Let me, if I could show you -- one second.

22 MR. MOSCOW: Your Honor, I think on Exhibit B the

23 numbers are in rubels, and the amount would be 487 million

24 rubles, which we translated to roughly 19.4 million.

25 THE COURT: Oh, I see.

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1 MR. CYMROT: Is that the same one?

2 COURT CLERK: It's in color.

3 MR. CYMROT: Okay.

4 THE COURT: I see it but --

5 MR. CYMROT: What we do is we're just using their

6 numbers, your Honor. We're adding up their numbers, and we

7 show that into the what's called Bank Krainiy Sever --

8 THE COURT: What?

9 MR. CYMROT: There's a bank there, Bank Krainiy Sever,

10 which is an account at Alfa Bank, these are all Russian banks.

11 And if you add up the numbers that come through their chart --

12 we're just using their numbers -- there's 19- -- the equivalent

13 of $19.4 million of money that is not accounted for as coming

14 from the fraud on the Russian Treasury. And we pointed that

15 out to you. You asked Mr. Monteleoni, what about that?

16 He doesn't explain how they can say that the money

17 that we say came from our investor isn't among the

18 $19.4 million of clean money, on their own chart.

19 And we have nobody we can ask that other than the

20 agent, because the agent verified it was true.

21 THE COURT: I'm just sitting here and --

22 MR. CYMROT: Yes.

23 THE COURT: -- obviously not having in mind all the

24 details all of you have, but you've got 230 million was the

25 fraud.

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1 MR. CYMROT: They don't trace all of the 230 million,

2 your Honor. What they do is they trace a piece of it through

3 these five Russian banks into Moldavia, into Switzerland.

4 That's what --

5 THE COURT: The piece being?

6 MR. CYMROT: The piece being the $857,000 that they

7 say came from the Russian Treasury.

8 They have a larger amount that goes into that --

9 THE COURT: You mean in dollars, that's dollars?

10 MR. CYMROT: That's converted to dollars, yes.

11 So they have a larger amount --

12 THE COURT: Wait a minute, wait a minute.

13 MR. CYMROT: Yes.

14 THE COURT: The 857, is that rubles or dollars?

15 MR. CYMROT: The 857 is converted -- is actually

16 dollars received. In other words, when our clients got it, it

17 was dollars.

18 THE COURT: You're what?

19 MR. CYMROT: When our clients received the money, it

20 was in dollars. They received deposits of dollars.

21 THE COURT: And did they only receive $857,000?

22 MR. CYMROT: Well, they received more money from their

23 investors. They had their own money, and that's the money they

24 invested.

25 But from the Russian Treasury --

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1 THE COURT: That's the 19 million?

2 MR. CYMROT: No. No, no. That money went to any

3 number of people. We don't know where that money went, your

4 Honor, we don't know where the Russian Treasury money went, we

5 don't know where the $19 million went. All they say is they've

6 traced $857,000 into our clients' accounts.

7 THE COURT: That's the money that came to New York?

8 MR. CYMROT: Well, they say the money went to Germany.

9 We agree, the money went to Germany.

10 They then somehow use the statement from what they

11 call Representative 1 to say some of that money got invested in

12 New York. But the bank accounts show either the money stayed

13 in Switzerland or it was invested in an investment that our

14 clients made with another company in Germany.

15 So we don't think they ever came -- our clients did

16 buy real estate in New York, there's no dispute about that.

17 They bought eight pieces of real estate in New York, but they

18 didn't buy it with the $857,000. And they have a real estate

19 business, they own an office building, they have a hotel in

20 Russia, they have a hotel in Cyprus. They've invested with

21 this other company in Germany, and other places. They're a

22 real estate business.

23 And once you get past the first hundred paragraphs of

24 the complaint that talk about this Russian fraud, there's

25 nothing, except a real estate business described, of our

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1 clients. And they are adamant, they want an early trial, they

2 want a trial this summer.

3 THE COURT: Okay. Now, look, when would you like a

4 trial?

5 MR. CYMROT: We'd like a trial in April. We'd like a

6 trial as soon as you can set a trial.

7 They're ready -- they volunteered to come here. They

8 are just adamant.

9 These allegations are destroying their business.

10 They've been kicked out of a bank in Cyprus based upon these

11 allegations. Their property in Germany has been attached. All

12 their property here has been attached. The restraining order

13 says "any and all property of Ferencoi."

14 Ferencoi has a big real estate business, it has

15 investments in Europe and in Russia.

16 You've attached all of that.

17 And they didn't represent that to you, they didn't

18 disclose that to you when you signed the order.

19 THE COURT: You're talking about the restraining

20 order?

21 MR. CYMROT: The restraining order.

22 The thing about the agent, your Honor, if you look at

23 this complaint, it's this big, it's this big fraud motion --

24 THE COURT: The thing is, somebody who signs a

25 complaint, it doesn't hurt anything to take his deposition, but

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1 somebody in the United States government drafted that

2 complaint, somebody in the United States government, the

3 Department of Justice, is constructing, developing these

4 accusations.

5 And the reason I started off the way I did this

6 morning, I wanted to hear what the accusations were and whether

7 the person who signed the complaint has a lot of knowledge of

8 those accusations. He may have, he may not have.

9 People sign complaints because they have the official

10 duty to sign complaints. It doesn't mean that they have a lot

11 of knowledge of the substance of the complaints. Maybe they

12 should. There's nothing wrong with taking his deposition. But

13 what I wanted to do was to, really in a sense what you're doing

14 right now, is to get to the allegations, which we don't have to

15 have a deposition from the fellow who signed the complaint to

16 have the Assistant U.S. Attorney answer the questions, which he

17 has done, and to have you state your position.

18 These are statements of the positions, the substantial

19 positions, of the parties. And what you're saying is you would

20 like to have a trial.

21 MR. CYMROT: Yes, your Honor. We don't think it's

22 going to be resolved by motions, and we want a trial at the

23 earliest possible date, because the restraining order is doing

24 substantial damage to the business of people, and they say they

25 are innocent.

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1 THE COURT: Well, look, this is February. If somebody

2 wants a trial in April, why can't they have a trial in April?

3 Your Honor, the Rules provide for discovery. That's something

4 that's going to be crucial in this case, as I think will become

5 far clearer to defendants when they receive our document

6 production, this will be a very document-intensive case.

7 When will the document production occur?

8 MR. MONTELEONI: I believe it is due on February 28th.

9 And while, as with any production in a case of this volume

10 there may be difficult calls that have to be made on a rolling

11 basis, we expect to make a substantial production at that

12 time --

13 THE COURT: What do the documents show?

14 MR. MONTELEONI: Your Honor, we believe that they do

15 substantiate that these funds were traced to the defendants, as

16 we set forth in our papers, and as I thought that I said at the

17 last conference, we do think that there is a basis to believe

18 that the funds that went to the defendants were from the

19 Russian Treasury and not some other funds. And I can go into

20 that in more detail, if you'd like, now.

21 THE COURT: What have they done with those funds?

22 MR. MONTELEONI: We believe that those funds were, in

23 whole or in part, invested in real estate here in the Southern

24 District of New York.

25 THE COURT: And I assume that if somebody helps out in

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1 a money laundering operation, they're going to get something

2 out of it. What are they going to get out of this?

3 MR. MONTELEONI: Well, your Honor, that's something

4 that we think the discovery could very much illuminate. Those

5 are --

6 THE COURT: What do you claim?

7 MR. MONTELEONI: We don't set forth a definitive

8 position on that, and that's not something that's an element of

9 money laundering, it's something that is a relevant factual

10 inquiry and that we want to get to the bottom of, but that we

11 really don't necessarily have the opportunity to do that,

12 without discovery.

13 MR. CYMROT: Your Honor --

14 THE COURT: Well, the thing is if somebody comes in --

15 when was this case filed?

16 MR. MONTELEONI: September 10th, your Honor.

17 THE COURT: All right. The case was filed in

18 September of last year.

19 And if somebody comes in and says that they want a

20 prompt trial because they're being harmed by having the

21 allegations hang over their head, why that is a, to say the

22 least, a reasonable request. And the lawyer talks about April,

23 there's a lot of time between now and April.

24 And documents can be produced overnight, depositions

25 can be taken. Whatever has to be done, there's a lot of time.

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1 Why can't we set a trial date for April?

2 MR. MONTELEONI: Your Honor, that is --

3 THE COURT: Why can't we set a trial date today?

4 MR. MONTELEONI: That would deny the government the

5 opportunity to conduct effective discovery.

6 THE COURT: Why?

7 MR. MONTELEONI: Because this is a case that has a

8 great deal of documents coming from a number of sources, and a

9 period of a month and a half for the completion of all document

10 discovery, whatever country the documents are located in,

11 whatever custodians they have, and the deposition of all

12 witnesses, the creation of expert reports, the deposition of

13 expert witnesses, doing that all in a month and a half, your

14 Honor, is actually something that is not realistic, and it

15 would not be consistent with a real opportunity for meaningful

16 discovery.

17 And, your Honor, there used to be a regime --

18 THE COURT: What I'm going to say to you, we will have

19 another meeting very shortly, and you come in with the evidence

20 that you now have which shows a basis for holding this case

21 open. And I take seriously the idea that having this case open

22 can be very damaging to the defendants. So I want to have the

23 government demonstrate why this case should remain open and why

24 there should not be a trial this spring.

25 Now when can you come in with that?

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1 MR. MONTELEONI: What form would you like us to

2 present that evidence to you?

3 THE COURT: Just bring it in and have it with you and

4 discuss it. We're having a discussion today.

5 MR. MONTELEONI: All right. Well, so --

6 THE COURT: I'm not interested in a lot of

7 formalities, and I'm not interested in a lot of formal

8 discovery.

9 What has been apparent since the time of the

10 protective order is that there is an order here which affects

11 businesses. And maybe the protective order should be vacated

12 while you take a lot of time for discovery, that's a

13 possibility.

14 MR. MONTELEONI: Well, that is something that the

15 Court has the authority to do in its discretion.

16 The statute that authorizes the protective order

17 expresses the policy judgment that assets should be restrained

18 to ensure their availability for forfeiture. And it actually

19 sets forth a statutory mechanism when someone claims that the

20 protective order causes a hardship.

21 And as we set forth in our opposition to the

22 protective order, Congress decided in setting forth this

23 mechanism that it couldn't just be someone saying that the

24 complaint caused a hardship, they had to make an actual

25 demonstration, not just that there was hardship, but also that

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1 there were measures in place to assure the availability of the

2 property for forfeiture, and that the hardship that they were

3 suffering actually outweighed the risk of dissipation of those

4 assets.

5 Now that's a determination that the Court certainly

6 could make, if such an application was ever properly before it,

7 but the defendants haven't chosen to do that. And we think

8 that Congress' judgment that something more than their --

9 THE COURT: Defendants have moved to vacate the --

10 let's go back.

11 What motion do you have now?

12 MR. CYMROT: We have the motion to vacate or modify

13 the protective order, because Rule G, which is supplemental

14 Rule G that applies here, the government represented to your

15 Honor that they had reasonable belief that the government will

16 be able to meet its burden of proof at trial.

17 They said the complaint and verification was their

18 basis for that. So they should be ready to go to trial, your

19 Honor.

20 They had to make that showing before the protective

21 order could be entered. And we move to vacate because they

22 hadn't made that showing. Because even on the face of the

23 complaint, they haven't tied us, our clients, to this money.

24 They haven't shown that our clients had any knowledge of this

25 Russian fraud. They haven't shown that our clients concealed

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1 money in any way.

2 THE COURT: Where is the complaint? Do we have the

3 complaint? What part of the complaint are both of you talking

4 about?

5 MR. CYMROT: Well, your Honor, if you look at the

6 claims, the claims, all they do is cite statutory language.

7 That's not --

8 THE COURT: Wait a minute.

9 MR. CYMROT: -- not appropriate.

10 THE COURT: Wait a minute. I've got a long complaint.

11 MR. CYMROT: I understand. I'll give you the page

12 where it starts, your Honor.

13 The claims start on page 44, your Honor, paragraph

14 119.

15 All they do is cite statutory language. That's not

16 appropriate in the civil --

17 THE COURT: Well, wait a minute. But they incorporate

18 by reference the first 118 paragraphs.

19 MR. CYMROT: Correct. So then we would say --

20 THE COURT: Are there no factual allegations in the

21 first 118 paragraphs?

22 MR. CYMROT: That say that we had knowledge of the

23 Russian fraud? We say there are none. That they concealed the

24 Russian fraud? When you asked Mr. Monteleoni that question, he

25 pointed to the statutory language. That they did anything

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1 other than run a real estate business? No, your Honor. I

2 don't believe --

3 THE COURT: Could I just go back to Mr. --

4 MR. MONTELEONI: Monteleoni, yes, your Honor.

5 THE COURT: Where are the allegations against the

6 defendants here?

7 MR. MONTELEONI: What we discussed last time, we

8 started with the allegations at paragraph 91, if you go from

9 paragraphs 91 to 108.

10 THE COURT: Have we been through this?

11 MR. MONTELEONI: Yes, your Honor. And you ruled that

12 contrary to the defendants' contentions, the complaint

13 adequately alleged money laundering by the defendants.

14 THE COURT: I don't remember everything that went on.

15 If you're asking me to go back and repeat something we covered

16 at an earlier meeting, I don't really want to do that.

17 MR. MOSCOW: Excuse me, your Honor, might I be heard?

18 THE COURT: Yes.

19 MR. MOSCOW: In paragraphs 91 through 108 there are no

20 assertions that the defendants were told that this was the

21 product of a crime, there are no assertions from which the

22 defendants' knowledge can be inferred. There are statements

23 that other people were doing things, that there was a crime out

24 there, but it does not relate to the knowledge or the intention

25 of the 11 corporate defendants in this case.

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1 There are simply no such factual allegations in the

2 first 18 paragraphs.

3 Those allegations start in the claims, where they say

4 that the defendants knew things, intended to promote, did all

5 sorts of things. But there are no factual assertions in the

6 first 118 paragraphs from which we can challenge, because they

7 are simply not of that sort or kind. No facts whatever. They

8 say that we have the wrongful intention and wrongful knowledge,

9 but it's not like we got a letter, it's not like we got a phone

10 call, it's not as though we were involved in a meeting, there

11 is nothing of that kind.

12 We want a trial, it's that simple. We want to put

13 this evidence to its -- we want to put this evidence to trial.

14 The defendants are adamant that they did not receive the

15 proceeds of this fraud. They were told by an investor that he

16 was investing. They received the money, they invested it in

17 real estate, and every alleged money laundering transaction

18 after that is moving money involved in real estate transactions

19 to buy new properties or sell one.

20 THE COURT: What investor are you talking about?

21 MR. MOSCOW: There's a Mr. Petrov who invested money

22 into Prevezon and the --

23 THE COURT: Who is Mr. Petrov?

24 MR. MOSCOW: Mr. Petrov is a Russian, I believe he is

25 now, if memory serves, he is retired. He had money, he wanted

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1 to invest it, and he invested it with Prevezon, which is an

2 investment company.

3 His money was used to acquire real estate in Europe,

4 and in November of '09, about 20 months later, also money from

5 him was used to acquire real estate in New York.

6 THE COURT: Do you know anything about Mr. Petrov, Mr.

7 Monteleoni?

8 MR. MOSCOW: I have spoken to --

9 THE COURT: Mr. Monteleoni? Do you know anything

10 about a Mr. Petrov?

11 MR. MONTELEONI: We do make allegations in the

12 complaint that a representative of the owner of these companies

13 claimed that this Mr. Petrov had provided the funds. We've

14 also -- his name has also come up in settlement discussions.

15 Because of Rule 408, that's not something that we would be

16 directly introducing for --

17 MR. CYMROT: Well, if it's anything we said, you can

18 say it to the Court, because it didn't come up in settlement

19 discussions with us, other than Mr. Petrov was an investor. So

20 if you have something you want to say to the Court, don't use

21 us as an excuse for not saying it.

22 MR. MONTELEONI: Certainly. I just didn't want to --

23 yes, they provided information about their claims about who

24 Mr. Petrov is, that's all I wanted to reference. I just didn't

25 want to go forth and raise publicly what they've said in

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1 settlement discussions. But yes, they've given us some

2 information about him.

3 His role is something that we also believe discovery

4 may further elucidate.

5 THE COURT: The way I view -- and we may be repeating

6 what was discussed at an earlier meeting, and I'm sorry for the

7 sake of myself and all of you -- but the way I see things

8 shaping up at this meeting is that we have an issue. And the

9 defense says that the money that is alleged to have been

10 involved in money laundering, as far as these defendants are

11 concerned, was simply a legitimate investment by a legitimate

12 investor, and that money was used for legitimate investments.

13 Am I right?

14 MR. MONTELEONI: That is the defendants' claim, we

15 agree.

16 THE COURT: Okay. Now, what the government obviously

17 claims is that that was not a legitimate investment, that was

18 money laundering, right?

19 MR. MONTELEONI: That's correct, your Honor.

20 THE COURT: Okay. Now, let me ask you this: I take

21 it -- and this would go to the in rem situation -- I take it

22 that some entity or some person could be used for money

23 laundering, but not literally know it, right?

24 MR. MONTELEONI: Yes, your Honor. Certainly, both

25 because of the in rem nature of property and also because of

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1 the possibility of willful blindness, which is a --

2 THE COURT: Look, I'm not talking -- just listen to my

3 question.

4 MR. MONTELEONI: Oh, sorry.

5 THE COURT: In other words, I take it that a truly

6 innocent person could be used, in other words somebody who is

7 really trying to launder money, knowingly, criminally trying to

8 launder money, might invest or deposit funds with somebody who

9 was completely innocent and did not know anything about that

10 motive, right?

11 MR. MONTELEONI: That is certainly something that

12 could factually happen.

13 THE COURT: It could happen.

14 And if that money was traced into the hands of this

15 innocent person, then there could be an in rem action, right?

16 MR. MONTELEONI: Yes, except that an innocent owner

17 has a statutory defense. The burden shifts to the person

18 claimed to be an innocent owner. But if they could prevail by

19 a preponderance of the evidence and show that they didn't know,

20 and were reasonably without cause to know of the forfeitability

21 of the property, then they would get to keep the property and

22 there would be no forfeiture. And that's a defense that they

23 could try to assert.

24 THE COURT: Now look, but I take it that the

25 government says here that these defendants were not that

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1 totally innocent, pure, they were knowingly involved in the

2 money laundering, right?

3 MR. MONTELEONI: Yes, knowingly or with willful

4 blindness, but with the requisite mental state to commit the

5 crime.

6 THE COURT: All right. Now, and who do you say

7 invested with them?

8 MR. MONTELEONI: The government?

9 THE COURT: I'm asking the government.

10 MR. MONTELEONI: Well, we're not right now, without

11 discovery from the defendants, in a position to confirm or deny

12 whether these funds came at the direction of Mr. Petrov. It

13 seems that the defendants' own representatives said that the

14 funds did come, because Mr. Petrov said so, but they came by an

15 additional third party, a Mr. Kim, and that that's the sort of

16 source of those precise dollars.

17 This is something that we -- these fact-intensive

18 issues about what they knew, what they had reason to know, what

19 their mental state was, is something that we believe that we

20 need discovery in order to elucidate.

21 THE COURT: But in order to even make an allegation, I

22 mean I'm not going to try to reread all the -- let's assume the

23 complaint sufficiently alleges money laundering participation

24 by the defendants. Now, that means that somebody had to invest

25 with them, pass money to them, with the intent of money

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1 laundering. It also means that they had to either know about

2 it or be willfully blind.

3 Now who is it that passed them the money? There had

4 to be money passed. If there was no money passing, I mean

5 there would be nothing even to talk about.

6 MR. MONTELEONI: Yes, two shell companies in Moldavia,

7 which we allege are not legitimate businesses, wired the money

8 to the defendants.

9 Those wires describe the funds as prepayments for

10 sanitary equipment, which is false, because the defendants

11 never actually did business with these shell companies.

12 Whether that's at the direction of a Mr. Petrov or a Mr. Kim or

13 someone else entirely, the complaint doesn't say.

14 MR. CYMROT: Your Honor, this is one of our problems.

15 They have not identified any member of this so-called

16 organization who directed money to the defendants, nor have

17 they identified any benefit the organization would get from

18 the --

19 THE COURT: Well, what about the shell companies?

20 MR. CYMROT: These are companies that transferred

21 money --

22 THE COURT: Did they transfer 19- -- the 57 million or

23 what? Are they the people who invested?

24 MR. CYMROT: No, no, they're not the people who

25 invested. They're just transferring money. According to the

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1 complaint of the government, they're just --

2 THE COURT: You've spoken many times this morning --

3 MR. CYMROT: Yes.

4 THE COURT: -- this afternoon of an investor.

5 MR. CYMROT: Yes.

6 THE COURT: Who was the investor?

7 MR. CYMROT: It's this man, Leonid Petrov. He lives

8 in Moscow, he's retired now.

9 THE COURT: So Petrov is the fellow that you say was

10 the legitimate investor?

11 MR. CYMROT: And they say that somebody unidentified

12 passed money through these companies to the defendants.

13 THE COURT: Wait a minute. But if you went to trial

14 tomorrow --

15 MR. CYMROT: Yes.

16 THE COURT: -- you would seek to put on evidence that

17 a legitimate investor, not some money launderer --

18 MR. CYMROT: Correct.

19 THE COURT: -- invested with your clients, and that

20 would be Petrov, correct?

21 MR. CYMROT: Correct.

22 THE COURT: Okay. So we got that.

23 MR. CYMROT: Yes.

24 THE COURT: Now, then was money passed from two

25 Moldavian corporations into your clients?

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1 MR. CYMROT: Yes, your Honor.

2 THE COURT: How much?

3 MR. CYMROT: The 857. $857,000 came from those

4 companies into the Swiss bank account of our clients.

5 THE COURT: And what was the purpose of that?

6 MR. CYMROT: For the investment.

7 THE COURT: Investing in what?

8 MR. CYMROT: In Europe or the United States.

9 THE COURT: Who was the investor?

10 MR. CYMROT: Mr. Petrov.

11 THE COURT: Oh, he was the investor that used the

12 Moldavian companies?

13 MR. CYMROT: Correct. Or his partner did, yes.

14 THE COURT: So the Moldavian companies were involved

15 only in $857,000, right?

16 MR. CYMROT: Coming into our bank accounts, yes.

17 THE COURT: And it was Petrov?

18 MR. CYMROT: Yes.

19 Can I fill out the story a little, your Honor?

20 THE COURT: Yes.

21 MR. CYMROT: Mr. Petrov -- and I'll start with the

22 owner of Prevezon at the time the money came in, there was a

23 man by the name of Mr. Kim, who was a young man --

24 MR. MOSCOW: Mr. Krit.

25 MR. CYMROT: -- Mr. Krit -- I'm sorry -- Mr. Krit,

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1 who was a young man working with a fellow by the name of Alex

2 Litvak. They are still involved in the company.

3 Mr. Litvak was a friend of Mr. Krit's father. And

4 Mr. Petrov was a friend of Mr. Krit's father.

5 THE COURT: Is Mr. Krit's father Russian?

6 MR. CYMROT: He is Russian, also. They're all

7 Russian. Mr. Litvak is an emigre in Israel, all right. He is

8 an older man, he is involved in business. And Mr. Krit's

9 father said, please teach my son some business, and they went

10 and for two years did various business projects, before this

11 all happened.

12 Mr. Petrov comes to Mr. Krit's father and says, I am

13 receiving money from a former partner of mine, because I was in

14 business in Asia for many years until the 1998 Russian

15 financial crisis. And then Mr. Petrov paid off the loans of

16 he and his partner, and his partner finally was ready to pay

17 him back. So he wants to invest.

18 He goes to a man he knows, which is Mr. Krit. Mr.

19 Krit knows Mr. Litvak, who knows something about international

20 business.

21 When they talk to him, they realize this is probably

22 beyond what Mr. Litvak and Mr. Krit are capable of doing, and

23 they find Mr. Katsyv, who is a well-established real estate

24 investor, with investments --

25 THE COURT: Is he Russian?

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1 MR. CYMROT: He is Russian, also.

2 THE COURT: And his name is what?

3 MR. CYMROT: Katsyv, Denis Katsyv, K-A-T-S-Y-V. They

4 said, help us invest this money because you have more

5 experience with this.

6 So they got together. The money, the $857,000, was

7 already in the account. Mr. Katsyv didn't know Mr. Petrov, but

8 he said, I'll help, and I'll put it together with some of my

9 money and we'll invest, and we're planning to invest in Germany

10 with a company called AFI, which is an Israeli company that

11 invests in real estate. They have a website, it's quite a big

12 company. And they invest.

13 Then these allegations come along. And Mr. Katsyv

14 says, I don't know anything about this. What I know is I'm

15 investing money for Mr. Petrov, I'm investing my own money,

16 we're investing in real estate, we have real estate

17 investments.

18 That's the story that Mr. Katsyv will tell to the

19 jury. He wants to come to the United States. We've asked the

20 United States government to help him get a visa, because he

21 doesn't have a U.S. visa, but he wants to come here and talk to

22 a jury. He wants to do it at the earliest possible moment.

23 THE COURT: What does the government say about these

24 people that were just referred to?

25 MR. MONTELEONI: Well, as to Mr. Katsyv, Mr. Krit and

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1 Mr. Litvak, we do allege in the complaint that they were owners

2 of, or involved with the companies at the relevant times.

3 We believe that --

4 THE COURT: What does that mean?

5 MR. MONTELEONI: Well, that Mr. Krit was the official

6 owner when the funds came in. Mr. Katsyv then took on official

7 ownership.

8 THE COURT: What funds came in?

9 MR. MONTELEONI: When the $857,000 that came in from

10 the Moldavian shell companies into Prevezon apparently,

11 according to defendants, at the urging of this Mr. Petrov.

12 Now the government doesn't right now really have a

13 great deal of information about this Mr. Petrov or physical

14 former business partner. That's something that we hope that

15 discovery will reveal.

16 The government doesn't have a great deal of

17 information about the mental states of Mr. Krit, Mr. Litvak, or

18 Mr. Katsyv. That's also something that we hope that discovery

19 will reveal.

20 The government does agree that $857,000 was

21 transferred from shell companies into Prevezon, then invested

22 in real estate. The government believes that at least a

23 portion, potentially all, if the defendants' own statements are

24 to be believed, were invested here in New York.

25 THE COURT: There's certain things you kind of keep

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1 coming back to. Here now we've talked rather intensively about

2 $857,000. The total fraud on the Russian government was 230

3 million. And are we going to have a trial about $857,000?

4 MR. MONTELEONI: Well, yes, your Honor.

5 THE COURT: Why are we even doing that?

6 MR. MONTELEONI: Well, we believe that $857,000 took

7 on greater significance because, first of all, because of the

8 extremely heinous nature of the organization of fraudsters that

9 actually stole it from the Russian Treasury, because it was

10 part of a broader coordinated pattern of money laundering, and

11 then also the fact that the defendants --

12 THE COURT: Were these defendants part of -- I mean

13 were they part of that group that you're talking about?

14 MR. MONTELEONI: We do not definitively allege that

15 they are in the complaint. The level of knowledge that they

16 had, what they knew, what was reasonably foreseeable to them,

17 are things that certainly matter to us and matter to this case,

18 and they're things that we believe that discovery will better

19 elucidate. But we do very definitively allege --

20 THE COURT: But the thing is, let's suppose they

21 laundered, did they launder more than $857,000?

22 MR. MONTELEONI: Not that we are currently alleging.

23 But they did so through business entities that --

24 THE COURT: Did what?

25 MR. MONTELEONI: They did that laundering through the

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1 business --

2 THE COURT: Of the 857,000?

3 MR. MONTELEONI: Yes, of business entities that have

4 substantial assets in the United States.

5 And the reason that that's important is when these

6 funds are commingled with the assets of a real, legitimate

7 business, it becomes that much harder to trace them.

8 If you look at the allegations of the complaint --

9 THE COURT: To trace the $857,000?

10 MR. MONTELEONI: Yes.

11 THE COURT: Now look, what I get out of the discussion

12 this morning is this: Obviously, the fraud on the Russian

13 government was $230 million, a lot more than $857,000. But

14 what it is all boiling down to as far as these defendants are

15 concerned is if they laundered, they laundered $857,000.

16 MR. MONTELEONI: As alleged, yes.

17 THE COURT: Well, I mean as alleged, that's all we've

18 got. We don't --

19 MR. MONTELEONI: At this time, yes.

20 THE COURT: And it seems to me that you've got a very

21 broad restraining order and tying up business that is worth a

22 lot more than $857,000, and there's just something wrong about

23 this. And I'll assume that $230 million was stolen from the

24 Russian government and that there was money laundering relating

25 to the $230 million, by somebody, somewhere. But we've got

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1 defendants in a case here who are being charged, and right now

2 that charge relates to $857,000.

3 I've heard nothing beyond that. And we have

4 defendants who want a prompt trial, and of course they want a

5 prompt trial, because they want this broad restraining order to

6 be lifted, right?

7 MR. CYMROT: Yes, your Honor.

8 THE COURT: The restraining order restrains what?

9 MR. CYMROT: Any and all property of Prevezon

10 Holdings, which includes real estate in New York, any and all

11 property of Ferencoi which includes --

12 THE COURT: Going beyond $857,000?

13 MR. CYMROT: Far beyond the 857.

14 And when you asked Mr. Monteleoni about the burden, if

15 they innocently received $857,000, which we also deny, the case

16 would be limited to $857,000 and any interest or proceeds

17 coming from that, not this worldwide freezing order.

18 And Mr. Monteleoni also said that they don't know

19 about the mental state of Mr. Katsyv, Mr. Krit, and Mr. Litvak.

20 Well, but they allege the mental state. And they represented

21 to you that they had a reasonable belief that the government

22 would be able to meet its burden of proof at the trial, which

23 is that they knew about the Russian fraud, that they promoted

24 it.

25 THE COURT: Let me interrupt you.

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1 MR. CYMROT: Yes, I'm sorry, your Honor.

2 THE COURT: We've got to break, but I know as well as

3 anybody knows that there can be fraud, there can be money

4 laundering, there can be money laundering which is dubious,

5 that's the whole reason you have money laundering, is to do

6 things to conceal. But when you have a lawsuit which charges

7 somebody with money laundering, then it can't be just a lot of

8 suspicion. It can't be that you tie up assets and restrain

9 operations and so forth. There has to be something concrete as

10 a basis for tying up and restraining the use of assets.

11 Now, the defense says we would like a quick trial,

12 they think they can make a showing which would get rid of all

13 of this, right?

14 MR. CYMROT: Correct, your Honor.

15 THE COURT: Based on the record here, based on that, I

16 do not see that we can restrain on a much broader basis than

17 850, whatever it is, $857,000, I don't see that we can restrain

18 on a broader basis. We can restrain any transfers and so forth

19 of the $857,000. Why do we have any want in going beyond that?

20 MR. MONTELEONI: May I be heard on that, your Honor?

21 THE COURT: Yes.

22 MR. MONTELEONI: There's really two questions, I

23 think.

24 One is what the government would be able to ultimately

25 forfeit at trial, and the other is what it can restrain in the

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1 interim before this case goes to trial.

2 Now, the money laundering statutes --

3 THE COURT: Now look, look, don't quote that. I

4 understand what you posed.

5 Now, tell me what you believe you can prove at trial.

6 In other words, you believe you can prove that they were

7 involved in money laundering beyond the $857,000; is that

8 right?

9 MR. MONTELEONI: Well, yes, but not based on more than

10 $857,000 of fraud proceeds.

11 THE COURT: Then restrain 857,000.

12 MR. MONTELEONI: Well, your Honor, if the Court wishes

13 to modify the restraining order, it certainly has the authority

14 to do that. But let me just --

15 THE COURT: Let me interrupt you.

16 If you told me in response to a question, and you

17 talked about what you might prove at trial, if you told me that

18 we believe we can prove at trial that these defendants were

19 involved in money laundering of -- let's just pick a figure --

20 20 million or 40 million, then you would be saying that, but

21 you didn't. You said, there are two things here, what we might

22 prove at trial and what we have a right to restrain.

23 I asked you what you might prove at trial, you come

24 right back to the 857,000. You didn't say, well, we think we

25 could prove money laundering for 2 million, 20 million,

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1 40 million, you said you were right back with the same

2 $857,000.

3 MR. ADAMS: Your Honor, if I may just say, the idea

4 behind the government's theory of the case is that 857,000 was

5 hidden behind what may be legitimate, what may be clean money,

6 in the United States, and in this case those assets were, we're

7 alleging, real estate in the United States.

8 The nefarious thing about money laundering is this

9 commingling and hiding the dirtiness of some particular tranche

10 of funds, in this case what we're calling the dirty $857,000.

11 What we would be able to show at trial, to get

12 directly to your question, is that there were far broader

13 assets used to hide the $857,000.

14 THE COURT: What do you mean by that?

15 MR. ADAMS: That the funds that were sent into

16 Prevezon from these Moldavian shell companies were hidden from

17 law enforcement, in an effort to hide it from law enforcement,

18 by laundering it through other assets. And what the law

19 provides is that --

20 THE COURT: Laundering it through what other assets?

21 MR. ADAMS: For example, the defendants' in rem

22 properties alleged in the complaint.

23 THE COURT: What in rem properties?

24 MR. MONTELEONI: Perhaps I can be heard on that, your

25 Honor? The defendants' representative said various New York

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1 real estate properties. Now, the defendant -- he did not

2 actually specify exactly which ones.

3 We believe that we could at trial forfeit more than

4 $857,000.

5 THE COURT: On what basis?

6 MR. MONTELEONI: On the basis that those broader

7 amount of property is involved in money laundering, because it

8 hid $857,000 of fraud proceeds. And the forfeiture of property

9 that is used to facilitate the laundering of money is something

10 that the statute allows. So it's not just limited to the

11 amount that was stolen, it's also the assets that are used to

12 launder the amount that's stolen.

13 MR. ADAMS: And to tie that back into the restraining

14 order, as Mr. Monteleoni said earlier, the government has

15 already offered to significantly modify the restraining order,

16 to narrow that to an amount of assets, approximately

17 15 million, that is more proportionate to the assets used in

18 the United States that we believe were used to hide the

19 dirtiness of the $857,000. That's already our position, and we

20 are, in lieu of vacating the Court's restraining order, willing

21 to significantly modify.

22 What we're waiting for -- and Mr. Monteleoni can speak

23 to this with more detail -- is for assets to be transferred

24 into a jurisdiction where we can ensure that they will be

25 frozen.

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1 MR. MONTELEONI: Your Honor, perhaps I might be able

2 to provide a little more information.

3 The defendants made this exact motion, and you ruled

4 there wasn't a basis to vacate their restraining order, but you

5 said that in order to evaluate whether the restraining order

6 was too broad, we needed more information from the defendants.

7 You authorized us to take expedited discovery. We

8 sought that additional information from the defendants. We

9 actually haven't received any.

10 Now, that being said, we do agree that the

11 modification of the restraining order makes sense, even though

12 they haven't provided the type of information that would allow

13 us to make the most informed decision about it.

14 I think that perhaps a compromise would be to modify

15 the restraining order so as to vacate it with respect to all

16 the property, apart from what's currently restrained, which is

17 the New York real estate, New York bank accounts, and the funds

18 held by the Dutch authorities in the Netherlands. That way

19 these additional properties that we would have liked to see a

20 little more documentation, so that we could verify that they

21 were legitimate and so that we could release funds, just as we

22 have for the properties that are currently restrained in

23 New York, but we do agree that it is a very broad restraining

24 order and should be modified.

25 I would also just point out about how the restraining

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1 order works. We have been authorizing the release of funds for

2 every time they have asked us, for all of the properties that

3 they've told us about. They've told us about expenses, and

4 when we have heard about those expenses, we've looked to make

5 sure they're legitimate expenses, we authorized the release of

6 those funds. We've authorized over $100,000 of released funds,

7 we've authorize the sale of an apartment. We are likely to

8 authorize another apartment sale. So the restraining does

9 allow them to continue conducting business.

10 We think that perhaps the best compromise is to

11 maintain the restraint of the New York properties that are

12 currently operating under the restraint, doing business, doing

13 real estate sales, paying expenses, maintain the restraint of

14 this $3 million debt that's owed to Prevezon that was seized by

15 the Dutch authorities. And to the extent that this is

16 burdening their other businesses, we could vacate the

17 restraining order as to all of those.

18 THE COURT: Well, I think that that would be a lot of

19 progress.

20 MR. MOSCOW: No, no.

21 MR. CYMROT: Your Honor, can I explain what they mean,

22 they use these languages about concealing and hiding, can I

23 explain what they mean? Because the facts really aren't

24 disputed once they get into our bank account.

25 THE COURT: They what?

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1 MR. CYMROT: The facts -- they appear to have the bank

2 account records. What they say is that when Mr. Katsyv took

3 the $857,000, he put in some of his own money and invested in

4 Germany, that was hiding the $857,000, and that he did that

5 intentionally to promote the fraud. That's what they have to

6 prove in order to get more than the 857.

7 The 857, they could get if they could prove that it's

8 unlawful funds. And it was innocently received. But they say

9 that he hid things by putting his money into this and combining

10 it to do real estate purchases. All he was doing is real

11 estate business, nothing else.

12 And there's really no grounds for restraint here, and

13 certainly nothing beyond the 857.

14 THE COURT: All right, look, we've got to break.

15 But -- sit down, please.

16 MR. CYMROT: Yes.

17 THE COURT: You've got to understand that here you

18 presented a federal judge with the following: You presented a

19 claim, which apparently is a good claim, that there was $230

20 million defrauded from the Russian government through some tax

21 cheat.

22 You also have certainly credibly alleged that there

23 was money laundering, because obviously the $230 million

24 couldn't be taken down to the Bank of England and deposited.

25 So there would have to be money laundering.

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1 The problem is that you've sued certain defendants for

2 money laundering, and you have not alleged, as far as I can

3 see, that they laundered 20 million or 30 million or 40 million

4 or anything like that. You say that they laundered $857,000.

5 Now, just picture a federal judge listening to a case

6 that starts with $230 million and ends up with $857,000 and a

7 very major restraining order. I don't know any federal judge

8 that would say, that is sort of out of balance.

9 Now, what the defense wants to do is to have a quick

10 trial to get rid of the whole thing, to get rid of this

11 accusation hanging over them. And it seems to me if they want

12 a quick trial to get rid of the accusation, they ought to have

13 it, because the accusation isn't -- it's about $857,000. But

14 even the accusation of doing money laundering for the $857,000

15 is an accusation they want to get rid of, right?

16 MR. CYMROT: Yes, your Honor.

17 THE COURT: Okay. And I'm going to tell the

18 government, we will have a trial this spring, and they will

19 have a right to see if the government can prove these

20 accusations. And the government will have to get ready and

21 prove them quickly, and you'll have to do it. The exact date

22 of the trial, my office will have to be in touch, but we will

23 try this case this spring. Thank you very much.

24 MR. TAUBE: Thank you, your Honor.

25 (Adjourned)

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1 UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x
UNITED STATES OF AMERICA,
3
Plaintiff,
4
v. 13 CV 6326 (TPG)
5
PREVEZON HOLDINGS, INC., ET
6 AL.,

7 Defendants.
------------------------------x
8 New York, N.Y.
September 18, 2014
9 11:46 a.m.
Before:
10 HON. THOMAS P. GRIESA,

11 District Judge

12 APPEARANCES

13 U.S. ATTORNEY'S OFFICE

Attorneys for Plaintiff
14 BY: PAUL MONTELEONI
CHRISTINE MAGDO
15 ANDREW ADAMS

16 BAKER & HOSTETLER LLP

Attorneys for Defendants
17 BY: MARK A. CYMROT
JOHN W. MOSCOW
18 LOURA ALAVERDI
AND
19 BAKER BOTTS, LLP
BY: SETH T. TAUBE
20 AND
THE LAW OFFICES OF GABRIELLA VOLSHTEYN, PLLC
21 BY: GABRIELLA VOLSHTEYN

22
GIBSON DUNN & CRUTCHER LLP
23 Attorneys for Hermitage Capital Management
BY: LISA H. RUBIN
24 RICHARD W. MARK
SARAH LYNN KUSHNER
25 CAITLIN WALGAMUTH

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1 (In open court)

2 (Case called)

3 THE COURT: We can go ahead. I would like to start by

4 referring to a letter dated August 7, 2014, from P. Kevin

5 Castel, Chair of the Committee on Grievances for this District

6 Court, and that letter was addressed to Hermitage Capital

7 Management. And the letter notes that this court's committee

8 on grievances was in receipt of Hermitage's letter making a

9 disciplinary complaint against Attorney John Moscow and his law

10 firm, Baker Hostetler.

11 The letter of August 7th from Judge Castel states:

12 The committee has decided to take no further action in this

13 matter. And it goes on to say: The committee's decision is

14 without prejudice to your right -- in other words, Hermitage's

15 right -- as a non-party to raise your concerns about the

16 potential conflict with Judge Griesa, who is the presiding

17 judge in the action, United States against Prevezon Holdings.

18 Now, is somebody in court today representing

19 Hermitage?

20 MS. RUBIN: Yes, your Honor. I am. I'm Lisa Rubin

21 with the law firm of Gibson, Dunn & Crutcher, and with me, your

22 Honor, I have my colleague, Richard Mark.

23 THE COURT: A little slower and louder.

24 MS. RUBIN: Sure. If your Honor would prefer, I would

25 be happy to go to the lectern.

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1 THE COURT: Why don't you go to the lectern.

2 MS. RUBIN: Sure. Good morning, your Honor.

3 THE COURT: Good morning.

4 MS. RUBIN: I'm Lisa Rubin of the law firm of Gibson,

5 Dunn and Crutcher. I have with me this morning my

6 colleagues --

7 THE COURT: What is your name again?

8 MS. RUBIN: Lisa Rubin.

9 THE COURT: And you're with Gibson, Dunn?

10 MS. RUBIN: Yes, I am, your Honor.

11 THE COURT: And representing Hermitage, right?

12 MS. RUBIN: Yes, your Honor.

13 THE COURT: Now, my question is, did your firm or

14 Hermitage or both, one or the other, take any step after the

15 letter of August 7 of Judge Castel?

16 MS. RUBIN: Yes, your Honor.

17 THE COURT: What did you do?

18 MS. RUBIN: Your Honor, as you know, last Friday,

19 September 12th, 2014, Mr. Browder, who is the CEO and founder

20 of Hermitage Capital Management, as a non-party to whom

21 subpoenas have been issued in this action, filed a motion to

22 quash, along with a motion for sanctions, and a motion for a

23 protective order. In the accompanying memorandum -- Go ahead,

24 your Honor.

25 THE COURT: I find it difficult to believe that that

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1 is a response to the letter of August 7th.

2 MS. RUBIN: May I respond, your Honor?

3 THE COURT: Right.

4 MS. RUBIN: Our motion discusses in its memorandum of

5 law why the subpoenas issued to Mr. Browder and other affected

6 non-parties are sanctionable, because they are predicated on

7 confidences shared Hermitage Capital Management and Mr. Browder

8 with their former counsel.

9 However, your Honor, we would like the opportunity to

10 more fully brief for your Honor why we believe Mr. Moscow,

11 Baker Hostetler and Baker Botts, as co-counsel in this matter,

12 should be disqualified from representing the defendants in this

13 matter. And with your Honor's permission, under --

14 THE COURT: It seems to me -- and you're responding to

15 my question, but it seems to me clear that -- Let me withdraw

16 that.

17 I don't want to give you legal advice, but the letter

18 of Judge Castel invited Hermitage to raise the concerns about

19 conflict in my case. Now, the way people generally raise

20 things like that is to make a motion.

21 MS. RUBIN: May I respond, your Honor?

22 THE COURT: Let me finish.

23 MS. RUBIN: Sure.

24 THE COURT: Now, I do not regard the motion to quash

25 subpoenas as the kind of motion that was contemplated in Judge

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1 Castel's letter, but if you wish to make such a motion now,

2 then I would be glad to -- I mean, I wouldn't decide it today,

3 but I would be glad to hear whether you wish to make a motion.

4 MS. RUBIN: We do, your Honor. Of course --

5 THE COURT: All right. Now --

6 MR. CYMROT: May I say something? Mark Cymrot for the

7 defendants.

8 MS. RUBIN: I'm sorry, your Honor --

9 MR. CYMROT: May I say something, please?

10 THE COURT: Let me just finish, please. I mean, I'm

11 going to go all around, but the one thing the Court does not

12 wish to do is to make a decision about the status of Mr. Moscow

13 and his firm without there being a proper record. And a

14 motion, Hermitage, of the kind you are suggesting would be a

15 step, in my view, towards creating such a record.

16 And I think another attorney wished to speak.

17 MR. CYMROT: Yes, your Honor.

18 THE COURT: Can you go back to the lectern?

19 MS. RUBIN: I'm sorry, your Honor. Before Mr. Cymrot

20 speaks, may I just briefly respond to one issue?

21 THE COURT: You go ahead. Of course.

22 MS. RUBIN: Okay. I appreciate the opportunity, your

23 Honor. We would be happy to make the motion that your Honor

24 has outlined, but I do want to clarify for the Court that our

25 clients have some jurisdictional concerns. We appear here

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1 today under a special appearance without waiver of those

2 jurisdictional defenses and with an express preservation of

3 those defenses.

4 And, of course, in making such a motion, I would want

5 to ensure that Mr. Browder and Hermitage Capital Management

6 would be doing so under a similar special appearance without a

7 waiver of its jurisdictional defenses.

8 MR. CYMROT: We would object, your Honor.

9 MS. RUBIN: Your Honor, the defendants are attempting

10 to put my client in a Catch 22 or a Hobson's choice.

11 THE COURT: Oh, please. The thing is that, without

12 deciding or hinting at any decision on the merits, it seems to

13 me that Hermitage has a right to pose this issue, and you're

14 going to make a motion opposing the issue in a more formal way

15 than it has been posed thus far.

16 Now, you're not a party to the action. Hermitage has

17 not been sued and it is not suing, and it seems to me the fair

18 thing to do -- and I think I entered an order to this effect

19 going part way -- is to allow Hermitage to make a special

20 appearance for the purpose of raising the issue.

21 Now, I hear that there is an objection to that, and

22 who wants to speak to that?

23 MR. CYMROT: Your Honor, Mark Cymrot for the

24 defendants. If I can recall a history here, your Honor, we had

25 a discussion about this on March 4th, with Hermitage's counsel

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1 sitting right over here, and you invited a motion at that time.

2 They filed none. They complained to our law firm back when we

3 first appeared; so they had notice when we first appeared.

4 Then they didn't file a motion at that time. So we are now a

5 year later.

6 We invited them privately, in a letter, to present

7 their views on why they feel we had confidential information,

8 because we said their letter to us did not specify confidential

9 information, and they didn't respond to us. They filed the bar

10 grievance.

11 THE COURT: They filed a what?

12 MR. CYMROT: The bar grievance before Judge Castel's

13 committee. That bar grievance did not have an assertion in it

14 that we had confidential information. The first time that that

15 was made was by Gibson, Dunn in their pleadings on the motion

16 to quash.

17 So they've had several invitations. We are now a year

18 down the road, and this is going to delay this proceeding. And

19 this is just tactics. And the Circuit has warned that this

20 type of motion should not be used as tactics, and it's even

21 worse because they are defaming a prominent prosecutor in this

22 town, John Moscow. And this has been hanging over him for a

23 year now because they leaked it to the press when they made the

24 grievance, and they leaked it to the press over the weekend

25 with their inaccurate motion.

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1 And I'm prepared to show that what's in their motion

2 about confidential information is absolutely false and comes

3 from public records. Can I show that, your Honor? I'm

4 prepared to hand up some documents to you.

5 THE COURT: No. Now, look --

6 MR. CYMROT: This shouldn't delay this, your Honor.

7 This should not delay this case. It's a year. Our clients

8 have been enjoined for a year now, and this is just a delay

9 tactic.

10 THE COURT: The problem with what you say is this.

11 There has been no authoritative decision by any committee or by

12 this court about whether or not there's a conflict of interest

13 involving Mr. Moscow and his firm.

14 MR. CYMROT: Mr. Castel's -- Judge Castel's --

15 THE COURT: Excuse me. Let me finish, please.

16 I repeat, there has been no decision. Now, if you say

17 there is no occasion for any decision, I don't think that it

18 would be justified for me saying that, in the matter before me,

19 there is no issue properly raised about Mr. Moscow and his

20 firm. I would not be warranted in saying there is no issue

21 raised. And I'm sure you're reciting the record accurately,

22 but what you recite is not, in my view, grounds for me saying

23 that there is no issue properly before the Court.

24 MR. CYMROT: Your Honor, the grievance --

25 THE COURT: And what I want to do is to have a proper

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1 record made and establish a schedule, and whatever decision I

2 need to make will be made on a proper record. In my view,

3 there is no proper record at the moment.

4 MR. CYMROT: Your Honor, may I ask what a proper

5 record -- then, if Mr. Browder is going to lob in allegations

6 from London, that he show up and appear here and be

7 cross-examined about these allegations.

8 THE COURT: Now --

9 MR. CYMROT: Wouldn't that require a proper record?

10 THE COURT: The deposition is noticed for when?

11 MS. RUBIN: May I, your Honor?

12 THE COURT: Yes.

13 MS. RUBIN: May I, Mr. Cymrot?

14 Your Honor, in the subpoena -- there have been two

15 subpoenas that have been issued to Mr. --

16 THE COURT: When is --

17 MS. RUBIN: I'm trying to answer your question, your

18 Honor.

19 THE COURT: Is he subpoenaed to appear here at some

20 point?

21 MS. RUBIN: No, he is not, your Honor.

22 THE COURT: What is the subpoena about, then?

23 MS. RUBIN: The subpoena is for deposition, and there

24 are two of them, your Honor, that have been issued to

25 Mr. Browder.

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1 THE COURT: And to take a deposition?

2 MS. RUBIN: Yes, your Honor.

3 THE COURT: Where?

4 MS. RUBIN: One of the subpoenas was issued to

5 Mr. Browder in Delaware for some months ago and is the subject

6 of pending motion practice that has been recently transferred

7 to this court from the District of Columbia -- from the U.S.

8 District Court for the District of Columbia.

9 There is another subpoena that has been recently

10 issued to Mr. Browder calling for his deposition on

11 August 15th. That subpoena is one of the six subpoenas at

12 issue in the motion to quash that my firm filed last Friday.

13 Neither of them call for him to appear in this

14 district. And, your Honor, as you know, it continues to be our

15 position that Mr. Browder is not subject to rule 45 in this or

16 in any other judicial district in this country. The idea that

17 Mr. Browder should have to come here to have to assert his

18 rights is offensive.

19 THE COURT: Well, nobody was trying to give you

20 offense. Just take it easy.

21 MS. RUBIN: Will do, your Honor.

22 MR. CYMROT: Your Honor, the subpoena called for

23 Mr. Browder's appearance in Aspen, Colorado, where he was

24 served on August 15th, and then by agreement, there was a

25 schedule that you then extended on the motion to quash, and you

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1 gave him more time to file a motion to quash. But the subpoena

2 date has already passed. You're now confronted with a motion

3 to quash.

4 MR. MONTELEONI: Your Honor, might I be heard to make

5 a suggestion?

6 THE COURT: Who's speaking?

7 MR. MONTELEONI: This is Paul Monteleoni for the

8 government. One possible suggestion is that issues about

9 whether it is necessary or appropriate for depositions to be

10 taken to make a record of this type of motion, if there's going

11 to be a motion, might be -- those might be worth briefing. It

12 might make sense to set a briefing schedule now, and one issue

13 that can be addressed in the briefing is whether the court

14 would need to take any testimony in any way from anyone and

15 how. That can be a matter for the briefing, and then the Court

16 can have a written record to decide that.

17 THE COURT: Look --

18 MR. CYMROT: Let them make a motion, your Honor. If

19 they're going to make a motion, let them make it and put a

20 factual record in.

21 THE COURT: Would you like to go to the lectern or do

22 something?

23 MS. RUBIN: Your Honor, after, may I have an

24 opportunity to respond?

25 MR. CYMROT: Your Honor, I'm suggesting that if

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1 they're going to file a motion to disqualify us and Mr. Moscow,

2 that they ought to file their motion. It ought to be on an

3 expedited schedule so we don't delay this case any longer than

4 it already is, and that they put in a proper factual record,

5 which would require an affidavit from Mr. Browder to say what

6 confidential information he supposedly gave our law firm, and

7 then we would be able to respond to that because that's the

8 issue.

9 He says he gave us confidential information, and we

10 don't have confidential information, and that's a new

11 allegation. So if he's going to swear to it, then he ought to

12 swear to it, and he ought to be specific. Otherwise, you don't

13 have a factual record to decide a motion for disqualification.

14 They filed a motion to quash without an affidavit from

15 Mr. Browder.

16 You don't have a factual record to quash this

17 subpoena. It's the same thing. You know, they'll say whatever

18 they want to say. The lawyers are told things by Browder, but

19 they got it wrong, plainly wrong, in the motion to quash. If

20 he's going to make those kind of allegations, he ought to make

21 it in an affidavit on a motion to quash.

22 MS. RUBIN: Your Honor, may I respond?

23 THE COURT: There is a motion to quash, but it has not

24 been fully briefed by the parties.

25 MR. CYMROT: It hasn't been made, your Honor. There

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1 is no motion to quash.

2 THE COURT: I thought there was a motion to quash.

3 MR. CYMROT: No, there is no motion to quash. That's

4 the problem. You don't have a record here. You don't have a

5 grievance. You don't have a motion to quash. There's no

6 reason to have any of this.

7 THE COURT: Would you mind listening to me?

8 MR. CYMROT: Yes, your Honor. I'm sorry.

9 THE COURT: I'm trying to get the record in shape. I

10 know that their record is incomplete. I thought there was a

11 motion to quash, and it had not been fully briefed. Maybe I'm

12 not completely informed, but the thing is, what has to be

13 done --

14 MR. CYMROT: I'm just asking that it be on a --

15 THE COURT: Excuse me.

16 MR. CYMROT: Yes.

17 THE COURT: There is the issue about the role of

18 Mr. Moscow and his law firm that is raised in the letter of

19 August 7 by Judge Castel to Hermitage. Now, no motion was made

20 following that letter, but now Hermitage will make a motion and

21 presumably they will -- I don't know what they will do, but

22 unless all issues are abandoned, apparently that will raise

23 issue about Mr. Moscow's ability to continue and his law firm's

24 ability to continue.

25 Now, so there will be a motion, and we can set a

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1 schedule for that motion. And then, as far as anything else,

2 subpoenas or whatever, I am imposing on the lawyers here today

3 the duty to apprise me of any other issues, and then we'll

4 either defer those issues or we'll establish a schedule to

5 handle those issues. But I am not going to rely on subpoenas

6 issued here and there and so forth.

7 We're together today, and we will establish a schedule

8 for what needs to be scheduled, and that will be that. Now, we

9 do have the proposal of Hermitage to make a motion, which is,

10 obviously, in relation to Mr. Moscow and Baker Hostetler.

11 Now, there's been a lot of emphasis on the use of

12 confidential information. I want to say to you that you better

13 deal with the issue of Mr. Moscow's role and Baker Hostetler's

14 role in the full breadth that it needs to be dealt with. From

15 my knowledge of the record, it is not simply a matter of the

16 use of some confidential information. It is a matter of

17 Mr. Moscow's relationship with his former client and his

18 relationship with his present client, and I'll expect all that

19 to be the subject of the briefing.

20 Now, we're going to have a motion from Hermitage. Is

21 there some party who proposes to oppose that motion and will

22 brief that opposition?

23 MR. CYMROT: Yes, Baker Hostetler will oppose it.

24 THE COURT: Of course you will. All right.

25 MS. RUBIN: Your Honor, may I propose a schedule for

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1 that motion?

2 THE COURT: Okay.

3 MS. RUBIN: I understand your Honor to say that the

4 briefing that's outstanding on the subpoenas is something you'd

5 like to hold in abeyance. Do I understand your Honor

6 correctly?

7 THE COURT: I haven't said that.

8 MR. CYMROT: Your Honor, I object.

9 THE COURT: But I assume we'll come to that.

10 MS. RUBIN: Your Honor, I'd like to propose that

11 Hermitage Capital Management and Mr. Browder make their motion

12 to disqualify Mr. Moscow, his firm and the firm of Baker Botts,

13 which, through their close cooperation, has also been privy to

14 the confidentiality information.

15 THE COURT: I don't understand what you're saying.

16 MS. RUBIN: Sure.

17 THE COURT: Please.

18 MS. RUBIN: Your Honor, I'd like to propose that we

19 move by October 6th.

20 THE COURT: We're going to have a motion from

21 Hermitage, and that motion will be opposed and you, obviously,

22 can agree on a schedule for that motion and that opposition.

23 Is there any other party that wishes to participate in

24 that motion?

25 MR. TAUBE: Your Honor, if I may. Seth Taube for the

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1 law firm of Baker Botts. May I speak very briefly?

2 THE COURT: Right.

3 MS. RUBIN: Your Honor?

4 THE COURT: Who do you represent?

5 MR. TAUBE: A fair question. We have been co-counsel

6 in this case with Baker Hostetler for the defendants. What I

7 heard Ms. Rubin just say --

8 THE COURT: Has your appearance been noted in this

9 court?

10 MR. TAUBE: Yes. We're on all the papers, Judge.

11 THE COURT: All right. Very good.

12 MR. TAUBE: I heard --

13 THE COURT: You're co-counsel with Baker Hostetler?

14 MR. TAUBE: Yes, your Honor. I understood Ms. Rubin

15 is going to try to disqualify us, even though we have never had

16 a prior representation. We will fully brief that.

17 THE COURT: I can't understand what you've just said.

18 What have you just said?

19 MR. TAUBE: Ms. Rubin is going to try to disqualify

20 Baker Botts, as well as Baker Hostetler, as co-counsel in this

21 case, and so we will respond to that as well, since we have

22 never had, as they acknowledge, a conflicting prior

23 representation.

24 THE COURT: All right. So whatever motion is made

25 will be responded to. All right. Is there anything else we

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1 need to do today?

2 MR. CYMROT: Yes, your Honor.

3 THE COURT: I think there is because if there are

4 pending subpoenas and motions about those subpoenas, I'd like

5 to have those noted in court today, and we'll do some

6 scheduling.

7 MR. CYMROT: There is a motion to quash for the

8 subpoenas, your Honor. There is a schedule that your Honor has

9 entered on that, and we think we should go forward with that.

10 And I think you ought to set a schedule for this motion to

11 disqualify because, otherwise --

12 THE COURT: Who is speaking?

13 MR. CYMROT: Mark Cymrot. I'm sorry, your Honor.

14 THE COURT: Why don't you go back.

15 MR. CYMROT: Yes. You established a schedule for the

16 motion to quash, which we are in the midst of briefing. We

17 think that briefing should go forward. We think the motion to

18 disqualify, your Honor, should set an expedited schedule. I

19 think counsel will have a hard time agreeing to it. They're

20 asking for a long time. We think this is a tactic for delay.

21 So I think they ought to file their motion in a week.

22 We'll respond in a week. You'll have a record. But this

23 should be done expeditiously. These kind of allegations

24 shouldn't be hanging out there. They go to the press all the

25 time with this stuff, and it's damaging to people's reputations

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1 and the firm's reputation.

2 THE COURT: Who is going to the press?

3 MR. CYMROT: Well, Mr. Browder is always in the press.

4 He leaked his bar complaint to the press, and they were in the

5 press over the weekend. It was the lead headline in the Wall

6 Street Journal, about the fact that there was a hearing coming

7 today over allegations that John Moscow was operating

8 improperly.

9 MS. RUBIN: Your Honor, may I respond?

10 MR. CYMROT: Your Honor, it's right here: "Former

11 New York prosecutor faces confidentiality breach hearing."

12 This is what they are doing to him, your Honor. We shouldn't

13 let these allegations stay out there. They're in the press and

14 they're improper, and if they're going to assert it --

15 THE COURT: What I am trying to do is establish a

16 schedule so the issues will be resolved.

17 MR. CYMROT: I'm asking for an expedited schedule,

18 that's all, your Honor.

19 MS. RUBIN: May I respond, your Honor?

20 THE COURT: What do you propose as an expedited

21 schedule?

22 MR. CYMROT: They file their motion in a week, and we

23 respond in a week.

24 THE COURT: Sounds good to me.

25 MS. RUBIN: May I respond, your Honor?

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1 MR. CYMROT: Thank you, your Honor.

2 THE COURT: Right.

3 MS. RUBIN: Your Honor, next week --

4 THE COURT: Would you like to go to the lectern?

5 MS. RUBIN: I'd be happy to, your Honor.

6 Your Honor, next week marks the Jewish high holiday.

7 In light of that, and in light of the ensuing holidays Rosh

8 Hashana and Yom Kippur, my initial proposal was that Hermitage

9 Capital and Mr. Browder submit their brief on October 6th.

10 We certainly will not be done with the brief over the

11 pending motion to quash at that point in time. While I

12 appreciate that Mr. Cymrot wants to expedite this briefing,

13 there will be no prejudice to any party in the action by

14 submitting of October 6, after the conclusion of the Jewish

15 high holidays.

16 THE COURT: After the conclusion of?

17 MS. RUBIN: The Jewish high holidays, your Honor.

18 THE COURT: When do they start?

19 MS. RUBIN: They begin next week for two days for Rosh

20 Hashana. They conclude after Yom Kippur on the weekend, I

21 believe. Yom Kippur ends October 4th. October 6th is the next

22 business day. We'd be happy to submit our motion on that day.

23 MR. CYMROT: Your Honor, we all have that issue, but

24 they can file their motion before Rosh Hashanah. We'll file

25 our response before Yom Kippur. This should be done

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1 expeditiously. October 6th is an extraordinary long time

2 for -- they've had a year to do this, and they've had since

3 August 7th, since Judge Castel's letter. They can do it, and

4 they ought to be required to do it.

5 MS. RUBIN: Your Honor, may I? With all due respect

6 to Mr. Cymrot, the letter of August 7th was not received by

7 Hermitage Capital Management overseas until after my firm,

8 Mr. Browder and Hermitage Capital had become aware that your

9 Honor had asked for this morning's hearing in issues including

10 the conflict.

11 That is why no motion was made. Our concerns about

12 the jurisdictional issues that I have already foreshadowed for

13 the Court also were reasons why that motion was not made. We

14 should not be prejudiced by Mr. Cymrot's suggestion that we

15 have three business days, essentially, to submit a brief.

16 These issues are not new to him and his firm, and

17 without going into the record, which I understand your Honor

18 wants to see on a full and fair opportunity for briefing, it's

19 simply not true that our complaints are new to them. We made a

20 complaint with the disciplinary committee. There is also a

21 pending complaint with the First Department --

22 THE COURT: Why don't you just desist for a moment.

23 MS. RUBIN: Happily, your Honor.

24 THE COURT: Mr. Cymrot, what was the schedule you

25 suggested?

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1 MR. CYMROT: I suggested that they file their brief

2 before Rosh Hashana, which I think starts on Thursday next

3 week, which would be a week. We will file our response before

4 Yom Kippur, which starts the following Friday evening. So

5 we'll file it that Friday.

6 THE COURT: Let me make a note on that. Just a

7 second. Just a second.

8 MR. CYMROT: Your Honor, so what we're suggesting is

9 the 24th for their filing and ours for October 2nd.

10 THE COURT: My calendar shows the first day of the

11 Jewish holiday is the 24th.

12 MR. CYMROT: That's sundown, your Honor. So they can

13 file during the day.

14 THE COURT: So what you're suggesting is their motion

15 by the 24th?

16 MR. CYMROT: Correct.

17 THE COURT: Just a minute. And then you would reply

18 when?

19 MR. CYMROT: Thursday, the 2nd, October 2nd.

20 MS. RUBIN: Your Honor, under their proposal, we

21 would --

22 THE COURT: Just a minute. Again, for the umpteenth

23 time, your reply, your answer would be?

24 MR. CYMROT: October 2nd.

25 THE COURT: Which is Thursday before another Jewish

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1 holiday?

2 MR. CYMROT: Correct.

3 THE COURT: Well, I mean, I'll hear from the other

4 side, but that seems to be a reasonable schedule and prompt

5 because we're at the 18th now and --

6 MS. RUBIN: Your Honor, under the schedule that

7 they've proposed --

8 THE COURT: Excuse me. Just a minute. We're at the

9 18th. And what do you suggest as a schedule?

10 MS. RUBIN: Well, your Honor, under the schedule they

11 have, we get under a week and they get more than a week.

12 THE COURT: What do you suggest as a schedule?

13 MS. RUBIN: Your Honor, I would suggest that we

14 provide our brief to the Court on the 29th.

15 THE COURT: Just a minute. And then --

16 MS. RUBIN: And they would have a week to respond. If

17 they would like longer, certainly we'd be open to that as well.

18 THE COURT: Your motion would be filed on the 29th?

19 MS. RUBIN: Yes, your Honor. And that's because with

20 the holidays on the 25th and the 26th --

21 THE COURT: Just a minute.

22 MS. RUBIN: -- I will not be able to prepare and file

23 a response on those dates.

24 THE COURT: Well, I have to say that I think that the

25 idea of filing a motion on the 29th and then the answer a week

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1 or ten days after that makes more sense than trying to have a

2 motion filed on the 24th. That's just too fast.

3 So the schedule is as follows. The motion that is

4 going to be made by Hermitage will be filed on September 29,

5 and then Mr. Moscow and his firm, when do you wish to answer?

6 MR. CYMROT: How about the 7th, your Honor? I would

7 say the 6th, in one week, except for the Jewish holidays; so

8 could we have the 7th, October 7th?

9 THE COURT: Of course, of course. That makes a lot of

10 sense. We've got a good schedule now.

11 MS. RUBIN: Your Honor, will Hermitage also be

12 permitted an opportunity to reply?

13 THE COURT: Well, we've got to schedule a hearing date

14 and, of course, you can file a reply.

15 MS. RUBIN: Would the 14th be an acceptable date to

16 your Honor for a reply?

17 MR. CYMROT: Let's have a hearing on the 14th.

18 THE COURT: I think a hearing on the 14th is a good

19 idea. So we'll have a hearing on October 14th, and the

20 answering brief, again, is October 7, and if anybody wishes to

21 file a reply and so forth, that is usually done on the eve of

22 the hearing. So we've got the motion will be September 29, the

23 answer will be October 7, and the hearing will be October 14th.

24 Now --

25 THE DEPUTY CLERK: 11:00 a.m.

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1 THE COURT: What?

2 THE DEPUTY CLERK: 11:00 a.m. on the 14th, Judge.

3 THE COURT: 11:00 a.m. on the 14th.

4 Now, it seems to me the wise thing to do is to hold

5 everything else in abeyance because after we settle who's

6 representing whom, the briefing that needs to be done on

7 subpoenas and so forth, that can be handled after that. But we

8 need to know what the final, definite lineup of the attorneys

9 is.

10 That is something that we'll take care of with the

11 motion, and everything else will be held in abeyance until

12 after that. And regardless of what schedule I entered at an

13 earlier time, we have a new set of issues now and we have to

14 take care of those new issues, and that's what we'll do. Thank

15 you very much.

16 MS. RUBIN: Thank you, your Honor.

17 MR. CYMROT: Thank you, your Honor.

18 MR. TAUBE: Thank you, your Honor.

19 (Adjourned)

20

21

22

23

24

25

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1 UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x

3 UNITED STATES OF AMERICA,

4 Plaintiff,

5 v. 13 CV 6326 (TPG)

6 PREVEZON HOLDINGS LTD., ET AL,

7 Defendants.

8 ------------------------------x
New York, N.Y.
9 October 14, 2014
11:15 a.m.
10
Before:
11
HON. THOMAS P. GRIESA,
12
District Judge
13
APPEARANCES
14
PREET BHARARA,
15 United States Attorney for the
Southern District of New York
16 JOHN McENANY, Associate U.S. Attorney
PAUL M. MONTELEONI
17 CHRISTINE I. MAGDO,
Assistant United States Attorneys
18
BAKER & HOSTETLER
19 Attorneys for Defendants
BY: JOHN W. MOSCOW
20 LOURA L. ALAVERDI
MARK A. CYMROT
21 -and-
BAKER BOTTS
22 BY: SETH T. TAUBE
VERNON CASSIN
23 GABRIELLA VOLSHTEYA

24

25

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1 APPEARANCES (continued)

2 GIBSON DUNN & CRUTCHER

Attorneys for Movants
3 BY: RANDY M. MASTRO
RICHARD W. MARK
4 LISA H. RUBIN
SARAH L. KUSHNER
5

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

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1 (Case called)

2 THE COURT: I think there's a motion before the Court,

3 and I guess that motion is by Hermitage.

4 MR. MASTRO: Yes, your Honor.

5 THE COURT: Would you like to speak to the motion?

6 MR. MASTRO: Yes, your Honor. Thank you very much,

7 your Honor.

8 Randy Mastro of Gibson, Dunn & Crutcher for Hermitage

9 and William Browder.

10 I'm here with my colleagues Richard Mark and Lisa

11 Rubin. Mr. Mark will be arguing the motion, your Honor.

12 I just wanted to, at the outset, thank the Court for

13 seeing us so quickly on this important and sensitive matter.

14 It brings us no good feeling -- it's painful, your Honor -- to

15 have to be here on an application like this; but, your Honor,

16 the ethics rules could not be clearer.

17 THE COURT: The what?

18 MR. MASTRO: The ethics rules could not be clearer.

19 An attorney cannot represent one client, and then

20 later represent another client in an adverse capacity on a

21 substantially related matter. That is exactly what is at play

22 here, your Honor.

23 Mr. Moscow, an old friend, someone I've done cases

24 with in the past, brings me pain to have to say it, but this is

25 a clear conflict of interest, and no less an authority than

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1 Professor Bruce Green of Fordham Law School, a renowned

2 ethicist.

3 As opined before this Court, your Honor, this is a

4 betrayal of that client relationship, and it cannot stand, and

5 that's why we needed to make this application.

6 Your Honor, I'm going to turn it over to my colleague,

7 Mr. Mark, to make the substantive argument. And I appreciate

8 your Honor seeing us.

9 THE COURT: Would you go over to the lecturn, please.

10 MR. MARK: Sure, your Honor.

11 Your Honor, Mr. Mastro laid out very clearly already

12 the test that applies to a motion like this. It's a three-part

13 test. It's long established in the Second Circuit, stated

14 clearly in the Hempstead Video case, and there are three

15 elements to it:

16 You look at the moving party. And the moving party,

17 you're asking, is that party a client or was that party once a

18 client of the lawyer's for an adverse party; second, in a

19 matter that is substantially related to the case that's pending

20 before your Honor now; and, third, where there was the

21 likelihood, at least, that confidential information was shared

22 in that prior relationship in a case like this one, where, in

23 particular, the lawyer who was counsel to our client in the

24 first representation is the same individual as is representing

25 the adverse party in this substantially related matter, the

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1 presumption that confidential information was shared is

2 irrebuttable. That's laid down in the Government of India

3 case, and has been repeated over and over.

4 THE COURT: An irrebuttable presumption.

5 MR. MARK: Yes.

6 And that's because when a client enters into an

7 attorney-client relationship with counsel, it's expected that

8 confidential information will be shared. It is not the burden

9 of the party to parse out and sort and tell his or her former

10 counsel what was that confidential information that was shared

11 with me, because it encompasses more than facts when a client

12 goes to speak with a lawyer and work on matters of strategy and

13 different considerations of how facts are used. And those

14 facts can be public information or information gathered

15 otherwise. When the client works with the lawyer in that

16 sense, it's assumed that confidential information was shared.

17 The cases where you get into the matter of a

18 rebuttable presumption tend to be ones where you have a

19 situation where the first representation, let's say, involve a

20 large law firm and someone at the firm; and the second

21 representation may involve the same firm, but a different

22 lawyer, someone who is screened off from the very beginning or

23 something like that. And there, you get into arguments of was

24 the information shared.

25 And here, the record is clear, it can't be disputed,

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1 Mr. Moscow was the attorney at Baker Hostetler that Browder and

2 Hermitage hired in 2008 to do the activity, and investigate and

3 assist them in this matter which now underlies the case that's

4 before your Honor, U.S. v. Prevezon. And Mr. Moscow is the

5 same attorney appearing in Prevezon.

6 THE COURT: When you say "underlies," what do you

7 mean?

8 MR. MARK: Well, that was laid out in copious detail

9 most recently in the government's --

10 THE COURT: Laid out where?

11 MR. MARK: In the government's letter to the Court of

12 October 10th, 2014. It can be seen in other materials, as

13 well, but this is a helpful digest and guide that explains the

14 substantial relationship between the matter of the prior

15 representation where Mr. Moscow represented Hermitage and

16 Browder, and the current representation, U.S. v. Prevezon.

17 What the government's letter does in particular is

18 look at material --

19 THE COURT: I really have to tell you, I don't

20 understand why you're making this motion. I don't understand

21 it. What is the prejudice to your client? Why are you making

22 this motion, to displace an attorney who has a client who's

23 earning a fee? Why are you making this motion? I do not

24 understand it.

25 MR. MARK: What has crystallized the conflict is that

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1 Mr. Moscow and the attorneys representing the defendants in the

2 forfeiture action have turned on their former client by

3 subpoenaing the client.

4 THE COURT: Well, the thing is what is the extent of

5 that subpoena? What is being sought by that subpoena? I know

6 there's the subpoena. Mr. Browder. But what is being sought?

7 MR. MARK: I would say that the depths and the nooks

8 and crannies of the subpoena don't have to be litigated here

9 today, but --

10 THE COURT: Well, they are going to be litigated here

11 today.

12 MR. MARK: The subpoena, for starters, although in

13 name -- and I'm talking about in particular this one, which is

14 Exhibit 17 to the declaration that came in with our moving

15 papers. Let's start with the fact that the subpoena addressed

16 in name to Mr. Browder --

17 THE COURT: I know that. I don't think you have

18 shown, and I really don't think the other side has shown what

19 is the purpose of subpoenaing Mr. Browder. And certainly you

20 haven't shown it, and probably don't know it.

21 So let me just turn to the other side.

22 What's the purpose of that subpoena?

23 MR. CYMROT: Yes, your Honor.

24 THE COURT: You're Mr. --

25 MR. CYMROT: Cymrot.

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1 THE COURT: Okay.

2 MR. CYMROT: Can I go to the podium?

3 THE COURT: Why don't you do that.

4 The subpoena is important. And what is the purpose?

5 MR. CYMROT: Yes, your Honor.

6 The subpoena arose because the government in March

7 said that Mr. Browder was its principal witness. The

8 government has since stepped back from that. It's not clear

9 Mr. Browder will even be a witness here. But our purpose was

10 to take pretrial discovery of somebody the government

11 identified as a witness.

12 THE COURT: What would be the substance of that?

13 MR. CYMROT: We went through the complaint. And if

14 you'll remember, there's the first hundred paragraphs of the

15 complaint that describes this fraud scheme that our client is

16 not alleged to be involved with. But that is what Mr. Browder

17 supposedly will testify about, and to take discovery on those

18 paragraphs about what he knew and what witnesses he could

19 identify, what documents he could identify that are relevant to

20 those paragraphs of the complaint.

21 THE COURT: In other words, if he's going to be a

22 witness at the trial where your client is a defendant --

23 MR. CYMROT: Correct.

24 THE COURT: -- you wanted to take his deposition,

25 right?

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1 MR. CYMROT: Yes. We do not want to offer him as a

2 witness; we want to take a discovery deposition, that's all,

3 because the government named him. If he's not going to appear,

4 then it becomes a different issue. But right now they say he's

5 appearing, even though he is trying not to appear.

6 THE COURT: So you're trying to find out what he would

7 testify about at the trial of the case involving your client,

8 right?

9 MR. CYMROT: Correct.

10 THE COURT: Let me go back to Mr. Mark.

11 I don't understand why that puts him in a conflict.

12 They are trying to find out what the government would do. They

13 are trying to find out what the government would do if the

14 government called him. Why is that a conflict?

15 MR. MARK: Because he was there; he was Mr. Moscow's

16 former client. And in that situation, a lawyer who has worked

17 with a party and represented him and is presumed to have

18 confidential information is now about to turn around and be in

19 a position to ask his former client questions about the same

20 matter in which he formerly represented him. And that's the

21 $230 million fraud which your Honor knows from reviewing the

22 complaint is shot through in the allegations of the complaint.

23 That's why I refer to the government's letter of last Friday,

24 because in that letter, the government explains how the

25 allegations of the complaint relate to the former

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1 representation.

2 If an attorney in that position, having represented a

3 client, now turns around and says, I want to question that

4 client on the matter I represented him on, that is the

5 conflict. The Cole case, which we cited to your Honor in the

6 letter that was submitted this morning, is perhaps yet another

7 example. But the clearest one that we have found, it's a

8 Magistrate Judge Pitman decision in which a firm and a lawyer

9 was disqualified when that firm sought to subpoena its former

10 client in a substantially related matter. That's the issue.

11 The matters underlying this, as shown in subpoena and

12 the topics covered in the subpoena, relate to the subject of

13 the prior representation. And the lawyer who performed that

14 prior representation can't then turn around and ask his client

15 questions on behalf of an adverse party in that situation.

16 That's the crux of the motion.

17 MR. CYMROT: May I speak to that, your Honor?

18 THE COURT: No. Let Mr. Mark finish. You go ahead.

19 MR. MARK: And one reason that we submitted in the

20 moving papers a particular draft declaration that was prepared

21 by Baker Hostetler in the course of that prior representation

22 was to show that the nature and scope of the work that Baker

23 Hostetler was done and was privy to, that's the Felgenhauer

24 declaration, and it is the comparison of that declaration to

25 the complaint which the government does in its October 10th

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1 letter that shows the substantial relationship between the two.

2 When the lawyer then turns to his former client to

3 say, I want to probe those facts to try and disprove the matter

4 that I was engaged previously to investigate, that is a

5 fundamental breach of the attorney's relationship to his former

6 client.

7 THE COURT: It doesn't seem to me that the purpose of

8 the subpoena to Browder is one of -- trying to do harm to

9 Browder is trying to find out -- find out -- what Browder would

10 testify if he was called at the trial. And it doesn't seem to

11 me that that is taking an aggressive stance against Browder or

12 Hermitage. They are simply trying to find out if he's called,

13 what he would say.

14 MR. MARK: The issue is this: Obviously the

15 government has said in its letter that it will be seeking its

16 own discovery, and presumably the defendant in the forfeiture

17 action will want to attend and cross-examine at whatever

18 proceeding that is.

19 We also have the subpoena to Browder and, by

20 extension, Hermitage, because the subpoena itself defines

21 Browder to include all of his companies, including Hermitage,

22 indisputably the former client of Baker & Hostetler. And the

23 subjects covered in the subpoena range very far into the

24 subject matter that Baker Hostetler was investigating.

25 The reason they are now on the opposite side,

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1 obviously Mr. Browder, as shown in the engagement letter and

2 the bills and certain other material, engaged Baker Hostetler

3 to try and unravel the $230 million fraud to seek remedies, to

4 go meet with prosecutors to get remedies for the benefit of the

5 client. Now Baker & Hostetler and Mr. Moscow are representing

6 someone who received the fruits, under the government's

7 complaint, of this fraud. It's the other end of the

8 transaction of the matters.

9 THE COURT: What do you mean "received fruits of the

10 fraud"?

11 MR. MARK: The allegation is and the basis of the

12 forfeiture is that some portion of that 230 million ended up in

13 this district and, therefore, the government --

14 THE COURT: $800,000.

15 MR. MARK: Some portion of it. Used to be real money.

16 The fruits of that are in the district, and the basis of the

17 government's complaint here.

18 The position that Baker Hostetler and Mr. Moscow are

19 now taking on behalf of the defendant in that case is obviously

20 to put them in a position where it won't be forfeited. And it

21 is encompassed reasonably within whoever is defending them to

22 try and put Mr. Browder, as they seek to do, under oath and to

23 turn him into not what they were representing him as, the

24 victim, and Hermitage as victims or abused parties in the fraud

25 in Russia, but as people who participated or did bad things in

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1 connection with that.

2 MR. CYMROT: Your Honor, I have to object to that.

3 THE COURT: That seems to me very, very speculative.

4 MR. CYMROT: And simply untrue.

5 THE COURT: I really don't understand what you have

6 just said, and I don't see the validity of it.

7 MR. MARK: Well, if they are seeking, as subjects in

8 the subpoenas suggest, that they are going to try and attack,

9 for example, the credibility of Mr. Browder, and put him under

10 oath on subjects which will then be a sworn deposition for use

11 in other matters, their ability based on their consciously or

12 unconsciously --

13 THE COURT: Based on what?

14 MR. MARK: Their ability to use confidential

15 information from the prior representation is what the ethics

16 rules prohibit.

17 THE COURT: What evidence is there that they took away

18 confidential information, that he took away confidential

19 information? What evidence is there?

20 MR. MARK: I would say two things:

21 First, as I said, there's an irrebuttable presumption,

22 and we shouldn't be investigating that under the cases. That

23 is why, however, Mr. Browder and Hermitage submitted certain

24 materials to the Court under seal that I can't go into detail

25 with in open court.

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1 THE COURT: I looked at those; they were of really no

2 consequence.

3 MR. MARK: If we were in a setting in which that could

4 be discussed openly with the Court, I would point out why they

5 are relevant.

6 THE COURT: I looked at them; they added nothing.

7 MR. MARK: Going back to what is on the public record,

8 in the bills from Baker & Hostetler, in the engagement letter,

9 what we see referred to is something much broader than what

10 Baker Hostetler has represented to the Court as the scope of

11 the prior representation.

12 Mr. Moscow was seeking to outline a RICO case, to

13 interest the government in bringing a full prosecution of the

14 matter. There is a diary entry that refers to lists of

15 documents being requested to prepare a broad case.

16 What they have tried to argue is that the prior matter

17 was very limited in scope and didn't concern the $230 million

18 fraud. Patently, it does. We see that in both the materials

19 that are publicly filed, as analyzed in the government's letter

20 of October 10th, and it is the ability of Baker Hostetler and

21 the situation where they then use that material, have that

22 available, which has led courts to disqualify counsel in

23 situations like this.

24 THE COURT: Go ahead.

25 MR. MARK: That's the heart of the argument, your

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1 Honor.

2 THE COURT: Next, please.

3 MR. CYMROT: Your Honor, thank you.

4 The rule requires that the former client have an

5 adverse interest to the current client. And Hermitage and

6 Browder, they skip over that. Because being a witness, as you

7 suggested, is not an adverse interest under the law. And so we

8 don't even get into whether the matters are substantially

9 related or not. It is a question if they are just a nonparty

10 witness, then it is not an adversity that requires a

11 disqualification.

12 There are two cases. They mentioned the Cole case,

13 where the witness intervened in the case and became a party.

14 He was an indemnitor; he had a financial interest. Hermitage

15 and Browder don't have any financial interest.

16 Judge Weinfeld has an opinion, Lund, which analyzes it

17 correctly, which says that the former attorney cannot use

18 confidential information in cross-examining a witness. And if

19 there is a risk of that, then somebody else should do the

20 cross-examination, which would be Baker Botts and Mr. Taube,

21 who is co-counsel, but he doesn't have any of the prior

22 relationship. And he is here for that purpose.

23 So there is a structure here in the law in these cases

24 that says if it's a nonparty witness, then there's no

25 disqualification. There is no case they cite that disqualified

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1 a lawyer ever for a situation where his former client is a

2 nonparty witness. There is a situation where they say if

3 there's a risk of confidential information, then another

4 attorney should do the cross-examination, which we have here.

5 Now, is there a risk? As you said, what's the

6 evidence that there's confidential information? This is

7 somebody who has an Internet site and goes and gives speeches

8 every month. 11,000 pages we've download from the Internet of

9 information on this situation, on this $230 million fraud.

10 THE COURT: Who is making speeches again?

11 MR. CYMROT: He gives speeches publicly.

12 THE COURT: Who?

13 MR. CYMROT: Mr. Browder. He gave a speech in Aspen,

14 Colorado in July; then he gave one in Phoenix; he was on

15 Canadian TV just this week, always talking about the same

16 subject.

17 We asked them a year ago, and we asked them six months

18 ago, and we asked them in this motion, identify something that

19 is confidential. They came up with two things in their initial

20 brief, and we showed they were on the Internet. So they cannot

21 identify -- there is no evidence that we hold --

22 THE COURT: Who is putting things on the Internet?

23 MR. CYMROT: Yes, they put --

24 THE COURT: Who is?

25 MR. CYMROT: Mr. Browder and Hermitage. They have a

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1 website, your Honor. Whenever they get information, they put

2 it constantly. Last five years they've been putting all this

3 information on the Internet. They have no confidential

4 information on this subject. And they give speeches all the

5 time, every month, every couple months.

6 THE COURT: Who gives speeches to whom?

7 MR. CYMROT: Mr. Browder gives speeches to various

8 audiences, talking about Mr. Magnitsky, the $230 million fraud,

9 and why the Russian state is a criminal enterprise. And he

10 talks about that all the time. And this is what supposedly the

11 confidential information that we supposedly have from six years

12 ago. And whenever you ask, they either avoid it, and they say

13 that it's an irrebuttable presumption of confidential

14 information. That's wrong, too. When you're only talking

15 about a question of adversity, and you're talking about a

16 witness, the witness has to show that the lawyer has

17 confidential information.

18 And let me quote from Mr. Mastro's expert, Mr. Green.

19 Mr. Mastro is the subject of a disqualification motion in

20 another case. And his expert is Mr. Green, who sent in an

21 affidavit today as an expert, all right. In that case,

22 Mr. Mastro took on a case where he was opposed to his client,

23 his current client. And Mr. Green says, well, he should just

24 drop the client as a client. And then Mr. Green says: "If the

25 former client moves for disqualification, the movant must prove

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1 that the former attorney actually possesses relevant

2 confidences."

3 He doesn't talk about an irrebuttable presumption,

4 because in the situation where you're talking about a witness,

5 he has to prove it. And they haven't proven it. And they came

6 up with two examples, and we showed that information was

7 already on the Internet.

8 So, your Honor, they don't have the structure, legal

9 structure, of the argument correct, because they skip over the

10 issue of adversity. And they don't have the issue of

11 confidentiality correct. And the motion should be denied.

12 THE COURT: What did your client do for Hermitage?

13 MR. CYMROT: Nothing. Our client -- or what did

14 Mr. Moscow -- what did our firm do for Hermitage? Our client

15 had nothing to do with it.

16 THE COURT: I misspoke. What did Mr. Moscow and his

17 firm do for Hermitage when they represented Hermitage?

18 MR. CYMROT: He put together -- they came to

19 Mr. Moscow --

20 THE COURT: When did this representation occur?

21 MR. CYMROT: 2008. Started in, I think, September or

22 October of 2008. Most of the work was done in two months, and

23 then it lasted a total, officially, of six months. So it was

24 finished in 2009.

25 And they came to Mr. Moscow and they asked him to file

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1 a --

2 THE COURT: Who's "they"?

3 MR. CYMROT: Hermitage.

4 THE COURT: Hermitage.

5 MR. CYMROT: And Browder. But Browder wasn't a

6 client; he was just a representative of Hermitage. Hermitage

7 was the client. And they asked him to do a 1782 petition, to

8 get a subpoena to a company called Renaissance, which is not

9 involved in our case.

10 Now, Mr. Moscow offered to do a lot more. And they

11 quote that in these tapes they gave you. But they didn't ask

12 him to do it; they declined his invitation to trace funds and

13 things like that. They declined his invitation.

14 THE COURT: Again, what did he do for them?

15 MR. CYMROT: He drafted an affidavit for support of a

16 1782 petition that he never filed; it was filed by another

17 attorney in another law firm.

18 THE COURT: 1782.

19 MR. CYMROT: That's the request to assist the foreign

20 proceeding. 28 U.S.C. 1782 is the Court's authority to assist

21 the foreign proceeding by issuing --

22 THE COURT: By having a deposition in this district.

23 MR. CYMROT: Exactly.

24 THE COURT: Did he do it or not?

25 MR. CYMROT: He drafted one and he didn't file it.

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1 They had their London solicitor file it. He worked on it for

2 two months and he didn't file it. And he had one meeting with

3 the U.S. Attorney's Office, and one meeting with the attorney

4 general of the BVI. And he offered to do a lot more, and they

5 didn't engage him to do that work. They said no.

6 So they have these tapes where he's offering to trace

7 money for them, dollars in New York. And they said no. But

8 now they are saying -- they are trying to tell you that, oh, he

9 did that work for them. But they don't give you any of that

10 work that he did, because it didn't happen.

11 THE COURT: I take it Hermitage had another lawyer. I

12 mean if Mr. Moscow did such a limited amount of work, who was

13 their lawyer?

14 MR. CYMROT: A firm called Brown Rudnick, who was then

15 in London and in New York. Go ahead.

16 MR. MOSCOW: Your Honor, they were represented

17 initially --

18 THE COURT: Are you Mr. --

19 MR. MOSCOW: John Moscow.

20 They were initially represented by Mishcon Delreya, I

21 believe, and, therefore, by Brown Rudnick, and, therefore, by

22 the Ashcroft firm.

23 THE COURT: The what?

24 MR. MOSCOW: Ashcroft, John Ashcroft, the former

25 attorney general. He represented them, I believe, at the time

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1 that the -- I could be wrong about that. We got out of the

2 case, and Neil Micklethwaite from Brown Rudnick filed the

3 declaration, and they had other counsel who was not us. They

4 had British lawyers.

5 THE COURT: They had what?

6 MR. MOSCOW: My apologies. They had British counsel.

7 THE COURT: You can sit down.

8 MR. MOSCOW: They had British counsel when I first met

9 them. Thereafter, we did work. Thereafter they used a British

10 attorney to file a declaration, and they had other American

11 counsel.

12 THE COURT: Do you know or does the gentleman at the

13 lecturn know what were they involved in? Was somebody suing

14 them or how were they involved at that time that they had a

15 series of lawyers?

16 MR. CYMROT: At the time, Hermitage is a hedge fund

17 that used to invest in Russia. And they were worried that the

18 Russians, the Russian Federation, would prosecute them for this

19 $230 million fraud. But that never happened, and that case is

20 closed.

21 THE COURT: It what? It never happened.

22 MR. CYMROT: It never happened. That case is closed

23 in Russia. There were other people who were prosecuted for

24 that and convicted.

25 THE COURT: I can go back to Mr. Mark, but is it your

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1 information that what Hermitage -- their legal problem at that

2 time was avoiding prosecution by Russia; is that right or not?

3 MR. CYMROT: That's correct.

4 THE COURT: Is that right, Mr. Mark?

5 MR. MARK: That is an aspect of it, your Honor. There

6 were some criminal proceedings brought. I think your Honor

7 already knows that Mr. Browder and his lawyer over there were

8 convicted in absentia.

9 MR. CYMROT: That was a totally unrelated prosecution,

10 your Honor, and it had nothing to do with this. Mr. Browder

11 was convicted of a scheme where he made false statements about

12 employing Afghan war veterans and got a $17 million tax

13 deduction. He then bankrupted the company that took the

14 deduction, so he never paid it and he was prosecuted for that.

15 Totally unrelated to the $230 million theft from the Russian

16 treasury. So he was convicted of that. We had, our law firm,

17 Mr. Moscow, had nothing to do with his prosecution.

18 THE COURT: Is it correct that as far as the issues in

19 this case are concerned, Hermitage was -- and Mr. Mark can

20 correct this -- but what they were doing was trying to avoid

21 prosecution by Russia.

22 MR. CYMROT: Correct.

23 THE COURT: And Mr. Moscow was in the case for a few

24 months. And is it correct that he was retained to try to get

25 an affidavit before the Southern District so some discovery

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1 could occur here; is that right?

2 MR. CYMROT: That's correct.

3 THE COURT: But he didn't even finish that; is that

4 correct?

5 MR. CYMROT: That's correct also.

6 THE COURT: Okay. Go ahead.

7 MR. CYMROT: I'm finished, your Honor.

8 I think Mr. Moscow would like to make a personal

9 statement of his own.

10 THE COURT: Of course.

11 MR. CYMROT: But let me just sum up our position.

12 Our position, your Honor, is we're talking about a

13 nonparty witness, that if there ever were a witness, your Honor

14 could examine whether there was confidential information, the

15 threat of it to be used. You wouldn't disqualify counsel; you

16 would enter a protective order, and Mr. Taube's law firm would

17 do the cross-examination. And that's the solution that Judge

18 Weinfeld used in the Lund case.

19 THE COURT: And that firm is?

20 MR. CYMROT: That's Mr. Taube right here; he's

21 co-counsel. But he's not in our law firm, he's in his own law

22 firm.

23 THE COURT: Who's with?

24 MR. CYMROT: Baker Botts.

25 MR. TAUBE: I'm with Baker Botts, your Honor. And at

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1 the right time, I would like to address very briefly the

2 application to disqualify this second independent law firm, as

3 well.

4 THE COURT: Okay. All right.

5 Mr. Moscow. Why don't you go over to the lecturn.

6 MR. MOSCOW: I thank you for the opportunity to speak.

7 THE COURT: A little louder, if you could.

8 MR. MOSCOW: After this case was filed in September of

9 2013, I was asked, together with Mark Cymrot, to represent

10 Prevezon Holdings Ltd. and its affiliates in connection with a

11 forfeiture action brought against them by the United States. I

12 read the complaint. I knew I had represented Hermitage Capital

13 Management.

14 THE COURT: You are speaking too fast.

15 MR. MOSCOW: I will slow down.

16 In September 2013, I was asked, together with Mark

17 Cymrot, to represent Prevezon Holdings Ltd., current client and

18 its affiliates, in connection with a forfeiture action that was

19 brought by the United States. I read the complaint. I knew I

20 had represented Hermitage Capital Management previously in 2008

21 into 2009.

22 I read the Code of Professional Responsibility, and

23 noted DR-5108, which says, in relevant part, a lawyer who has

24 represented a client in a matter shall not thereafter represent

25 another person in the same or substantially related matter in

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1 which that person's interests are materially adverse to the

2 interests of the former client. And the rules of professional

3 conduct, which are currently in force, which I also checked,

4 says that a lawyer who has formerly represented a client in a

5 matter shall not thereafter represent another person in the

6 same or substantially related matter in which that person's

7 interests are materially adverse to the interests of the former

8 client, unless the former client gives informed consent

9 confirmed in writing.

10 I reread the complaint. It is United States of

11 America v. Prevezon Holdings, Ltd. Hermitage is not a party.

12 Hermitage is not the victim whose funds were stolen. That was

13 the Russian Federation. Hermitage has no interest in this

14 case. In the absence of an adverse interest, there is no

15 conflict. It is clear that Hermitage has no interest as that

16 term is used.

17 And let me speak very briefly to the point that

18 Mr. Mark raised. I'm sorry, but it is quite possible to defend

19 Hermitage from prosecution by Russia and to defend a lawsuit

20 brought by the United States against Prevezon. Their interests

21 are not adverse; there is no reason why the government could

22 not be wrong in both cases. I looked at the rules, but I did

23 not rely on my own judgment.

24 THE COURT: Wait a minute. What was the proposition

25 you just voiced. Just say that again.

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1 MR. MOSCOW: That Hermitage could be innocent of

2 committing a fraud in Russia, and Prevezon could be uninvolved

3 in laundering money in the United States. They are different.

4 There is no adversity there.

5 Mr. Browder has taken the public position that he was

6 not in Russia at the time the crimes were taking place. He is

7 not a competent witness. That was confirmed on March 3rd by

8 the United States. He's not a witness. He is certainly not an

9 interested party.

10 THE COURT: What do you mean he's not a witness?

11 MR. MOSCOW: He wasn't there.

12 THE COURT: Are you talking about Mr. Browder?

13 MR. MOSCOW: Mr. Browder.

14 The essence of the thing is they didn't know about it.

15 He wasn't there.

16 So in the absence of an adverse interest, I brought to

17 the attention of my firm the possibility of a conflict. I

18 asked other people to look at it. Conflicts are important to

19 big law firms. And I referred the question of my

20 representation to the groups within Baker Hostetler which deal

21 with those issues. Baker Hostetler approved the

22 representation. Thereafter, counsel for Hermitage wrote and

23 asked if the representation was proper. I was not copied on

24 the letter.

25 THE COURT: What did you just say? You're going

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1 awfully fast.

2 MR. MOSCOW: I'm sorry.

3 In October, counsel for Hermitage raised the

4 possibility of a conflict. That letter was not sent to me. I

5 did not respond to it. Baker Hostetler did respond to it.

6 There was nothing there that were any prior confidences. We

7 asked and got no answer.

8 On March 3rd, I deposed a witness proposed by the

9 United States who testified that Browder was not a competent

10 witness. I did what the rules called for; I followed them. If

11 you read the government letter and see what they want in the

12 way of testimony from Hermitage, I read it and I asked myself

13 the question, So what? The question will arise if we get there

14 as to what a witness would have to say, and at that point,

15 should there be a suggestion of a conflict of some kind, then

16 we have another firm to handle this.

17 But I have to say that there are many facts in the

18 complaint about which my clients know nothing and care little.

19 They weren't there. They didn't steal the money. This is a

20 case in which their interests need to be represented. And the

21 fact that one can construct a need for Hermitage witnesses does

22 not change that. The Hermitage people, should that occasion

23 arise, we can deal with any potential violations, but I don't

24 believe there are any.

25 I know what I was told. I was told to pass it on to

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1 the U.S. Attorney's Office; I was told to pass it on to the

2 attorney general of BVI.

3 I would ask that the motion be denied.

4 THE COURT: Let me ask you some questions.

5 MR. MOSCOW: Sure.

6 THE COURT: You may have answered them already, but

7 you're going a little fast.

8 Back in 2008 and early 2009, you represented

9 Hermitage, right?

10 MR. MOSCOW: Correct.

11 THE COURT: And again, maybe this is repetitious, but

12 I'll ask you anyway: What was the purpose of your representing

13 Hermitage at that time? What were you engaged to do?

14 MR. MOSCOW: The purpose was to defend them from

15 charges in Russia. What I was engaged to do was to get

16 evidence as to a prior similar fraud so that they could

17 reasonably argue that from the commission of an act in 2006 in

18 which they were not involved, one could deduce that they were

19 not involved in the same act in 2007.

20 THE COURT: I don't understand that. Go over that

21 again.

22 MR. MOSCOW: It's a complicated fraud.

23 THE COURT: Because I want to know why you were

24 retained. That is very important. And it's not clear to me

25 from any of the papers or even from what you're saying now why

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1 you were retained.

2 MR. MOSCOW: I was retained to gather evidence for

3 Hermitage for use in a foreign proceeding.

4 THE COURT: Used in a foreign proceeding where?

5 MR. MOSCOW: Russia.

6 THE COURT: And where were you when you were retained?

7 Were you a New York lawyer or what?

8 MR. MOSCOW: I was a New York lawyer.

9 THE COURT: You were a New York lawyer practicing in

10 New York, and Hermitage retained you, right?

11 MR. MOSCOW: Correct.

12 THE COURT: To help defend them in Russia.

13 MR. MOSCOW: To help gather evidence for them to

14 defend them in Russia; and also to get governments to go after

15 the people they said had committed the crime, whose identities

16 they did not know.

17 THE COURT: The Russian government. When you say "the

18 government," you mean the Russian government.

19 MR. MOSCOW: No, United States -- my apologies. It is

20 confusing. The United States government. I was asked to make

21 a pitch for the Southern District to get them involved. I made

22 a pitch.

23 THE COURT: And to get them to do what?

24 MR. MOSCOW: To see whether or not there was a case to

25 be made in the Southern District, a criminal case to be made

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1 against the people who had stolen the money in Russia.

2 THE COURT: In other words, people other than your

3 client Hermitage, right?

4 MR. MOSCOW: Oh, yeah. They had nothing to do with

5 it.

6 THE COURT: I was asking you about 2008, when you were

7 retained by Hermitage.

8 MR. MOSCOW: Right.

9 THE COURT: And again, let's just go back to starters.

10 What were you retained to do for Hermitage? Even if

11 you said it before, say it again.

12 MR. MOSCOW: I was retained to gather evidence for

13 them for use in a foreign proceeding, which would be in Russia.

14 THE COURT: A foreign proceeding where?

15 MR. MOSCOW: In Russia.

16 THE COURT: All right. So you were retained to gather

17 evidence that Hermitage could use in Russia, right?

18 MR. MOSCOW: Correct.

19 THE COURT: And I know it's obvious, but you say it,

20 they were going to use this material in Russia to do what?

21 MR. MOSCOW: Should they be charged, which they never

22 were, they wanted this evidence to prove that they were not

23 involved in the theft.

24 THE COURT: That they were not involved what?

25 MR. MOSCOW: In the theft of money from the Russian

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1 Federation.

2 THE COURT: All right. So you were retained to gather

3 evidence for use by Hermitage in Russia to avoid prosecution

4 there, right?

5 MR. MOSCOW: Right.

6 THE COURT: Now, why was an American lawyer retained

7 to gather evidence about a Russian matter? Why were you

8 retained?

9 MR. MOSCOW: Because, your Honor, if one is tracing

10 money --

11 THE COURT: If what?

12 MR. MOSCOW: If one is tracing money, and the money is

13 in dollars, then the money may well pass through New York. And

14 the evidence under 28 U.S.C. 1782 would be available in New

15 York or might be available in New York. And that is why.

16 THE COURT: Let me see if I understand.

17 You were retained in New York, a New York lawyer, to

18 see if there was evidence --

19 MR. MOSCOW: Yes.

20 THE COURT: -- which would be of assistance to

21 Hermitage.

22 MR. MOSCOW: Right.

23 THE COURT: And if there was, then there might need to

24 be a deposition in New York and invocation of this 1782; is

25 that right?

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1 MR. MOSCOW: Yes.

2 THE COURT: You seemed to hesitate.

3 MR. MOSCOW: Normally, when one calls for bank

4 records, there is not a deposition.

5 THE COURT: Oh, so you thought this was mainly a

6 record matter.

7 MR. MOSCOW: Yes.

8 THE COURT: All right. That's a good clarification.

9 So let me make sure I understand.

10 You were retained to see if there was evidence here

11 which would be in the form normally of bank records which could

12 assist Hermitage in Russia, right?

13 MR. MOSCOW: Yes, in part. Yes.

14 THE COURT: What's the other part?

15 MR. MOSCOW: To the extent that we were seeking

16 records from Rengaz and Renaissance, those would not have been

17 bank records; they were involved in a 2006 event that was

18 similar to the 2007 theft. And Hermitage wanted to establish

19 that Hermitage had nothing to do with 2007 by showing what

20 happened in 2006.

21 THE COURT: How would it help to show what happened in

22 2006?

23 MR. MOSCOW: The theory, for better or for worse, was

24 that if thieves did a crime in 2006 --

25 THE COURT: If -- I'm sorry.

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1 MR. MOSCOW: If thieves committed a crime in 2006 --

2 THE COURT: If who committed a crime?

3 MR. MOSCOW: Somebody in Russia committed a crime

4 involving Renaissance, then they existed, they were bad guys,

5 and they did not include Hermitage. So they were trying to

6 prove that Renaissance was the victim to prove that they were a

7 subsequent victim, in effect. Their names were being used.

8 THE COURT: What does Renaissance have to do with

9 this?

10 MR. MOSCOW: They were used in 2006, according to what

11 they were told.

12 THE COURT: As part of in connection with a theft.

13 MR. MOSCOW: Yes.

14 THE COURT: Let me see if I've got this, because I

15 want to get this.

16 There was a theft in 2006; is that right?

17 MR. MOSCOW: Yes.

18 THE COURT: From the Russian government?

19 MR. MOSCOW: Apparently, yes.

20 THE COURT: And was there evidence about who was

21 involved or did you have information about who was involved in

22 the 2006 theft? Did you have information?

23 MR. MOSCOW: We knew that Renaissance was the company

24 whose tax records were used. In terms of identities of

25 individuals, I do not believe so.

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1 THE COURT: But Renaissance, a company named

2 "Renaissance," was involved in the 2006 theft; is that right?

3 That was your information.

4 MR. MOSCOW: Yes. That's what we were looking for

5 evidence on.

6 THE COURT: And how is that going to help your then

7 client Hermitage?

8 MR. MOSCOW: The theory was that if there was a crime

9 in 2006, and there's substantial --

10 THE COURT: There was a what?

11 MR. MOSCOW: If there was a crime in 2006 in which

12 they were not involved, and the same thing happened again in

13 2007, that they could argue that they were not involved; that

14 there were people who were doing this, but it did not include

15 them.

16 THE COURT: Let me see if I understand you.

17 You were retained by Hermitage, and there was an

18 attempt to develop a defense, namely, that there had been a

19 theft in 2006 involving Renaissance, and clearly Hermitage was

20 not involved with that. And the idea was that it helped to

21 bolster a defense of Hermitage as not being involved in the

22 2008 theft, right, or --

23 MR. MOSCOW: 2007, yes.

24 THE COURT: Is that right?

25 MR. MOSCOW: It is.

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1 THE COURT: Now, how far did you, as a lawyer, carry

2 this? You were really not involved but for a few months. Did

3 this go anywhere while you were working for Hermitage or did it

4 not?

5 MR. MOSCOW: I made a pitch to the Southern District

6 that they get involved. I made a pitch to the attorney general

7 of BVI that they get involved.

8 THE COURT: Wait a minute. Attorney general of what?

9 MR. MOSCOW: British Virgin Islands.

10 I did not file any 1782 applications; we did not file

11 any affidavits in support of any 1782 applications that were

12 taken over by a different firm.

13 THE COURT: So before this really had gone any farther

14 than preliminaries, another firm was retained, right?

15 MR. MOSCOW: Correct.

16 THE COURT: And you were replaced by the other firm.

17 MR. MOSCOW: Correct.

18 THE COURT: Now, when you or your firm was retained to

19 represent Prevezon in the case now before the Court, was there

20 any -- I think you already answered it, but I'm going to ask

21 you again. Was there any consideration of the issue of

22 conflict?

23 MR. MOSCOW: Yes.

24 THE COURT: And what was the issue that was

25 considered?

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1 MR. MOSCOW: I considered the question of the rules,

2 both the Code of Professional Responsibility and the Rules of

3 Professional Conduct. I read those. I noted that Hermitage is

4 not adverse to Prevezon, and that it has no adverse interest, I

5 should say, to Prevezon. I saw that there's -- in the absence

6 of an adverse interest, there was no conflict with the rules.

7 THE COURT: I've got to interrupt you.

8 MR. MOSCOW: Sure.

9 THE COURT: The case is before me, but I'm going to

10 ask you anyway. What are the issues in this case now involving

11 Prevezon?

12 MR. MOSCOW: There are seven charges against them.

13 There's a forfeiture charge and six money laundering charges,

14 which charge that they knowingly or intentionally or whatever,

15 with various mental states, that they possessed proceeds of a

16 crime involving stealing from the Russian Federation.

17 THE COURT: And the alleged crime occurred when?

18 MR. MOSCOW: The alleged crime occurred -- the theft

19 from the Russian Federation took place in December '07. The

20 alleged money laundering would have taken place thereafter in

21 2008, after the current owner of Prevezon acquired it.

22 THE COURT: And your current client Prevezon is

23 charged with participating in the laundering of money from that

24 2007 theft, right?

25 MR. MOSCOW: Yes.

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1 THE COURT: Now, I'm going to try to see the relation

2 or nonrelation between the issues in the case before us now,

3 and the issues you actually dealt with when you represented

4 Hermitage.

5 Now, do you say the issues are different?

6 MR. MOSCOW: Yes. There is some similarity; they are

7 different.

8 THE COURT: Why are they different and why are they

9 similar?

10 MR. MOSCOW: Hermitage was worried that they would be

11 charged with stealing money. They weren't ever charged with

12 it; other people were convicted of it. And proof that there

13 was a conviction can be made.

14 Prevezon is charged with possession, if I can use

15 shorthand, possession of stolen property. They were charged

16 that they knew that they were getting money that was the

17 proceeds of a crime.

18 The fact is the chart that traces the money supposedly

19 deals entirely with rubles. The matter I was asked to deal

20 with dealt entirely with dollars going through New York.

21 THE COURT: Wait a minute. You're going a little too

22 fast.

23 MR. MOSCOW: Sure.

24 For Prevezon, the accusation is that they possessed

25 money stolen from the Russian treasury. And the details of the

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1 accusation are that the government has traced rubles from one

2 Russian bank to another throughout till money went to UBS.

3 THE COURT: Traced rubles.

4 MR. MOSCOW: Rubles until they went to Moldova, where

5 a bank converted them into dollars and sent them to UBS.

6 That's this case.

7 What I was dealing with in 2008 was Raffhaizen Bank, a

8 Vienna bank, that was supposedly dealing with dollars with U.S.

9 Money Center banks. 230 million is a lot of money. You're

10 going to have people at different parts of it.

11 THE COURT: When you were representing Hermitage

12 before, again --

13 MR. MOSCOW: I was dealing only in dollars.

14 THE COURT: Just, again, what were the issues?

15 MR. MOSCOW: The issues had to do with dollars.

16 THE COURT: All right, dollars. And the question

17 being did --

18 MR. MOSCOW: Question being --

19 THE COURT: Did Hermitage steal, right?

20 MR. MOSCOW: No, that was not -- they were looking for

21 evidence under 1782 that would establish that they did not

22 steal. I was not tracing the dollars. We discussed it; I did

23 not do it. We raised the question --

24 THE COURT: In other words, what you were doing back

25 in 2008 and early 2009 for Hermitage was to get bank records

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1 and other records to defend them in the event there was a

2 Russian prosecution for them stealing, right?

3 MR. MOSCOW: Correct.

4 THE COURT: I take it there was no such prosecution,

5 right?

6 MR. MOSCOW: There was none. People were prosecuted

7 and convicted, but they were not charged. Hermitage was not

8 charged.

9 THE COURT: And what is going on now as far as

10 Prevezon? And what you represent is that the government is

11 alleging that Prevezon participated in the laundering of money

12 from the 2007 theft, right?

13 MR. MOSCOW: Correct.

14 As I said, my analysis was based on the lack of

15 adversity of interest. Hermitage is simply not adverse in

16 interest to Prevezon. As I said before, there is nothing

17 inconsistent with both of them being wrongly targeted.

18 THE COURT: I'll take a short recess and then we'll

19 come back.

20 (Recess)

21 THE COURT: Does any other lawyer wish to speak?

22 MR. TAUBE: Yes. Thank you, your Honor. I'll speak

23 briefly.

24 Seth Taube for Baker Botts.

25 Your Honor, I'm from the law firm of Baker Botts. And

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1 this is to oppose part of the movants' motion to disqualify a

2 second law firm, my firm, Baker Botts. It's a separate firm

3 from Baker Hostetler, despite the first name. We were retained

4 independently, and it is uncontested we have no prior

5 representation of Mr. Browder or Hermitage.

6 Two very brief points for the Court:

7 First, movants have absolutely waived any

8 disqualification motion by waiting 11 months to bring this

9 motion against either firm, but particularly Baker Botts. They

10 never raised previously by letter, by grievance, anything about

11 Baker Botts. This is the first time after 11 months.

12 They meet every test for waiver that the federal

13 courts recognize in these instances, such as the Eastern

14 District KLG case.

15 We cite four quick elements:

16 When did they know? They sent letters to Baker

17 Hostetler a year ago.

18 Were they represented by counsel a year ago? Yes.

19 Brown Rudnick, a well-known law firm; they had counsel.

20 Third, why did the delay occur? They chose to wait

21 until they were subpoenaed in this case, that was a decision.

22 It's tactical. And the courts recognize that when you have a

23 decision to wait, that's a tactical decision; that that weighs

24 heavily in favor of waiver.

25 And finally, what prejudice to the defendants, our

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1 clients, comes from this 11-month delayed motion? Severe

2 prejudice. They want to disqualify both law firms that have

3 represented this client for 11 months. This waiver should

4 apply to both firms, but certainly Baker Botts, where they

5 never raised it before in any sense. And the law Mr. Mastro

6 cites in his brief has no application to co-counsel, by the

7 way.

8 My second and only other point, your Honor, is that

9 even if this motion were timely, you need hardly say that the

10 law does not impute conflicts from one law firm to another.

11 You have to prove confidential information passed.

12 In this case, as soon as we learned last year about

13 this potential allegation of conflict, we entered into a signed

14 agreement with Baker Hostetler not to talk about the past case.

15 We never have. We never looked at any documents. As best we

16 can tell from everything we've done, we've gotten our

17 information from public sources. And the law supports not

18 conflicting out co-counsel under these circumstances.

19 Finally, your Honor, the prejudice to defendants I

20 want to return to, Baker Botts has worked for a year for these

21 defendants, so has Baker Hostetler. Given the year's delay in

22 asserting this claim, it would severely prejudice the

23 defendants, and their choice of counsel should also be given

24 deference, given they knew about it a year ago.

25 THE COURT: When was the conflict issue first raised

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1 and in what form?

2 MR. TAUBE: Very good, your Honor.

3 Last November, 11 months ago, the prior firm

4 representing Mr. Browder sent a letter to Baker Hostetler

5 saying we think there's a problem; there's a conflict. Baker

6 Hostetler responded and heard nothing further for 11 months

7 while Mr. Browder and Hermitage knew that both these law firms

8 were doing work in this case.

9 THE COURT: Then what happened?

10 MR. TAUBE: They filed a grievance, but they didn't

11 come and move to dismiss.

12 In March, your Honor, the U.S. Attorney said there's

13 this issue of conflict. And your Honor ruled in March nobody

14 has asked to disqualify anyone, and until they do, I don't want

15 to hear it. And they waited from March until now to make this

16 motion.

17 THE COURT: "From now" being what?

18 MR. TAUBE: "Now" meaning they first raise it on --

19 September 18th, 2014 is the first time they raised Baker Botts

20 had an issue, ten and-a-half months later.

21 THE COURT: All right. Thank you.

22 MR. TAUBE: Thank you, your Honor.

23 THE COURT: Anyone else wish to...

24 MR. MARK: Your Honor asked about the relationship

25 between the matter in which Baker Hostetler was representing

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1 Hermitage and Mr. Browder previously. And the matter that's in

2 front of you today in U.S. v. Prevezon, and what was the scope

3 of the prior representation. That's an important question.

4 And we believe it can be answered using a couple of source

5 materials:

6 First, Mr. Moscow said, when asked, quite candidly,

7 that the -- he identified the scope of what was going on to

8 include an investigation of facts to assist Hermitage in

9 defending against activity in Russia based on the 2007 fraud.

10 That's what was involved in Hermitage. The 2007 fraud is the

11 $230 million tax fraud that we have been discussing before.

12 THE COURT: Look, let me just tell you what's on my

13 mind.

14 MR. MARK: Sure.

15 THE COURT: You're right, you're absolutely right in

16 what you've just said. But the question is what did Mr. Moscow

17 do at that time. Obviously the issues were the big issues.

18 But what did he do?

19 MR. MARK: And what he did, I will answer that in two

20 ways:

21 As Mr. Moscow said, and as is confirmed in the billing

22 records from Baker & Hostetler and in other material that I

23 will refer to later, Mr. Moscow, among other things, went to

24 make a pitch to the U.S. Attorney's Office to see if they were

25 interested in a criminal case against the people who stole the

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1 money. That's what he was doing on behalf of Hermitage.

2 THE COURT: That's a very limited type of activity.

3 Did he do anything else?

4 MR. MARK: I don't think that is so limited to ask the

5 government --

6 THE COURT: Well, I do.

7 MR. MARK: -- to bring a RICO case or to pursue

8 remedies.

9 And what we have going on here today is a money

10 laundering case --

11 THE COURT: Well, what about what he said he was

12 trying to work on a 2006 fraud involving Renaissance, and show

13 that Hermitage was not involved in that, and, therefore, it

14 could be deduced that Hermitage was not involved in the 2007.

15 MR. MARK: Yes.

16 THE COURT: Now, let's put aside whether that's a very

17 good theory, but that's what he said.

18 MR. MARK: Yes. And the significance of that is the

19 following: The only reason -- the only reason -- that he is

20 interested in the 2006, in investigating that and in gathering

21 the evidence that he described, is because he is trying to

22 serve the interests of Hermitage in connection with the 2007

23 $230 million incident.

24 THE COURT: That's exactly what he said.

25 MR. MARK: Right.

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1 And if you look at two things which were drawn

2 together by the government, the relationship between the two

3 matters is clear. Exhibit 12 to Ms. Rubin's declaration is the

4 draft Felgenhauer affidavit that was going to support their

5 discovery request.

6 THE COURT: Who drafted that?

7 MR. MARK: Baker Hostetler.

8 And the significance of it is to show the scope and

9 nature of the work that they were engaged in.

10 Paragraph 54 -- I could pick other paragraphs, but

11 paragraph 54 of that lays out an aspect of the investigation

12 that they want to get into about the 2006 matter, because they

13 are strikingly similar to the activity by which Hermitage was

14 victimized.

15 THE COURT: Did Mr. Moscow draft that declaration?

16 MR. MARK: The declaration was drafted at Baker

17 Hostetler --

18 THE COURT: I asked you a different question:

19 Did he draft it?

20 MR. MARK: I can't answer whether he personally set

21 the pen to paper.

22 THE COURT: I'll ask you, Mr. Moscow. Did you draft

23 that?

24 MR. MOSCOW: No.

25 MR. MARK: It is still Baker & Hostetler's work

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1 product that he then transmits and forwards, and is the basis

2 for the action later.

3 In a letter that was delivered to the Court discussing

4 this material, as I understand Baker Hostetler's position, they

5 don't contest that that declaration contains information and

6 reflects the theories that I just described; they just say it's

7 not pertinent here because they didn't actually file it.

8 THE COURT: Let me interrupt you.

9 The problem I have with the idea of disqualifying

10 Mr. Moscow and his firm is this. And I'm not referring to case

11 law now; I'm trying to refer to the facts.

12 MR. MARK: Yes.

13 THE COURT: If Mr. Moscow was involved, as he was in

14 trying to work up a defense of Hermitage, he certainly

15 represented Hermitage at that time.

16 MR. MARK: Yes.

17 THE COURT: If that work involved what I'll call a

18 very limited kind of activity, that is, trying to develop the

19 idea that a 2006 fraud involving Renaissance did not involve

20 Hermitage and, therefore, a 2007 fraud did not involve

21 Hermitage, one can argue about the persuasiveness of that

22 argument. But if he was working on that, and maybe somebody in

23 his law firm drafted up a long declaration, but if that was his

24 work and it only lasted a few months and he didn't even finish

25 it, I really have a problem in saying that that work, which was

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1 limited and he couldn't even finish it, should mean that he

2 gets taken off the case where a client has retained him now to

3 do something much, much broader, and much bigger, with a

4 broader range of issues, different kinds of issues than what he

5 was trying to deal with then. And to say that he cannot now

6 represent a client who wants him on a whole different set of

7 issues, although maybe related in a way to the 2007 problem,

8 but the relation of the 2007 problem, in my view, is a

9 connection which, as a judge, and realizing that it's

10 extraordinary to take a lawyer off the case, is that connection

11 enough to take him off a case when he's doing something very,

12 very much different now than he was then.

13 MR. MARK: Your Honor, I agree. And we have said from

14 the beginning that this is a matter that we approach with

15 extreme care and with extreme seriousness. No one disagrees.

16 This is not a matter to be taken lightly. And we have

17 approached it in exactly that way.

18 THE COURT: I still don't understand why you want to

19 do this.

20 MR. MARK: Because a client is entitled, under the

21 nature of our legal system, to be able to repose, trust that

22 his lawyer will maintain confidences and not use them adversely

23 to his interest.

24 THE COURT: What is the evidence that he's misusing

25 confidences?

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1 MR. MARK: In the case before you, broadly taken,

2 underlying it, the government, I assume, has taken on a burden

3 of trying to show the fraud and the money laundering that's

4 going on. I do not understand that the Prevezon counsel have

5 conceded any of that. Whoever represents Prevezon should try

6 vigorously to contest the allegations of the government's

7 complaint.

8 But part of that, if you look at the government's

9 complaint, paragraph 46, the $230 million fraud scheme is

10 strikingly similar to what appears to have been a fraud scheme

11 carried out by the organization in 2006. That's exactly what

12 Mr. Moscow told you a moment ago was how he got involved in

13 this.

14 Now, he's representing Prevezon. And I assume that

15 they are going to be contesting that when he was working for --

16 THE COURT: Going to be contesting what?

17 MR. MARK: The allegations of the government's

18 complaint, which include a description of the 2006 and 2007

19 frauds, the $230 million.

20 When he was acting on behalf of Hermitage, he was

21 seeking to interest the government in exactly this: Exhibit 4

22 to the Rubin declaration, which is a description from the Baker

23 Hostetler engagement letter signed by Mr. Moscow. One of the

24 possibilities which I see is seeking to have the proceeds of

25 the frauds, to the extent that they are trading through New

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1 York, subject to forfeiture by the Department of Justice. For

2 Hermitage's interest, that's what Mr. Moscow said in 2008 he

3 was seeking to accomplish. He went to the U.S. Attorney's

4 Office to pitch that theory. There are diary entries which

5 show that he sought volumes of documents to work on.

6 THE COURT: Wait a minute. He was pitching that

7 theory. Again, what does that mean?

8 MR. MARK: What it means is he was seeking to have the

9 government bring an action on behalf -- as Mr. Moscow candidly

10 described, to have the U.S. Government involved in an action to

11 seek to remedy misconduct, fraud, what was going on in Russia,

12 adverse to the interests of Hermitage. This case is the other

13 end of that set of facts. This case is money laundering that

14 the government is accusing these people of.

15 THE COURT: He was trying to get the U.S. Government

16 to do what, bring a forfeiture action, bring a criminal action,

17 do what?

18 MR. MARK: Yes. Both. The engagement letter that I

19 refer to mentions in particular a forfeiture action. Here we

20 are, here we are in the forfeiture action brought by the

21 government.

22 To respond very specifically to one factual matter

23 raised by your Honor, in the bill from Baker Hostetler, which

24 is attached as Exhibit 11 to the Rubin declaration, there are

25 entries on May 1st of '09 reflecting consultations with

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1 Mr. Moscow regarding the drafting of the Felgenhauer

2 declaration. So in the ambit of the relationship, of the

3 attorney-client relationship that was going on in 2008 and

4 2009, the matters that Mr. Moscow worked on advance Hermitage's

5 interests. Those are substantially present in the case that is

6 going on now.

7 Your Honor made the point, what if it was just a short

8 amount of work and it wasn't ever completed. I would refer

9 your Honor to the Cole case, once again. In that case, the

10 attorney in question -- similar situation, where it was the

11 same attorney at the same firm, Cullen & Dykman, in the initial

12 representation and the second representation. The

13 disqualification was entered based on bills that showed 10.3

14 hours of work for the client on a matter in which he rendered

15 advice. But no filing ever took place. But because it

16 involved substantially the same matter, and the position of the

17 lawyer in the second matter was on behalf of a client adverse

18 to his first client, there was disqualification.

19 I cannot minimize the seriousness or the difficulty of

20 this, but that's the analysis.

21 THE COURT: How is Mr. Moscow now adverse to your

22 client? Your client is not a party to this action, right?

23 MR. MARK: No. That is correct.

24 THE COURT: And whatever happens in this action, if

25 Prevezon is held liable for participating in money laundering,

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1 that's not you, right, or your client.

2 MR. MARK: That is not me. That's correct.

3 THE COURT: All right.

4 MR. MARK: The reason is, when you seek in a second

5 action to take steps to undermine the basis of your

6 representation in the first action, that is enough adversity.

7 That's what was going on in Cole; I believe that was going on

8 in the Ullrich case --

9 THE COURT: Why is it going on here?

10 MR. MARK: Why is it going on here. Because, as I

11 said, we know we have the substantial relationship between the

12 two.

13 Now, in defending Prevezon, discovery is being sought

14 on a range of topics from Mr. Browder by counsel who had a

15 special relationship with him. And it is because of that and

16 the substantial relationship of the matters that the ethics

17 rules say you can't pursue that.

18 THE COURT: In other words, the real issue is

19 obviously the former counsel for Hermitage is now -- or his

20 firm has subpoenaed somebody connected with Hermitage, namely

21 Browder, and that's the problem, right?

22 MR. MARK: That is certainly what crystallizes it.

23 Browder, in the subpoena, there is a definitional

24 section in which they ask you to respond to the subpoena. And

25 the subpoena served defines "you," not just Mr. Browder, the

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1 human being, but to include all of his companies, specifically

2 naming Hermitage.

3 THE COURT: Let's assume that the subpoena goes to

4 Browder and Hermitage. Now, I think I judge that after all the

5 discussion, that really is what the issue boils down to,

6 whether that is enough.

7 MR. MARK: That crystallizes the adversity. I agree

8 with that, your Honor.

9 But may I add one thing: Because in particular

10 Mr. Moscow is the same individual who was involved in the first

11 representation and the defense of Prevezon, this question of

12 trying to explore precisely the nature and dimensions of

13 confidential information is something that the Second Circuit

14 has said you don't have to do. We presume that there was

15 confidential information shared and that it is irrebuttable.

16 That derives from a test laid down by Judge Weinfeld more than

17 50 years ago.

18 MR. TAUBE: Your Honor, Seth Taube.

19 THE COURT: I'm sorry to tell you, I'm interested in

20 facts. And is there evidence of facts, factual evidence,

21 factual information that Mr. Moscow obtained confidential

22 information. Is there facts. Are there facts.

23 MR. MARK: I'll answer that in two ways:

24 One is reviewing the bills, it is apparent from those

25 which are filed on the public record that there was an

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1 extensive exchange of information between Mr. Moscow and others

2 at Baker Hostetler and the client. So you can see on the bills

3 that such confidential communications took place as you would

4 expect between an attorney and the client.

5 I would ask your Honor, if after we finish the

6 proceeding here, if you would entertain us briefly in camera,

7 we would be able to point out with specificity certain items in

8 the sealed materials for your consideration that would answer,

9 I believe, the question you ask.

10 THE COURT: In other words, confidential information

11 given by Hermitage to Moscow and his firm, right? That's what

12 you're talking about.

13 MR. MARK: I'm talking about that and the sharing of

14 strategic and other thoughts that pass between an attorney and

15 a client.

16 The case law says it's not just hard facts, and can I

17 see this on the Internet or not. People have access to public

18 information. But when an attorney and a client are in a

19 relationship and they are discussing strategy and what to do

20 and how things are done, that is part of the confidential

21 relationship that the law protects so that a client and an

22 attorney can discuss how to shape and direct an action. And

23 that is why I would ask for a brief opportunity with those

24 materials, but that would have to be in camera.

25 THE COURT: Look, I go back to this: Mr. Moscow

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1 worked for your client for a few months. He obviously did

2 things for your client. Presumably he obtained some

3 information from your client; what else does a lawyer do. And

4 I don't think there's any challenge to his credibility when he

5 says he was trying to develop this idea of the 2006 matter

6 about Renaissance to show that Hermitage did not do something

7 wrong in 2007. But even on that project, he was taken off; it

8 was given to another lawyer.

9 I guess I'm repeating myself from what I said earlier.

10 I really have to tell you, I've got a very severe problem with

11 the idea that now when he's retained in a different matter, and

12 I mean different in maybe there was some little tie, but this

13 is a different matter -- different matter -- he's retained, and

14 the issues that he will be dealing with will be much bigger,

15 broader, and essentially different from what he was doing for

16 Hermitage back in the earlier year.

17 MR. MARK: May I respond?

18 THE COURT: To take him off the case so that he can't

19 do a very different job, I don't even know why Hermitage would

20 want to do that. Frankly, it's kind of a mean thing to try to

21 do.

22 MR. MARK: It's certainly a difficult thing to try to

23 do. It is a serious thing to try to do. But it is not, I

24 don't think, a mean thing for a client who had reposed trust in

25 a lawyer, and who, by the nature of attorney-client relations,

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1 are in a confidential relationship, expects that to be --

2 THE COURT: How is he going to hurt your client now?

3 MR. MARK: It's two sides of the fraud.

4 In 2008, as I read from the engagement letter and as

5 Mr. Moscow said when he was here, his mission, as attorney for

6 his client Hermitage, was to seek redress in connection with

7 frauds that had been perpetrated using theft of the identity of

8 the Hermitage companies' identities and so forth. That's the

9 $230 million.

10 Now, if his client now has been accused of money

11 laundering and receiving fruits of that same matter --

12 THE COURT: But Hermitage is not accused now.

13 MR. MARK: Hermitage is not. But Prevezon is seeking

14 discovery and testing theories, because they are challenging

15 the government's allegations to deny those. And by seeking

16 discovery, they are not trying to prove the matters in the same

17 direction and in the same interest that they were seeking

18 before with Hermitage.

19 THE COURT: It is not at all clear to me what this

20 discovery will involve.

21 MR. MONTELEONI: Your Honor, this is Paul Monteleoni

22 from the government. May I be heard briefly?

23 THE COURT: Sure. Of course you can.

24 MR. MONTELEONI: First of all, I'm here at counsel

25 table with John McEnany and Christine Magdo from my office.

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1 The government has not itself made a motion requesting

2 relief, but the government does think that it's important to

3 make sure the Court has an understanding of the factual picture

4 here. And though the government doesn't know as much about the

5 content of the representation between Baker Hostetler and

6 Hermitage as the parties, what the government can tell from the

7 draft declaration that Baker Hostetler provided is that there

8 is an extremely large --

9 MR. MOSCOW: The draft declaration we did not provide.

10 MR. MONTELEONI: Sorry. That Baker Hostetler provided

11 to Hermitage, that Hermitage subsequently provided to the

12 Court, that draft declaration, the Exhibit 12 that has been

13 discussed, describes not just the 2006 fraud, it describes the

14 2007 fraud in a lot of detail, a lot of detail that also

15 appears in the complaint.

16 As we set forth in our letter, there are many

17 paragraphs in both the draft declaration Baker Hostetler

18 provided, and then also in our complaint that describe the

19 searches of Hermitage's lawyers, the appropriation of corporate

20 documents, the registration of new identities, the institution

21 of sham lawsuits, the request for tax refunds as a result of

22 those sham lawsuits. It's the whole story of the 2007 fraud:

23 The 2007 fraud that we are seeking to prove, and the 2007 fraud

24 that appears in this draft declaration.

25 Now, it is true that there are some issues in this

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1 case that don't appear in the draft declaration, the issues of

2 the particular state of mind of Baker Hostetler's current

3 clients.

4 THE COURT: Can I interrupt you?

5 MR. MONTELEONI: Absolutely.

6 THE COURT: I've read the government's complaint.

7 It's long. It has a great amount of material about the fraud

8 against Russia. And it ends up seeking to recover $800,000,

9 which you claim came to New York through money laundering. So

10 I'm quite familiar with very large, fulsome pleadings, other

11 materials. I know that.

12 But when we get down to the essential facts, we don't

13 deal with a million facts; we deal with a few. And as far as

14 the government's action here, I know you wish you could recover

15 all $240,000,000. You're after $800,000 as a result of a long,

16 long complaint which has a lot of history and so forth. I'm

17 familiar with that complaint.

18 Now, the declaration or the draft declaration which

19 Mr. Moscow says he didn't draft, again, it's got a lot of

20 history in it. The thing is, that gets way past the issues,

21 way past. The issue really is what did Mr. Moscow do for

22 Hermitage in 2008 and early 2009. And that is not a matter

23 that's going to be solved by referring to a complaint with huge

24 amounts of history and so forth. It doesn't do anything.

25 And so the issue is what did he do -- literally do --

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1 for Hermitage in 2008 and 2009, and now that he's representing

2 Prevezon, what will he do. And he or his firm have issued a

3 subpoena to Mr. Browder. And let's assume the subpoena covers

4 Hermitage. What will that do? And I want to try to stick to

5 facts. And I am not at all sure that what will be done

6 pursuant to the subpoena and the discovery requests, I'm not at

7 all sure that this in any way involves what is legally cognized

8 as a conflict of interest.

9 MR. CYMROT: Let me answer that question, your Honor.

10 THE COURT: Yes.

11 MR. CYMROT: You just asked it, what would we do.

12 THE COURT: Yes.

13 MR. CYMROT: You just said what we've been saying

14 since the beginning of the case: All of that history is

15 irrelevant. And that's what they want to use Mr. Browder to

16 testify about, is all that history. And I've stood here and

17 said paragraphs 1 through 100, all that history is irrelevant,

18 your Honor, and it's prejudicial.

19 THE COURT: It's completely unnecessary.

20 MR. CYMROT: Exactly.

21 THE COURT: All that long pleading is completely

22 unnecessary.

23 MR. CYMROT: Exactly.

24 And what we would do is work on the Prevezon piece of

25 it, which is the last 20 paragraphs. Prevezon was unheard of

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1 in 2008 and 2009. The money laundering that's alleged in this

2 complaint as to Prevezon was unheard of in 2008 and 2009. It

3 had nothing to do with any of the materials we're talking

4 about, that they are talking about here. Nothing to do with

5 that. And we would defend Prevezon that it was not involved in

6 money laundering and didn't have the intent to engage in money

7 laundering, the last 20 paragraphs.

8 THE COURT: Look, your firm served a subpoena on

9 Browder, right?

10 MR. CYMROT: Actually, it was Baker Botts that served

11 the subpoena.

12 THE COURT: Baker Botts.

13 MR. CYMROT: Yes.

14 THE COURT: To take a deposition, right?

15 MR. CYMROT: Yes, because they named --

16 THE COURT: What do you or the other firm all seek to

17 do with the deposition?

18 MR. CYMROT: Exactly what I said before: Determine

19 what evidence he would present of this history the government

20 wants to prove. That's it.

21 MR. MONTELEONI: Your Honor, may I be heard briefly?

22 THE COURT: Just a minute.

23 In other words, you want to do what a lawyer would do;

24 and that is, if you have word that the government is going to

25 call Browder, you want to find out what he would testify to at

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1 trial, right?

2 MR. CYMROT: Exactly.

3 THE COURT: And let me ask you this: If it appeared

4 that he would give testimony unfavorably to your client, you

5 would seek to argue that that testimony is not credible or

6 you'd try to impeach and so forth, right?

7 MR. CYMROT: Well, the first thing we would say is

8 that he's not a competent witness to give any testimony in this

9 proceeding.

10 THE COURT: All right. Okay.

11 MR. CYMROT: But, yes, you're right.

12 THE COURT: You would seek to rebut or do something.

13 If he got to the point of testifying against your client, you

14 would want to defend against that, right?

15 MR. CYMROT: Correct.

16 THE COURT: Can I ask you this: Would it be your

17 client's idea to call Browder as a witness if this case went to

18 trial?

19 MR. CYMROT: No.

20 THE COURT: So it's a matter of dealing with his

21 testimony, if it was adverse to your client, right?

22 MR. CYMROT: Correct. And proved to be relevant and

23 proved to be competent. Those are two hurdles they have to get

24 over before we ever get to him being a witness at trial.

25 THE COURT: All right. Thank you.

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1 MR. CYMROT: Just one point I want to make about this.

2 You've asked another question, which is what is the

3 adversity. If Prevezon wins, there's nothing adverse to

4 Hermitage. If Prevezon loses, nothing adverse happens to

5 Hermitage. There is no adversity. A witness does not, as a

6 matter of law, have an adverse interest, as the rule requires.

7 And they don't have a single case where a nonparty witness has

8 been able to disqualify a former lawyer.

9 THE COURT: They don't have a single case what?

10 MR. CYMROT: Where a nonparty witness, they are not a

11 party to the case, has been able to disqualify a former lawyer

12 like Mr. Moscow. They haven't cited a single case that says

13 that.

14 THE COURT: I'm going to ask you to come back at 3

15 o'clock.

16 MR. MARK: Your Honor, will we have an opportunity at

17 3 o'clock for further argument, in particular, for example --

18 THE COURT: Of course.

19 MR. MARK: -- the request I made earlier about in

20 camera and so forth?

21 I do want to make one comment about Baker Botts, but

22 we'll leave that for later.

23 THE COURT: Of course. Of course.

24 (Unsealed portion concluded)

25

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1 UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x
UNITED STATES OF AMERICA,
3
Plaintiff,
4
v. 13-CV-6326 (TPG)
5
PREVEZON HOLDINGS LTD., et
6 al.,

7 Defendant. Oral Argument

------------------------------x
8 New York, N.Y.
October 23, 2014
9 3:11 p.m.

10 Before:

11 HON. THOMAS P. GRIESA,

12 District Judge

13 APPEARANCES

14 U.S. ATTORNEY'S OFFICE FOR THE SOUTHERN DISTRICT OF NEW YORK

For Plaintiffs
15 BY: PAUL M. MONTELEONI, ESQ.
CHRISTINE I. MAGDO, ESQ.
16 Assistant United States Attorneys

17 BAKER HOSTETLER LLP

Attorneys for Defendants
18 BY: MARK A. CYMROT, ESQ.
JOHN W. MOSCOW, ESQ.
19 LAURA L. ALAVERDI, ESQ.

20 BAKER BOTTS LLP

Attorneys for Defendants
21 BY: SETH T. TAUBE, ESQ.
VERNON A.A. CASSIN, III, ESQ.
22 GABRIELLA VOLSHTEYA, ESQ.

23 GIBSON, DUNN & CRUTCHER, LLP

Attorneys for Movant William Browder
24 BY: RANDY M. MASTRO, ESQ.
RICHARD W. MARK, ESQ.
25 LISA H. RUBIN, ESQ.

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1 (Case called)

2 THE COURT: Let me start by noting that we had a

3 ex parte session recently on a sealed record and I really

4 didn't hear anything that justified a sealed record or

5 justified confidential treatment, so unless there is an

6 objection, and I'd want to hear the grounds for that and I hope

7 we don't spend a lot of time on it, I think that that sealed

8 record should be unsealed, and I heard nothing justifying a

9 sealed record.

10 MR. MASTRO: Your Honor, Randy Mastro for the movants.

11 The reason why we submitted the materials in camera to you,

12 your Honor, was so that there would not be any claim later by

13 any of the parties here that there had been any sort of waiver

14 of attorney/client privilege because certain of the materials

15 involve extended communication about strategy, factual

16 background, confidences between an attorney and a client. From

17 our perspective, your Honor, that was done in an abundance of

18 caution. If all parties here are saying they're not going to

19 argue that Hermitage or Mr. Browder waived any attorney/client

20 privilege by having submitted them, I think that that will make

21 a record that addresses that, but that is why we did that, your

22 Honor.

23 THE COURT: All right. Fair enough.

24 Is anybody claiming waiver of attorney/client

25 privilege?

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1 MR. CYMROT: Your Honor, the answer to that is no as

2 to the filings. Our position --

3 THE COURT: I'm not hearing you.

4 MR. CYMROT: The position is that there's not a waiver

5 by reason of filing those materials. Our point was, they were

6 never confidential and never subject to privilege.

7 THE COURT: Look, I think there's no issue. We'll

8 unseal that record and that's that.

9 MR. MASTRO: Your Honor, just one point for the

10 record. The first exhibit, the first exhibit that was filed

11 there, which is a lengthy private communication between client

12 and attorney going through certain strategic objectives and

13 initiatives and how to approach, I think Mr. Browder and

14 Hermitage would consider that exhibit and any discussion of

15 that one exhibit to be confidential because there are

16 proceedings going on around the world not just involving

17 Prevezon but others involved in --

18 THE COURT: What do you mean going around the world

19 about?

20 MR. MASTRO: Your Honor, there are proceedings --

21 THE COURT: What?

22 MR. MASTRO: Governments around the world are looking

23 at this. There are proceedings in Switzerland, in Lithuania,

24 in several other countries where, like this one, governments

25 are investigating or pursuing formal cases against, in at least

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1 one of those cases Prevezon and in other cases others that

2 those governments consider to be involved in this tax fraud

3 scheme and money laundering. So, your Honor, that kind of

4 strategic discussion, you know --

5 THE COURT: Well, look, we can keep one document under

6 seal.

7 MR. MASTRO: Thank you, your Honor.

8 THE COURT: Why don't we do that.

9 MR. MASTRO: I really appreciate it, your Honor. And

10 there were a few pages where Mr. Mark discussed that document,

11 so we'll designate those to your Honor.

12 THE COURT: Exactly. And that will be kept under

13 seal.

14 MR. MASTRO: Thank you very much. Much appreciated.

15 THE COURT: Thank you very much.

16 Otherwise, that record is unsealed.

17 MR. MASTRO: Thank you, your Honor.

18 THE COURT: Now what do we need to do to continue what

19 we started the other day?

20 MR. CYMROT: May I speak first, your Honor?

21 MR. MASTRO: Well, actually, I thought your Honor

22 asked us to come and address the adversity issue, your Honor,

23 so I thought we were the ones who were supposed to be speaking

24 today.

25 THE COURT: Let's have Mr. Mastro speak first. That's

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1 fine.

2 MR. MASTRO: Thank you, your Honor. Very much

3 appreciated. Very much appreciated, because, your Honor, what

4 a difference a few days makes. Let me explain what I mean by

5 that, your Honor. When we left your Honor in chambers, your

6 Honor raised, rightly, that maybe this could all be avoided if

7 the parties could stipulate as to what should be indisputable,

8 that there was a $230 million tax fraud in Russia, where

9 Hermitage-affiliated entities -- there was identity theft and

10 those entities' identities were used in the commission of a

11 $230 million tax fraud in Russia, in a collusive activity

12 between Russian confederates and Russian officials. And that's

13 the first link in a series of events that lead us to where we

14 are today. And I said to your Honor then, your Honor, the

15 government may be willing to stipulate to that, but Prevezon

16 will never stipulate to that. And your Honor, I'm here today

17 to say -- because that points out the adversity here --

18 Prevezon is not willing to stipulate to that. They are not

19 willing to stipulate that that fraud occurred in Russia, that

20 Hermitage identities were used --

21 MR. CYMROT: Your Honor, that's not --

22 MR. MASTRO: Excuse me, Mr. Cymrot.

23 MR. CYMROT: Mr. Mastro --

24 MR. MASTRO: Mr. Cymrot, you'll have your chance.

25 MR. CYMROT: If you're going to say it, say it

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1 accurately, because you know we stipulated to that.

2 MR. MASTRO: Mr. Cymrot --

3 THE COURT: Look, look, the issue for today is not

4 history. The issue for today is the question of whether

5 Mr. Moscow's brief few-month retention by Hermitage

6 disqualifies him from representing Prevezon now. That is the

7 issue.

8 MR. MASTRO: Correct.

9 THE COURT: We're not going to get into a lot of

10 history, I don't think. We're going to finish up on that issue

11 and that is the issue before the court.

12 MR. MASTRO: Correct, your Honor, and that's why I

13 raised this point, your Honor, because Mr. Cymrot wrote --

14 THE COURT: Raised what?

15 MR. MASTRO: I'm raising the point about the inability

16 to stipulate because it means that Mr. Browder and Hermitage,

17 in the absence of such a stipulation, they will be called as

18 witnesses in this case, and as Mr. Cymrot just wrote to the

19 court an hour ago, "Prevezon is not in a position to stipulate

20 to facts of which it is entirely unaware." Those are the facts

21 that your Honor talked about, that history, the first chains in

22 the link of the money laundering which the government has --

23 THE COURT: I wasn't talking about that at all. Now

24 please, let's get to the point, if you will.

25 MR. MASTRO: Certainly, your Honor. The point is

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1 this: Mr. Moscow and his firm -- I'm going to tell you five

2 levels of adversity, your Honor; five reasons why the

3 representation of Mr. Moscow and BakerHostetler here create

4 adversity for our clients.

5 Your Honor, number one, the very purpose for which

6 Mr. Moscow and his firm were hired in the first place, it went

7 beyond merely collecting documents to defend in Russia. It

8 went to putting together a strategy for how this fraud

9 occurred.

10 THE COURT: They were representing Hermitage. We know

11 that.

12 MR. MASTRO: Yes, and your Honor, this is the key

13 point. He was hired to put together a strategy under RICO and

14 forfeiture laws to go to the government to collect information,

15 develop a strategy and go to the government and try to convince

16 them to bring cases just like this one, to go after those who

17 the government finds were involved in this scheme.

18 THE COURT: And to go after other people besides

19 Hermitage. We know that.

20 MR. MASTRO: But your Honor, this is the point.

21 Mr. Browder and Hermitage have committed themselves, as victims

22 of that fraud scheme -- and the government has now attested in

23 a submission to your Honor last night that Hermitage and

24 Browder qualify as victims under DOJ guidelines in this case.

25 They have spent years trying to expose this fraud and bring

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1 those to justice who were involved, and now --

2 THE COURT: Who's "they"?

3 MR. MASTRO: "They," Hermitage and Mr. Browder, have

4 spent vast amounts of resources and devoted themselves, made it

5 their life's mission to bring to justice those who committed

6 this fraud or who have been involved in the laundering of funds

7 involved in this fraud, and the government has now finally

8 taken up that mission too and brought the first of its cases.

9 Mr. Moscow went there in December 2008 and said to the

10 government: Here's our theory for a RICO or forfeiture action.

11 You should be figuring out who did this and bring those cases

12 on behalf of Hermitage and Mr. Browder. And now, the

13 government has done it, and the very first party the US

14 government has gone after in this regard, as the ultimate link

15 in the chain of money laundering, is Prevezon. And imagine

16 Mr. Browder's and Hermitage's surprise, when they have been at

17 personal risk, when they have been prosecuted in absentia, when

18 they're chased around the world by Russian authorities from

19 false criminal charges, when their own Russian lawyer, Sergei

20 Magnitsky, was not only arrested but tortured and murdered in a

21 Russian prison --

22 THE COURT: I don't understand what you're getting at

23 at all.

24 MR. MASTRO: I want to explain it clearly, your Honor.

25 I want to explain it clearly.

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1 Mr. Moscow, in his own words, was hired -- and this is

2 Exhibit 4 that we submitted to you. He was hired by Hermitage

3 and Mr. Browder to "analyze the behavior at issue with a view

4 to causing criminal prosecutions where appropriate in New York,

5 in the United States generally, or elsewhere."

6 THE COURT: But we went through all that the other

7 day.

8 MR. MASTRO: We did.

9 THE COURT: We went through all that the other day.

10 MR. MASTRO: Correct, your Honor, but the point is,

11 and the government, you know, agrees with us completely, that

12 the fruits of those labors, Mr. Moscow going down and pitching

13 the government in late 2008 and the work he did for Hermitage,

14 which, your Honor, was nearly a hundred hours of personal time

15 on his part, nearly 200,000 in fees charged, hundreds of hours

16 of BakerHostetler lawyers, to put that case together, to make

17 that presentation, to try to convince the government to go

18 after those who were involved in the fraud and the money

19 laundering. Now the government has done it, and the very first

20 party the government has gone after and established was

21 involved in the money laundering is Prevezon. Mr. Moscow shows

22 up on the opposite side. It completely undermines the very

23 purpose of the representation that he endeavored to pursue, to

24 take on.

25 THE COURT: I don't agree with that at all.

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1 MR. MASTRO: Well, let me continue, your Honor. I

2 have to say that I see the link --

3 THE COURT: Look, let's not repeat what we went

4 through.

5 MR. MASTRO: I'm not trying to repeat, your Honor,

6 just trying to explain.

7 THE COURT: There is no doubt that Mr. Moscow was

8 hired by Hermitage. He was. And he was retained by them for a

9 few months at the end of 2008 and the very beginning of 2009,

10 at which time, in his words, there was a parting of the ways.

11 So here he is, representing Hermitage without question for a

12 few months to try, obviously, to deflect any prosecution

13 against Hermitage, maybe persuade the government to prosecute

14 others. All of that was involved for a few months in '08 and

15 the beginning of '09. We are now five years later. We have a

16 brand new lawsuit against Prevezon. Prevezon wasn't sued then.

17 MR. MASTRO: It isn't --

18 THE COURT: Excuse me. Now Hermitage is not being

19 sued, Prevezon is being sued, and the issues are about

20 Prevezon.

21 MR. MASTRO: Your Honor, it's not a brand new lawsuit

22 in this sense. Its origins are the $230 million tax fraud --

23 THE COURT: Of course.

24 MR. MASTRO: -- and the laundering of the money.

25 THE COURT: Please. It's like saying that, you know,

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1 there's a relation between Canada and Brazil because they're in

2 the Western Hemisphere. Of course there's some relation. But

3 that $230 million was a vast thing which produced obviously

4 money laundering, which goes way, way beyond anything we know

5 about. And it goes way beyond what is alleged in the action by

6 the government, which is a very limited, small action.

7 MR. MASTRO: But your Honor, the government can tell

8 you, better than I, that the government's money laundering case

9 is based on the $230 million tax fraud scheme.

10 THE COURT: Of course it is. We know that.

11 MR. MASTRO: And therefore, the money has to be

12 traced, your Honor, and Mr. Moscow, and BakerHostetler, were

13 hired by Hermitage and Mr. Browder to help them convince the

14 government to follow that money trail wherever it led and bring

15 to justice and forfeit ill-gotten gains of anyone who was

16 involved in the money laundering, and that led to Prevezon now.

17 THE COURT: He was retained to deflect legal action

18 from Hermitage.

19 MR. MASTRO: With all due respect, your Honor, those

20 are not Mr. Moscow's own words at the time of his retention.

21 Mr. Moscow's own words, including in the conversations he had

22 with the client, which some of them are before your Honor now,

23 are, yes, you have to defend against Russian criminal charges,

24 but the point is, to expose those who were responsible for the

25 fraud and who had been involved in the money laundering.

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1 That's the necessary corollary.

2 THE COURT: And to do that and avoid prosecution of

3 Hermitage.

4 MR. MASTRO: It was both, your Honor.

5 THE COURT: You leave that out all the time.

6 MR. MASTRO: I do not, your Honor. It was --

7 THE COURT: Yes, you do.

8 MR. MASTRO: It was both. It was both things, your

9 Honor. It was both to defend in Russia and to expose who was

10 really involved, and then get them prosecuted or forfeiture

11 actions brought. Those are Mr. Moscow's words, your Honor.

12 THE COURT: But Mr. Moscow was not retained as a

13 commissioner for the benefit of humanity; he was retained to

14 protect Hermitage, and he was only retained for that for a few

15 months, ending five years ago.

16 MR. MASTRO: But your Honor, your Honor, again,

17 Mr. Moscow said and did the following. He said: I am going to

18 put this together in a way that the government will -- easily

19 understood by the prosecutors -- this is Exhibit 4 -- in this

20 country and make presentations to prosecuting agencies to

21 suggest their taking action against the fraudsters. One

22 possibility I see is having the proceeds of the frauds to --

23 THE COURT: And he did that representing Hermitage,

24 did he not?

25 MR. MASTRO: Correct, because Hermitage was the victim

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1 of the --

2 THE COURT: He did not do that as kind of a

3 commissioner for the benefit of humanity. He was representing

4 Hermitage.

5 MR. MASTRO: Correct, your Honor. Hermitage hired him

6 to do that, to bring the people who victimized Hermitage by

7 identity theft and then using its identity, causing this series

8 of events of Hermitage officials and lawyers being prosecuted

9 in Russia, to expose those involved and get them prosecuted in

10 the US and the money laundering, ill-gotten gains to be

11 forfeited. Those are his words. To the extent they're trading

12 through New York subject to forfeiture by the Department of

13 Justice. Now we didn't know all the players back then. He was

14 trying to get the Justice Department, Southern District, to

15 investigate. He spent hours on a presentation. Exhibit 3

16 before your Honor is how he put the case together to present to

17 the government as a RICO or a forfeiture, and then he went

18 down, spent hours with the assistant US attorneys trying to

19 convince them to bring cases just like this one, and the fact

20 that Mr. Moscow and Hermitage then parted ways, as Mr. Moscow

21 put it, and Hermitage continued in that mission because its own

22 Russian tax lawyer had been arrested, tortured, and killed in

23 Russia, eventually, relatively soon thereafter, within a period

24 of years, the government had put that case together, the one

25 that John Moscow suggested to them in the first place, because

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1 that's why Hermitage hired him. This was a mission to expose

2 those who had used Hermitage and its corporate affiliations to

3 commit a tax fraud and thereby exposed Browder to criminal

4 conviction and prosecution in absentia, their lawyers and other

5 personnel to criminal charges, and one of their lawyers to be

6 literally arrested, tortured, and murdered in Russia. And your

7 Honor, it's links in a chain. The government has to prove the

8 tax fraud and then it has to prove the money laundering out of

9 Russia to get to the US and then who was involved in the money

10 laundering, eventually coming to Prevezon. That's what the

11 government needs to prove. And that's why Mr. Browder and

12 Hermitage will be witnesses in this case, unless there is a

13 stipulation, and it's what they hired Mr. Moscow to get the

14 government to do, to prosecute, to bring forfeiture actions

15 like this one when the wrongdoers were identified, and that's

16 what the government has now done. In that sense, Fordham

17 ethics professor and ethics expert Bruce Green says this is a

18 clear case of a conflict. It doesn't matter whether Mr. Moscow

19 worked ten hours or a hundred. That's what he set about to do,

20 and he went down to the U.S. Attorney's Office, made that

21 presentation, and the U.S. Attorney's Office later took up that

22 cause, the one that Hermitage and Browder hired him to do.

23 And your Honor, I'm going to go on to other subjects.

24 THE COURT: Took up the cause by suing whom?

25 MR. MASTRO: The money launderers, your Honor.

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1 Hermitage and Browder didn't know who was involved in the money

2 laundering chain.

3 THE COURT: Can you name the party they sued?

4 MR. MASTRO: Prevezon, your Honor.

5 THE COURT: All right.

6 MR. MASTRO: And imagine the surprise of those who

7 hired Mr. Moscow, paid his firm quite a bit of money, were

8 pleased to see him go down to the U.S. Attorney's Office and

9 make a presentation that the government should be following the

10 money and figuring out who's involved in the money laundering

11 and whether there are any assets here, that the government then

12 later does that, determines Prevezon is that party, decides to

13 prosecute Prevezon, and then John Moscow, Hermitage and

14 Browder's champion to get the government to do this back in

15 2008 and 2009, shows up on the other side for Prevezon. It's

16 really unfathomable to me, your Honor, that that could happen.

17 It wouldn't happen -- you would never do it. I would never do

18 it.

19 Let me go on to some other points, your Honor, because

20 they're very, very important.

21 Now we have the case, your Honor, since there will not

22 be a stipulation, since the government has said Browder and

23 Hermitage are victims here. They're victims of identity theft.

24 They've been victimized, persecuted, prosecuted in Russia.

25 Mr. Browder can't even travel around the world safely because

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1 Russian authorities keep trying to get Interpol to go after

2 him, an outrage that the US Congress, US State Department, and

3 Justice Department have all said was a sham criminal

4 prosecution resulting from a collusive tax fraud. Your Honor,

5 did Mr. Moscow receive any confidences from our client?

6 THE COURT: Did what?

7 MR. MASTRO: Did Mr. Moscow and BakerHostetler receive

8 any confidences from our clients? Now of course --

9 THE COURT: Did he receive what?

10 MR. MASTRO: Confidences, confidential information.

11 Your Honor, as your Honor knows, the legal standard is, when

12 it's the same lawyer representing one party and then later

13 shows up representing another party on the other side, my

14 client, the victim, adverse to Prevezon, trying to see that

15 Prevezon and the government's prosecution against Prevezon is

16 successful so cooperating with the government, okay, were there

17 any confidences that Mr. Moscow and BakerHostetler learned?

18 The legal standard is, when that's the same lawyer in

19 circumstances like that, involving such a sensitive matter,

20 where the client is facing criminal jeopardy and goes to

21 Mr. Moscow for his help and asks Mr. Moscow to find evidence of

22 the wrongdoing and present it to the government and get the

23 government to go after the wrongdoers, the law is that there is

24 an irrebuttable presumption that confidences were conveyed, but

25 your Honor asked us for more, and we're prepared to give you

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1 more. We were prepared to give you more in camera, but --

2 THE COURT: Whatever you're going to give me is going

3 to be right in public.

4 MR. MASTRO: I'm going to discuss it right now, your

5 Honor, and I'm going to ask your Honor to permit us to have the

6 opportunity to make that additional submission. There was

7 frank discussion with Mr. Moscow --

8 THE COURT: We had a session in camera and there was

9 no reason for such a session, and we're not going to have any

10 more in camera sessions.

11 MR. MASTRO: Your Honor, I'm going to go right to it,

12 but it's precisely why the law does not require us to reveal

13 confidences under these circumstances, in fact creates an

14 irrebuttable presumption that confidences were involved in the

15 communication.

16 THE COURT: What confidences were shared?

17 MR. MASTRO: The frankest conversations about the

18 criminal charges, the criminal charges against Mr. Browder,

19 against lawyers of Hermitage, against other officials at

20 Hermitage, and in Russia, those criminal charges are not made

21 public until there has been a conviction --

22 THE COURT: I don't understand what you're telling me.

23 I thought you were going to tell me what confidential

24 information was shared.

25 MR. MASTRO: Yes, I am telling you, your Honor. The

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1 confidences about the criminal cases and criminal charges,

2 which are not a matter of public record in Russia, and how to

3 respond to them and what strategies to employ, those were

4 intimate conversations, attorney/client, between Mr. Moscow and

5 his colleagues and Mr. Browder and his colleagues at Hermitage.

6 And without discussing how many such charges are out there or

7 who else is involved in such charges, Mr. Browder, it's

8 publicly known, was prosecuted and convicted in absentia. So

9 was his former tax lawyer, who was tortured and murdered. He

10 was tried in absentia after he was dead. But those criminal

11 charges were something that was discussed at length with

12 Mr. Moscow and how they were --

13 THE COURT: He was representing Hermitage.

14 MR. MASTRO: Correct, your Honor, but now -- and if I

15 may, your Honor, just a second point, and then I want to come

16 back to this confidential information. Of course this is all

17 about tracing the money. Mr. Browder and Hermitage also shared

18 with Mr. Moscow nonpublic bank records that they were able to

19 obtain that showed the first links in the chain of the money

20 laundering and what funds went through certain bank accounts

21 that ultimately led, in the money laundering chain, to Prevezon

22 being prosecuted today. Mr. Browder and Hermitage were able to

23 put some of those early pieces together, and that information,

24 never shared anywhere else, publicly, was given to Mr. Moscow

25 and his firm at the time, and I'd be prepared to make

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1 submissions to your Honor on these points, but just as

2 importantly, your Honor, here's the key, why this is so

3 important. Issue number three --

4 THE COURT: Let me interrupt you.

5 MR. MASTRO: Certainly.

6 THE COURT: There's no question that Mr. Moscow

7 represented Hermitage for a short time, but he represented

8 them. Presumably he gave advice, he took steps I think of a

9 very limited nature, and he's described that. But he certainly

10 was attempting to deflect any possible prosecution in Russia or

11 elsewhere from Hermitage. There's no doubt about that. And in

12 the course of that he undoubtedly had discussions about

13 strategy, about how to do what he was trying to do, without any

14 doubt. The question is: Does that disqualify him when the

15 government brings a different action that is an action against

16 Prevezon and the action now is not against Hermitage?

17 Hermitage is not being sued. Nobody's suing Hermitage.

18 Somebody from Hermitage may have to give a deposition, but that

19 is simply what happens in litigation. So we know all of that.

20 MR. MASTRO: Your Honor, here's why that doesn't work

21 under our conflicts rules.

22 THE COURT: It doesn't work what?

23 MR. MASTRO: Why it doesn't work that Mr. Moscow and

24 his firm could now represent Prevezon under our conflict rules.

25 The duty of loyalty that the lawyer owes his client, even a

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1 former client, it doesn't end because the relationship has

2 ended. The duty of loyalty that John Moscow and BakerHostetler

3 took on when they represented Hermitage and Browder was a duty

4 to not only defend and help them defend in Russia but also to

5 go on the offensive in the United States and help prosecutors

6 understand the case and prosecute the wrongdoers and expose the

7 victimization of Hermitage and Browder. Of course Hermitage is

8 not a party defendant to this forfeiture action. The

9 government has explained to your Honor in crystal clear terms

10 last night that Hermitage is the victim of this crime.

11 THE COURT: Is what?

12 MR. MASTRO: The victim. That's what the government

13 has said to you, your Honor, and it has said that under DOJ

14 guidelines, Hermitage and Browder are the victims here. They

15 have a stake in this controversy because their identity,

16 Hermitage's affiliate identities, were used to effectuate this

17 fraud and subsequent money laundering, and at the end of the

18 trail, the links in the chain, it's Prevezon that has the money

19 that's part of that ill-gotten gains that the government is

20 going after. So your Honor, that duty doesn't end. Mr. Moscow

21 and his firm took an oath. Took an oath: We're going to press

22 your case, we're going to help defend you in Russia, and we're

23 going to help convince the government to bring the very kind of

24 action it has now brought against Prevezon for you, Hermitage

25 and Browder, as victims.

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1 THE COURT: I see what you're getting into, but it's

2 awfully vague.

3 MR. MASTRO: Not intended to be vague at all.

4 THE COURT: Please.

5 MR. MASTRO: Certainly, your Honor.

6 THE COURT: It is very vague. You're getting into the

7 subject of the issues in the current lawsuit.

8 MR. MASTRO: I am, your Honor, and that's --

9 THE COURT: You are. And that, of course, is very

10 important, but you are very vague about it.

11 MR. MASTRO: Not --

12 THE COURT: And would you spell out clearly and

13 precisely, in what way is Hermitage at issue in the current

14 lawsuit.

15 MR. MASTRO: Absolutely, your Honor, and I think the

16 government will tell you the same thing when it has the chance

17 to speak.

18 THE COURT: Please don't tell me what the government

19 will say. I'm speaking to you.

20 MR. MASTRO: Of course, your Honor, and I appreciate

21 that, your Honor. As I understand the government's case and as

22 I understand Hermitage and Browder's role in that case,

23 Hermitage and Browder will be witnesses, affirmative witnesses

24 for the government to prove that they were victims of an

25 identity theft of Hermitage-associated entities, $230 million

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1 tax fraud resulted involving Russian government officials and

2 Russian mob, and that then the money was laundered through

3 Russian banks and then to overseas banks, including banks in

4 the US; links in the chain that ultimately resulted in Prevezon

5 having gotten the ill-gotten gains as part of the money

6 laundering scheme that end up in the Southern District of New

7 York that can now be forfeited. Your Honor, I'm being as

8 specific as I can be. The $230 million fraud and Browder and

9 Hermitage's role as a victim in that and then the subsequent

10 prosecutions, persecutions, and money laundering to get the

11 money out of the country are things that both Browder and

12 Hermitage will provide the government with testimony about and

13 that that's necessary to the government's case because it has

14 to show a crime, the $230 million tax fraud, it has to show

15 money laundering, has to show the links in that chain, and it

16 has to show that eventually Prevezon got ill-gotten gains and

17 then it had the mens rea to know that they were ill-gotten

18 gains and they end up here in the Southern District. It has to

19 prove each link in that chain. Browder and Hermitage helped

20 them prove the links in that chain, particularly the earlier

21 links. That is why the government is calling them. They are

22 witnesses in this case, and Mr. Moscow and his firm and their

23 co-counsel now propose to --

24 THE COURT: Can I just interrupt you.

25 MR. MASTRO: Certainly, your Honor.

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1 THE COURT: Please.

2 MR. MASTRO: Certainly.

3 THE COURT: There are at times unique cases, and this

4 is surely one, and one could describe a chain just as you've

5 described it, starting with the $230 million stolen from Russia

6 and going on with certain victims, including Hermitage, and

7 then the undoubted money laundering, most of which we know

8 nothing about, but I want to tell you that I will not dispose

9 of this case by looking at this broad universe of

10 circumstances. Right or wrong, I won't do it.

11 MR. MASTRO: I understand.

12 THE COURT: Let me finish.

13 MR. MASTRO: Certainly, your Honor.

14 THE COURT: The reason is that when we come to the

15 conduct of an attorney and the participation of an attorney in

16 certain matters, in my view, rightly or wrongly, I believe that

17 we should look at that participation because to look at the

18 whole picture is too broad. Nobody participated in everything.

19 This was a very big scheme, most of which at least the people

20 in the Southern District of New York know nothing about. We

21 don't know the full details of money laundering that went on.

22 We don't begin to know. But we do know that there was a

23 massive theft, there was certainly victimization of Hermitage

24 and I'm sure victimization of other people that we know nothing

25 about. But rightly or wrongly, I'm not going to determine the

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1 ability of Mr. Moscow to act as an attorney except by looking

2 carefully and closely at what he did for Hermitage, and he

3 certainly did things for Hermitage, and the relationship of

4 that activity to what he's doing now in representing Prevezon.

5 Now the thing is, when you speak, you speak broadly,

6 and there's nothing wrong with what you're saying. Everything

7 you say is valid, it happened, and so forth. But I'm just

8 going to let you know, and your colleagues, right away that I

9 take a different view of what is relevant to determining the

10 ability of Mr. Moscow to continue in his representation. So

11 that's really the issue. What you're saying is good, valid,

12 well presented, and that's fine. But let's not keep going back

13 and forth without you understanding that I come from a

14 different spot.

15 MR. MASTRO: I understand and appreciate your Honor

16 saying that, and I know your Honor is very familiar with the

17 law in this area and I know your Honor knows and respects

18 Professor Bruce Green, who's very conservative on these issues.

19 He's often an expert for attorneys on why -- including in a

20 case where I was challenged on a conflict, which Mr. Cymrot I'm

21 sure will want to point out that that motion was denied last

22 week, your Honor. But Mr. Green, Professor Green, says that,

23 his words -- very unusual for Professor Green -- that that

24 history is important because that history is a lawyer, and his

25 duty of loyalty, in representing somebody to try and get

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1 justice and expose a fraud, years later, when it's finally

2 being exposed, showing up on the other side, Professor Green's

3 word, is a betrayal.

4 Your Honor, clear conflict of interest. But I'm going

5 to tell your Honor in very real, concrete, present terms why

6 Mr. Moscow cannot be here in this case and BakerHostetler can't

7 be. The very real consequences of this. What are they about

8 to do on the other side of the table? And I respect them all.

9 So this isn't about -- some very great lawyers have faced

10 conflict motions and been conflicted out of cases, including

11 Ted Wells and Ike Sorkin and David Boise, and I had one brought

12 against me but I was not disqualified. They were in their

13 cases. But your Honor, this isn't about something personal or

14 any kind of indictment of any individual. But there's a

15 question of injustice and confidences and how the lawyer who

16 represented a client in something that is related -- and I

17 appreciate your Honor saying there's clearly some relationship

18 since Hermitage and Browder are victims in this case, but I

19 understand what your Honor is saying about the history. Here's

20 why they can't represent Prevezon now, because they know a lot

21 about Mr. Browder and Hermitage in having represented them, and

22 what are they going to do now? They're taking discovery,

23 they've issued sweeping --

24 THE COURT: They what?

25 MR. MASTRO: They've taken discovery, they're issuing

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1 sweeping subpoenas, and Mr. Moscow and Mr. Cymrot tried to tell

2 you: It's just a discovery deposition to prepare for trial. I

3 just need to know what his story is. Well, they didn't give

4 you the straight scoop, your Honor, and you can't decide the

5 conflict in a vacuum without understanding the breadth of that

6 subpoena, without understanding what Mr. Cymrot and his

7 colleagues have been saying about Mr. Browder and Hermitage and

8 what they're going to do to Mr. Browder and Hermitage in this

9 case, having learned all about his past criminal case and the

10 private communications about that, the other criminal charges

11 pending against persons associated with Hermitage, the

12 company's secrets, most confidential secrets, because they came

13 to John Moscow because he's John Moscow, and they came to

14 BakerHostetler to handle the most sensitive matter they

15 possibly could, which involved the history we're talking about.

16 And now they're going to use that knowledge, you can rest

17 assured, to go after Mr. Browder and try and vilify him and

18 crucify him in the deposition. Don't take my word for it, your

19 Honor. Mr. Cymrot, Mr. Cymrot, in the press and in their court

20 filings, they intend to go after -- and I'm going to hand this

21 up to your Honor. They intend to impeach him by showing "his

22 willingness to cheat on taxes." They intend to examine him

23 "about his criminal conviction for tax fraud, other nefarious

24 activities, and the indifference with which he wrongfully

25 accuses others of misconduct."

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1 THE COURT: What are you reading from now?

2 MR. MASTRO: I'm reading from newspaper articles, your

3 Honor, that are in the record, and I'm going to hand this up to

4 your Honor. Perhaps it would be helpful if I did hand it up.

5 If I may approach, your Honor. These are all quotes from

6 Mr. Cymrot and his colleagues in their briefs about what

7 they're going to do to their former client when they depose him

8 in this case.

9 THE COURT: I think this is where we left off in the

10 earlier hearing.

11 MR. MASTRO: Yes, your Honor, this is the adversity

12 argument.

13 THE COURT: And obviously I want to get into this.

14 MR. MASTRO: Thank you, your Honor, and we're going to

15 come to the subpoena next, but let me just finish.

16 Some of the other things that Mr. Cymrot has said

17 publicly to the press he's going to do to Mr. Browder. We're

18 going to have him answer "hard questions about his tax cheating

19 in Russia and other aspects of his operations to show that he

20 has no credibility as a source for the US attorney to rely upon

21 for the lawsuit they filed against the company."

22 THE COURT: As against what?

23 MR. MASTRO: Against the company, Prevezon.

24 THE COURT: Oh, yes.

25 MR. MASTRO: He intends to show "there's a black mark

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1 on his character." That's Browder, their former client, a

2 black mark on his character, that he's unreliable, that he's a

3 "criminal tax cheat." That's the words of Mr. Cymrot, that

4 they're going to expose "the many discrepancies in Browder's

5 concocted story. We welcome every opportunity to lay bare his

6 cynical and scurrilous attacks." And that Browder's convicted

7 of a scheme, he made false statements, he bankrupted the

8 company and got prosecuted. Now your Honor, it sure sounds to

9 me like they learned a lot about Hermitage and Browder and they

10 are intending now to vilify him, to go after their former

11 client in the most vicious way. They've done it publicly.

12 And your Honor, let's go to the subpoena next. And

13 I'm going to hand up to your Honor a little analysis of the

14 subpoena. These are the most overbroad subpoenas I've ever

15 seen, but they go to the heart of the criminal charges against

16 Browder and others at Hermitage, they go after his personal

17 character, and in other districts, before they ever got here,

18 your Honor, these lawyers told the District of Columbia, before

19 the case was transferred back to you on related subpoenas to

20 Hermitage-related entities, they told them that these sweeping

21 requests were necessary because they directly related to "the

22 credibility, motive, and bias of the Hermitage entities and

23 Mr. Browder." The clients, Mr. Moscow was entrusted with

24 carrying their most sensitive, tragic matters, an identity

25 theft and false criminal prosecution, bogus ones, that have

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1 dogged this company and dogged Mr. Browder and all those

2 associated with it. They're going to go after their former

3 clients with these subpoenas that they ask you to enforce, to

4 attack their credibility, motive, and bias. How can they

5 possibly be here, your Honor? I am shocked. I'm going to hand

6 it up to your Honor, if I may. I'm shocked that we're here

7 about this.

8 The requests are on the left. What Prevezon's lawyers

9 have said are the rationales for the sweeping discovery are on

10 the right. That's what they said to the District of Columbia.

11 It's not what they said to your Honor the other day when they

12 were in here trying to say this was just discovery to find out

13 what a witness would say at trial. Now, your Honor, you don't

14 do that to a former client. You don't do that to a former

15 client who's experienced what this client experienced. It's

16 wrong. I'm not asking to indict anyone here. I'm asking for

17 fairness and justice for Mr. Browder and Hermitage to not be

18 subjected to their former lawyers doing this to them, vilifying

19 them in public, seeking to go into all of these sweeping things

20 to try and impeach them and vilify them and to then come here

21 and say to you, like they did the other day, it's just a simple

22 discovery deposition. That's just not right, your Honor. They

23 weren't straight with you, they weren't straight with

24 Mr. Browder and Hermitage in how they're approaching this.

25 Now I have other reasons of adversity, your Honor.

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1 Now, your Honor, that should end the inquiry, because

2 you cannot do this to a former client who is adverse because

3 he's the victim, and Hermitage is a victim in this case. The

4 government tells you that. You can't do that to a former

5 client. This is not discovery deposition. This is an attempt

6 to vilify him, to intimidate him, to go after him and his

7 credibility and his reliability and impeach him, and you knew

8 all of his most private information, most private thoughts

9 about what he's been through from all those criminal charges,

10 and now you're trying to get discovery on that and impeach him

11 with it? Excuse me, your Honor. I get a little upset about

12 this, but it is an outrage to me. And I agree with Professor

13 Green. It's a betrayal.

14 Now, your Honor, let me get -- in terms of the last

15 two points --

16 THE COURT: Can I interrupt you.

17 MR. MASTRO: Certainly, your Honor.

18 THE COURT: If you're quoting Mr. Moscow correctly,

19 you're quoting him correctly.

20 MR. MASTRO: Absolutely, your Honor. I put the quotes

21 in.

22 THE COURT: Just a minute.

23 MR. MASTRO: Thank you, your Honor.

24 THE COURT: And the thing that puzzles me is that I

25 don't see how any of this relates to the issues in the case.

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1 And I have not gotten deeply into the case. The case is in its

2 infancy. But I think I have some idea of what it is about.

3 And I think what it's about is whether Prevezon, which brought

4 certain monies to the United States and invested in real

5 estate, etc., whether Prevezon obtained those monies as part of

6 money laundering of the $230 million theft. Obviously what

7 came to the United States was vastly less than $230 million. I

8 think the government alleges that about $800,000 came to the

9 United States. But anyway, it's $800,000. But the issue as I

10 understand it is, how did Prevezon get that money that they

11 brought to the United States? Did they get it as part of money

12 laundering or did they get it through legitimate investments

13 and deposits and so forth? That is my understanding of the

14 issues in the case. I did not understand that the issues

15 involved anything beginning to cover what you have talked

16 about.

17 MR. MASTRO: Your Honor, I have several things I

18 want --

19 THE COURT: And the thing is --

20 MR. MASTRO: Yes, your Honor.

21 THE COURT: The thing is, the danger in this case is

22 that somehow the original big, big, big theft of $230 million

23 from the Russian government spills over into everything. Well,

24 it's not going to spill over into everything as far as I'm

25 concerned. Everything is a big thing. And there are limits.

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1 There are limits.

2 MR. MASTRO: I appreciate --

3 THE COURT: So let us not every time we open our

4 mouths start talking about the big fraud and so forth. We know

5 all that. We've heard it, if not a million times, a hundred

6 thousand times.

7 MR. MASTRO: 230 million times, your Honor. But your

8 Honor, the problem -- I want to say a few things in response to

9 that, if I may, your Honor, because it goes to some fundamental

10 issues here.

11 THE COURT: Please.

12 MR. MASTRO: First, if that's the case and your Honor

13 ends up fashioning a way to limit the case and let's say we

14 stay in the case, what your Honor should be doing is quashing

15 those subpoenas because, knowing what they know about their

16 former clients, they can't be going after their former clients,

17 and your Honor is suggesting that maybe they're not so

18 important after all. The government will have to do a

19 deposition at some point. They'll be able to ask their

20 questions too. But that's not what they're trying to do now.

21 Because they anticipate their former clients being witnesses

22 for the government in the case, they have issued overbroad,

23 sweeping, and, yes, I suggest to you, when you go through the

24 requests, that's why you can't decide this in a vacuum. When

25 you go through the requests, you will see --

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1 THE COURT: Can't decide what?

2 MR. MASTRO: You can't decide this conflict issue in a

3 vacuum. If you go through the subpoenas as I've handed them up

4 to you, you will see the confidential kind of subjects that

5 they've asked about that they know about from representing

6 Browder and Hermitage.

7 THE COURT: Where is that?

8 MR. MASTRO: I've handed up to your Honor different

9 parts of the subpoena, particularly about the criminal charges

10 and other aspects. Your Honor, the point being that there's an

11 obligation to make sure that confidences aren't used or

12 violated. Therefore, the quashing of the subpoenas should be

13 the minimum that comes out of these proceedings, and maybe down

14 the road your Honor is right that you will be able to narrow

15 the case. But you left us with that mission in chambers when

16 we left your chambers the other day. And the government tried

17 in good faith a week ago to get stipulations that they don't

18 have to prove the $230 million tax fraud and those early links

19 in the chain of the money laundering.

20 THE COURT: Can I just interrupt you.

21 MR. MASTRO: Sure.

22 THE COURT: If this case comes to trial, nobody will

23 spend time proving those things that are known by all humanity.

24 I don't have to suffer through proof of things that are

25 stipulated. The court can handle that.

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1 MR. MASTRO: But they're not willing to --

2 THE COURT: We're not going to have a trial about

3 history. We're not going to have a trial about things that are

4 well known as really recent history. That will all be disposed

5 of, as any trial judge in this court would do. We don't sit

6 around and try the discovery of America. We just don't do it.

7 MR. MASTRO: I know, your Honor, and I know your Honor

8 well from having had the honor of trying cases in front of your

9 Honor, and I know what a tight courtroom you run. But your

10 Honor has to appreciate that the government said it would

11 stipulate to those things, and Prevezon is not stipulating to

12 those things.

13 THE COURT: I don't care.

14 MR. MASTRO: Okay. Well, then if those things are

15 going to --

16 THE COURT: I do care about this. Now look, let's get

17 back --

18 MR. MASTRO: Yes, please, your Honor.

19 THE COURT: -- to if Mr. Moscow and his firm are going

20 on the attack against Hermitage and Browder. That's the

21 question we left the closed hearing with and that's what we

22 should be dealing with now, but let's try to stick to the point

23 and not get off into things because I don't want to get

24 diverted from the issue.

25 MR. MASTRO: Appreciate it, your Honor. And that's

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1 why I put before you an analysis of Prevezon's subpoena to

2 Browder. It defines Browder as including Hermitage,

3 Hermitage-related entities, Hermitage representatives, and

4 personnel. So this is really a subpoena to Browder and

5 Hermitage and everyone associated with Hermitage, and requests

6 2 through 8, your Honor, 2 through 8 all ask about criminal

7 cases, interactions with Interpol, the criminal charges against

8 Browder or any other people from Hermitage. That's what they

9 go to right off the bat in the subpoena, to try and impeach

10 them, to try and attack their credibility, to try and attack

11 their reliability.

12 THE COURT: Take it easy. Take it easy.

13 MR. MASTRO: I will, your Honor. I get a little

14 animated on this subject because it is upsetting to me.

15 THE COURT: Well, it's not going to help to get upset.

16 What is the document --

17 MR. MASTRO: Certainly, your Honor. I'm going to hand

18 it up. If I may approach, your Honor.

19 THE COURT: -- that you say discloses Mr. Moscow's and

20 BakerHostetler's intention in taking that deposition? That's

21 what you're talking about, is it not?

22 MR. MASTRO: Yes, your Honor.

23 THE COURT: What is the document that discloses that?

24 MR. MASTRO: The subpoena is Exhibit 17. That's the

25 one that went to Browder. And your Honor, we've done an

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1 analysis of it that we just handed up to you going through

2 specific requests that go to impeachment, and they're about

3 evidence in the criminal case, criminal conviction, criminal

4 charges, and the response of the defendants when this same

5 information was asked for --

6 THE COURT: Don't hand up some 6-inch-thick document.

7 We don't have to have that.

8 MR. MASTRO: No. When these same requests going after

9 Hermitage and Browder and persons affiliated with Hermitage,

10 their criminal cases, their criminal charges, what's going on

11 in that regard --

12 THE COURT: Look, just somehow make yourself clearer

13 than you're making it right now.

14 MR. MASTRO: All right. I'm going to --

15 THE COURT: What documents should I be looking at

16 and --

17 MR. MASTRO: Your Honor should be looking at the

18 subpoena, which is Exhibit 17. We have quoted the subpoena on

19 the left-hand side of this chart that we created for today.

20 THE COURT: Do I have the subpoena, please?

21 MR. MASTRO: Yes. Here it is. And if your Honor

22 reads requests 2, 3, 4, 5, 6, 7, and 8 --

23 THE COURT: All right. I've got the subpoena.

24 MR. MASTRO: They all go to --

25 THE COURT: Just a minute. Just a minute, please.

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1 Please.

2 MR. MASTRO: Certainly, your Honor. It starts on

3 pages 4 and 5, your Honor.

4 THE COURT: All right. Very good. Very good. And

5 what numbered paragraphs, please?

6 MR. MASTRO: It would be 2 through 8, your Honor, and

7 you'll also have to see, your Honor, the definition of "you"

8 that's on the very first page. It includes not simply Browder

9 but any corporation --

10 THE COURT: Just a minute. Let me read. I think I've

11 read this before, but let me read it again.

12 MR. MASTRO: Yes.

13 (Pause)

14 THE COURT: Okay. I've read this. Where do we go

15 from here?

16 MR. MASTRO: And your Honor, just one other thing to

17 point out to you there. The very first definition on page 1 of

18 "you," it defines "you" as Browder and any Hermitage-affiliated

19 entities or persons.

20 THE COURT: Okay. Fine.

21 MR. MASTRO: So your Honor, how do we know all these

22 requests going to their criminal convictions and their tax

23 returns and those issues are to impeach? We know it because

24 BakerHostetler has told us so. They told us so in the brief

25 they filed in the District of Columbia against Hermitage

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1 Global, they subpoenaed Hermitage Global, an affiliated entity,

2 and same subpoena, almost identical word for word, and your

3 Honor, this is what they said in their brief on virtually

4 identical requests that's now also before your Honor. It's

5 Exhibit 22, your Honor, in the book there, pages 15 through 17.

6 Their words, not mine. That they are seeking this information

7 because it's "directly related to the credibility, motive, and

8 bias of the Hermitage entities and Mr. Browder." And they go

9 on at great length to criticize --

10 THE COURT: Where are you reading from now, please?

11 MR. MASTRO: This is Prevezon, Exhibit 22 in your

12 binder there, your Honor. It's Prevezon's memo in support of

13 its motion to compel Hermitage Global to have to respond to the

14 same requests. If your Honor goes to Exhibit 22, that's

15 Prevezon's motion. That subpoena is now before your Honor.

16 THE COURT: But where are you reading, please?

17 MR. MASTRO: Go to page 15, please, your Honor, and if

18 you read pages 15 through 17, starting on page 15, bottom of

19 the page, bottom of that paragraph, they spell it out very

20 clearly that they intend to go after Browder and Hermitage and

21 impeach them. Their words.

22 THE COURT: Where does it say that?

23 MR. MASTRO: Your Honor, very last lines of the page,

24 your Honor, it says under header Defendant's Document Requests

25 Are Relevant and Reasonably Calculated to Lead to the Discovery

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1 of Admissible and Relevant Evidence, they say the information

2 is directly related to --

3 THE COURT: Where are you reading, please?

4 MR. MASTRO: Yes. At the very bottom of the page,

5 your Honor, the last four lines of the page.

6 THE COURT: Of what page?

7 MR. MASTRO: On page 15.

8 THE COURT: All right.

9 MR. MASTRO: Credibility, motive, and bias, of

10 Hermitage and Browder.

11 THE COURT: I'm sorry. Is it under III or --

12 MR. MASTRO: III. Sorry, your Honor, my mistake.

13 III. And at the bottom of the page, under item 2 in

14 parentheses, the credibility, motive, and bias of the Hermitage

15 entities and Mr. Browder. And if you read on, your Honor, they

16 further criticize --

17 THE COURT: Wait a minute. Wait a minute. I'm not

18 seeing your language. I'm sorry.

19 MR. MASTRO: That's all right. May I approach, your

20 Honor?

21 THE COURT: Yes.

22 MR. MASTRO: Thank you, your Honor. Much appreciated.

23 Right here, your Honor, they seek the information

24 directly related to the credibility --

25 THE COURT: Wait, wait, wait.

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1 MR. MASTRO: Credibility, motive, and bias of the

2 Hermitage entities and Mr. Browder.

3 THE COURT: Okay. Thank you.

4 MR. MASTRO: And the requests are virtually identical.

5 THE COURT: Thank you very much.

6 MR. MASTRO: Thank you, your Honor. And if you go on

7 to read further what they say there on pages 16 and 17, your

8 Honor, they say they're entitled to test Browder's assertions

9 that the conviction was a sham, that they are seeking

10 information related to investigations or convictions for tax

11 evasion or fraud, which they say remarkably is similar to the

12 crime, the proceeds defendants are alleged to have laundered,

13 and they say that they want the tax returns and tax rates and

14 they intend to go into that history, and that they intend to

15 explore that because, as they put it, quote, they're going

16 after the credibility, motive, and bias of the Hermitage

17 entities and Mr. Browder, directly going after their former

18 clients, despite with whom their most intimate confidences were

19 shared in their time of greatest stress. Now they're going

20 after them on their criminal case.

21 THE COURT: I think we'd better hear from the other

22 side a little bit.

23 MR. MASTRO: I appreciate that. May I just finish one

24 point for your Honor's benefit?

25 THE COURT: Of course.

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1 MR. MASTRO: I appreciate it, your Honor. And I know

2 our time is limited today, and we'll come back tomorrow or any

3 other time your Honor can give us, but let me just make two

4 more quick points on adversity, because this is extremely

5 important.

6 The adversity for Mr. Browder and Hermitage and those

7 associated with them continues to this day. Mr. Browder is

8 still hounded by Russian authorities, who convicted him in

9 absentia of tax fraud, and they go after Interpol. They have

10 made their third request to go after Mr. Browder. So even

11 though in the US our Congress, Justice Department, State

12 Department recognize this sham, he has to continue to defend

13 himself around the world.

14 THE COURT: Against?

15 MR. MASTRO: Against Russian authorities trying to --

16 THE COURT: Moscow.

17 MR. MASTRO: Against literally the Moscow in Russia,

18 your Honor.

19 MR. MOSCOW: I want a correction from Mr. Mastro. I'm

20 not representing --

21 MR. MASTRO: I'm not saying Mr. Moscow represents the

22 Russian Republic, your Honor, the Russian Federation. The

23 Russian Federation is still going after Mr. Browder, still

24 going after Mr. Browder's associates, Mr. Browder's lawyers,

25 and --

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1 THE COURT: Let me hear from the other side.

2 MR. MASTRO: This case, this case has consequences,

3 your Honor, that go well beyond this one representation and

4 this one case, because there are multiple cases elsewhere in

5 the world where Browder and Hermitage have been recognized as

6 claimants and victims. Not only here by our US government but

7 also in Switzerland and Lithuania.

8 THE COURT: Let me hear from the other side.

9 MR. MASTRO: Okay. But that's why the adverse -- the

10 adverse effects are real and just as real and palpable today.

11 THE COURT: All right. There is another side. Let's

12 hear from it.

13 MR. MASTRO: Certainly, your Honor. I really

14 appreciate it. Thank you very much for all your time, your

15 Honor. It's always much appreciated.

16 THE COURT: All right. All right.

17 Okay.

18 MR. CYMROT: All right, your Honor. You asked a

19 simple question, we have a simple answer. You left us with the

20 question: Under Rule 1.9, what does material adversity mean?

21 All right. Hermitage is not a party in this proceeding. It

22 does not have a claim to the proceeding, has no claim to the

23 money. It is at most --

24 THE COURT: You are?

25 MR. CYMROT: Mark Cymrot.

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1 THE COURT: Okay. Fine, fine, fine.

2 MR. CYMROT: So your Honor, Mr. Mastro's main point is

3 that if some day Mr. Browder were to appear, he would be a

4 witness, and under the law, that is not a new question. Does

5 that make material adversity? And that's not a new question.

6 And there are about four or five cases in this district that

7 say that is not material adversity.

8 And to his point that he just made that if Mr. Browder

9 were a witness, would we be entitled to impeach him, and in the

10 Skidmore case, the court said just because the former lawyer

11 may attempt to impeach a former client's credibility, while it

12 may be unseemly to treat a former client as a hostile witness

13 or even embarrassing to the former client, it's not a basis for

14 disqualification. And they have not cited one case, and we

15 have not found one case, on which a witness, nonparty witness

16 constitutes an adverse interest that justifies

17 disqualification.

18 So he talked for an hour and 20 minutes about how we

19 might impeach Mr. Browder but he never said how Mr. Browder --

20 and this was a question you asked -- would be prejudiced other

21 than this general impeachment, which may be embarrassing but is

22 not a basis for disqualification.

23 So when you read the Browder brief and the

24 government's brief, it never talks about the law.

25 THE COURT: It never talks about what?

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1 MR. CYMROT: It never talks about the law. It doesn't

2 give you the cases, because the cases all go the other way.

3 Yes, we asked about the conviction. Now what about the

4 conviction? They say they talked to Mr. Moscow about that in a

5 private conversation. He has gone public with that for years,

6 that he has been convicted. There's nothing confidential about

7 that. And every time you ask -- and they try to suggest there

8 was confidential information in those conversations. We've

9 shown that it's on the internet, that it's public information.

10 And in those subpoenas, we used no confidential information.

11 We used information that was available publicly on the

12 internet, and we asked questions. And you may find them

13 overbroad, you may not find them overbroad. You may find

14 they're irrelevant. You know what's really relevant about

15 those subpoenas? If they are going to be a witness here, why

16 are they moving to quash subpoenas? They're not saying they're

17 overbroad. They want them quashed entirely. They say they

18 shouldn't have to testify. Well, if they don't have to

19 testify, then they're not even a witness in this proceeding.

20 So why are we here? They have no adverse interest under the

21 law. That was the question you asked. And the answer is, they

22 have no adverse interest in this proceeding. They may never be

23 a witness. They're trying to quash subpoenas to being a

24 witness. And yet they say even if they are a witness, the

25 cases that have examined it have said that is not an adverse

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1 interest that justifies disqualification. What some judges

2 have done is they've said the lawyers who have confidential

3 information, you have to demonstrate you have confidential

4 information. If they had confidential information, they can't

5 cross-examine. There needs to be another lawyer that

6 cross-examines, which would be Mr. Taube and another law firm

7 who is not involved in any of the prior representation. That's

8 what the judges have said before about this situation. It is

9 not a unique situation. And you have to look at the law. They

10 should be looking at the law. I know your Honor knows the law.

11 They should be looking at the law. And they never reference

12 the law. They have one case, the Cole case they cite in their

13 brief. It was a case where the witness intervened and became a

14 party, the judge granted the intervention, and then he was a

15 party, then he granted the disqualification. It was not a

16 nonparty witness.

17 What the government's most recent letter said was

18 Hermitage is a victim of this fraud. Well, that's irrelevant

19 too. Under the criminal guideline, that is irrelevant. First

20 of all, the way they are a victim is their names were used.

21 That's it. They had no financial loss. And the fact that they

22 are, according to the government, a victim, it does not make

23 material adversity under the law of Rule 1.9. And this point

24 was made by Professor Roy Simon of Hofstra in an opinion

25 submitted with our briefs, where he said you can have what he

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1 calls a rooting interest, like rooting for a baseball team.

2 You might root that the government wins this case for, as you

3 say, a commission for humanity, but that is not an adverse

4 interest under Rule 1.9, and Professor Simon pointed that out

5 to your Honor. And the cases say that.

6 Now Mr. Mastro --

7 THE COURT: Can I interrupt you.

8 MR. CYMROT: Yes, of course.

9 THE COURT: It may well be that I have to review the

10 record and that I'm not at this moment as fully acquainted with

11 the record as I should be. But what Mr. Mastro did was to say

12 that you and your firm made statements, in one form or another,

13 hostile to Hermitage and indicating that you wanted to attack,

14 discredit Hermitage and Browder in connection with the case

15 currently pending before the court. In other words, what

16 Mr. Mastro said is that this was not a matter of simply serving

17 a subpoena to find out what Mr. Browder and Hermitage might say

18 at a trial but there was an intention, even in the deposition,

19 to attack and do damage to the credibility of Browder and

20 Hermitage. I think that's what he said.

21 MR. CYMROT: Correct, your Honor. That's what he

22 said.

23 THE COURT: Now what do you say to that?

24 MR. CYMROT: I say, your Honor, I made those

25 statements, and under the Skidmore case, I'm entitled to make

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1 those statements.

2 THE COURT: What statements did you make?

3 MR. CYMROT: That if he appeared, we would attack his

4 credibility, because I'm entitled to attack his credibility

5 under the Skidmore case. I'm reading the law and it says I'm

6 entitled to do it. But I want to say one additional thing,

7 your Honor. I did not start that. I was responding to

8 Mr. Browder's public statements.

9 THE COURT: Wait. Start again. I didn't hear that

10 last part.

11 MR. CYMROT: I didn't start that public exchange. I

12 was defending our law firm and our client from Mr. Browder's

13 public criticism. And my response was --

14 THE COURT: Is that in the record?

15 MR. CYMROT: I believe we've submitted articles.

16 MR. MASTRO: Your Honor, we submitted all the articles

17 that I quoted and they're not responding to anything

18 Mr. Browder said.

19 THE COURT: Say that again?

20 MR. MASTRO: Your Honor, we submitted to the court as

21 exhibits all of the articles where Mr. Cymrot was quoted

22 attacking Mr. Browder as a criminal tax cheat, saying it's a

23 black mark on his character, that he's concocted a story and

24 he's going to go after him and show he's unreliable and lacks

25 credibility. He's not responding to anything Mr. Browder said.

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1 MR. CYMROT: Absolutely not true. I have it here,

2 your Honor.

3 THE COURT: One at a time.

4 MR. MASTRO: The articles that I submitted, your

5 Honor, he's not responding to something Mr. Browder said. He

6 is talking about what he's going to do to Mr. Browder now that

7 he has subpoenaed him and wants to force him to have a

8 deposition. They issued the subpoenas, your Honor, not us,

9 okay? They're the ones who are trying to force him to come

10 here.

11 MR. CYMROT: Excuse me. Wait a minute. Excuse me.

12 You had like an hour and a half of a filibuster. Can I have a

13 say? Your Honor, if you look at --

14 THE COURT: What do you mean by filibuster?

15 MR. CYMROT: I'm sorry. He went for an hour and a

16 half, your Honor.

17 THE COURT: Well, it was hardly a filibuster.

18 MR. CYMROT: All right. I'm sorry, your Honor. Okay.

19 My point was, it was a very simple question you asked. He

20 didn't answer, in all that time.

21 All right. But if you look at Exhibit 2 to our

22 defendant's memorandum of law, I can hand it up. That's one.

23 Then there's two Wall Street Journal articles.

24 So Hermitage files a confidential bar complaint

25 against Mr. Moscow and our firm and Mr. Browder immediately

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1 leaks it to the New York Post and it's published on

2 December 13, 2013, long before we said anything. Then there

3 are a couple Wall Street Journal articles. Then there are a

4 couple Wall Street Journal articles, which Ms. Alaverdi will

5 help me find, where, again, he criticizes Mr. Moscow and our

6 firm. Well, you can't expect us to sit quietly in response to

7 that. We didn't do anything wrong. We're following the law.

8 We've read the law. We quoted the law. They talked about

9 everything else except the law.

10 THE COURT: The law being what?

11 MR. CYMROT: The law being, for instance, the Skidmore

12 case, where a judge of this district said: A former lawyer may

13 attempt to impeach a former client's credibility. While it may

14 be unseemly to treat a former client as a hostile witness or

15 even embarrassing to the former client, it is not a basis for

16 disqualification. It is permitted to do that.

17 In the case that Mr. Mastro was challenged, the judge

18 did not disqualify him. That was a case against a current

19 client. And the judge did not disqualify him last week because

20 he said there was no prejudice to him going after a current

21 client. And that was the question you asked. You asked

22 exactly the right question: What is the prejudice? The fact

23 that there is some public relations fight here and he's

24 embarrassed, that is not a prejudice that justifies

25 disqualification.

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1 So from the very beginning we have been carefully

2 following the law, the comments, and the cases. And there is

3 no adverse interest here. And we didn't start this. At the

4 beginning of the case they weren't a party, and they had no

5 claim. There's no adverse interest. Then the government says,

6 well, we're going to make them a witness. Okay. Well, that's

7 in March. So what do we do? We file subpoenas. That's what

8 we have to do to defend our client. And we file subpoenas, and

9 he says he won't show up.

10 THE COURT: Who says he won't show up?

11 MR. CYMROT: Hermitage and Browder, they will not show

12 up. That's their position. They're quashing the subpoenas.

13 It's not just that the subpoenas are overbroad. Mr. Browder

14 will not come to this court and testify.

15 THE COURT: Well, he's moving to quash.

16 MR. CYMROT: He's moving to quash, exactly. So if

17 those subpoenas are quashed, then he's not a witness.

18 THE COURT: Well, they haven't been quashed yet.

19 MR. CYMROT: Okay. But my point is, what if you quash

20 them? Then he's not a witness. Then he has no interest here.

21 He only has an interest because the government brought it up.

22 We didn't bring it up. We're not making him a witness. And

23 what do you do when you take a deposition of a witness? You

24 hear his story but then you challenge his story. That's just

25 the way the system works. You know that. If you have a

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1 witness, you ask him what he's going to say and then you

2 challenge the story. You test his credibility. And what he's

3 saying about these criminal cases, well, he's a convicted

4 felon. That's a ground of impeachment right under the rules.

5 And that's not confidential. That is not confidential. That's

6 public knowledge for five years already, if not longer. And

7 we're permitted to do it. The law says we're permitted to do

8 it. So we're doing it. And if he attacks me in public and he

9 attacks Mr. Moscow in public, I'm going to defend ourselves in

10 public. We have to. This is about reputation. You said it

11 yourself.

12 So your Honor, there are a couple of signposts here.

13 Is there material adversity? Under the law, there is not

14 material adversity.

15 THE COURT: And that is because?

16 MR. CYMROT: He's a nonparty witness. He does not

17 have a financial interest in this case. He's a nonparty

18 witness. That's it.

19 THE COURT: There's no adversity, right?

20 MR. CYMROT: There's no material adversity under

21 Rule 1.9, correct. There are about four or five cases that say

22 that. And we've cited them.

23 THE COURT: Do you want to finish up or are you

24 finished?

25 MR. CYMROT: Yeah, I just want to respond to a couple

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1 points he said.

2 He said that we wouldn't stipulate to the $230 million

3 fraud. We specifically said we would stipulate to the

4 $230 million fraud. The government wanted us to stipulate to

5 paragraphs 1 through 75 in the complaint, which we've

6 challenged 1 through 75 in the complaint.

7 THE COURT: The defendant doesn't have to stipulate.

8 MR. CYMROT: Okay. Yes, we don't have to stipulate

9 to -- we did, however, say we would try to take Hermitage out

10 of the case. We tried to make the effort that you invited us

11 to make at the end of the last hearing: How do we take

12 Hermitage out of the case? Well, if there's a $230 million

13 fraud and if you look at what the government said they wanted

14 them to testify to, the testimony is unnecessary. Now when I

15 said we'll stipulate that there was a $230 million fraud, the

16 government said: No, we want paragraphs 1 through 75 in the

17 complaint; otherwise, Hermitage is a potential witness.

18 Whether they will be a witness or not is speculative at this

19 point. Your Honor could narrow this case so that they are an

20 unnecessary witness. All of this in 1 through 75 should not be

21 part of the trial.

22 THE COURT: Okay. Let me dictate a ruling.

23 MR. CYMROT: Thank you.

24 MR. MASTRO: Your Honor, may I just add one thing to

25 the record, please?

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1 THE COURT: Sure.

2 MR. MASTRO: Your Honor, it is in fact the case --

3 THE COURT: What?

4 MR. MASTRO: Your Honor, it is in fact the case that

5 there are multiple cases in this district and in the circuit

6 where a nonparty witness has been found to have a right to

7 disqualify their former counsel from continuing on the case.

8 The Cole case, decided right here in the Southern District,

9 held that where someone was represented by a lawyer in making a

10 claim and it got resolved without a claim ever being filed, the

11 lawyer only spent ten hours working on the matter -- you might

12 want to sit, Mr. --

13 MR. CYMROT: I don't want to sit. The Cole case, your

14 Honor, I mentioned --

15 MR. MASTRO: Your Honor, may I please, so that we

16 could finish this? I know Mr. Cymrot wants to interrupt me,

17 but let me just finish, please, so your Honor has the benefit

18 of this.

19 Less than ten hours on the case. The court found that

20 he didn't even receive enough information to be able to have

21 brought a claim, but when then there was a subsequent

22 litigation where he showed up on the other side for the party

23 against whom the claim would have been brought, his client,

24 former client, had a right to intervene for the limited purpose

25 of disqualifying counsel, and even that limited engagement gave

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1 rise, since there was adversity, to disqualification. And your

2 Honor, it is also the case that Lund v. Chemical Bank, a Judge

3 Weinfeld case, and In Re Cendant Corp., where Ted wells was

4 disqualified, are similar cases that support this proposition.

5 The case in which I was involved was a parent versus a

6 subsidiary, and in that circumstance, your Honor, the court

7 does look to prejudice and whether representing a parent and

8 then suing a sub creates any kind of conflict of interest that

9 requires disqualification. That's a completely different

10 ballpark than representing a client, having a continuing duty

11 of loyalty, and then showing up on the other side against a

12 party whose interests are adverse in a substantially related

13 matter.

14 THE COURT: What do you mean showing up on the other

15 side?

16 MR. MASTRO: I mean that my client is the victim --

17 the government has said it -- of the money laundering fraud and

18 now the government is prosecuting, in a forfeiture action, one

19 of the parties involved in the money laundering. That's the

20 government's allegation. And has assets in this district. My

21 client was the victim of that fraud that led to the money

22 laundering.

23 THE COURT: Again, again, we get so broad in our

24 discussion and lose what is really relevant and that is, what

25 are the issues in this case? And the issues, as far as I'm

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1 concerned, do not involve Hermitage at all.

2 MR. MASTRO: But the government -- it has been

3 submitted to your Honor to explain why Hermitage and Browder,

4 absent a narrowing of the case, are part of this case, and they

5 issued the subpoena to Hermitage. The Skidmore case does not

6 say what he says it says. It says you have to look at the

7 factual record and determine the extent to which the one

8 representation related to the other, the extent to which

9 confidences may be used now as opposed to later. Here, you can

10 see it, your Honor, in the subpoena --

11 THE COURT: I'm not following you at all now. I'm

12 sorry.

13 MR. MASTRO: I'm sorry, your Honor. Let me try and be

14 clear. You can look at this subpoena and see that the subject

15 matters of the subpoena are not just the criminal complaint

16 against Browder.

17 MR. CYMROT: Your Honor, he's just repeating himself.

18 He's been doing it for an hour and a half.

19 MR. MASTRO: I'm not. I'm explaining to your Honor

20 the adversity. Mr. -- excuse me.

21 MR. CYMROT: He is --

22 THE COURT: Please. One at a time.

23 MR. MASTRO: Your Honor, Mr. Browder and Hermitage

24 shared with their counsel all of the most difficult stressful

25 situations, including multiple criminal charges that have never

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1 seen the light of day involving people affiliated with

2 Hermitage that Russian authorities brought, and now they've

3 requested in that subpoena to go after that information. You

4 can see it in 2 through 8, to impeach Mr. Browder. That's the

5 direct use of those very intimate confidential conversations,

6 to now try and impeach him.

7 THE COURT: Look, what is in the subpoena is a request

8 really essentially for what is public. I don't see that the

9 subpoena asks for intimate confidential things.

10 MR. MASTRO: It asks, your Honor, for anything

11 relating to investigations or charges. And it defines "you"

12 broadly, so that would include criminal charges that have been

13 brought against Hermitage affiliates that have never seen the

14 light of day.

15 THE COURT: Get to the language. Here's the subpoena.

16 Paragraph 2 on page 4 --

17 MR. MASTRO: Correct, your Honor.

18 THE COURT: -- criminal convictions. Certainly a

19 public matter.

20 Paragraph 3. Finding of liability. Certainly a

21 public thing.

22 MR. MASTRO: Your Honor, number 9 --

23 THE COURT: I'm not familiar with some of this, but --

24 MR. MASTRO: Your Honor, number 9. Number 9 says:

25 All documents, including but not limited to pleadings,

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1 evidencing any civil or criminal proceeding brought against you

2 in any jurisdiction, including but not limited to lawsuits --

3 THE COURT: Well, again, public documents.

4 MR. MASTRO: Doesn't say public. Doesn't say public.

5 THE COURT: Well, what do you think it means when it

6 says --

7 MR. MASTRO: Your Honor, it says any documents

8 evidencing any civil or criminal proceeding. In Russia, a

9 criminal complaint is not a public document and in Russia,

10 there have been criminal complaints that have never seen the

11 light of day but Mr. Moscow and his colleagues know about them,

12 and we've offered to submit them to the court. And now

13 Mr. Browder is being required to produce them in this

14 litigation, when the only way they would know about that is

15 because Mr. Browder and Hermitage were their clients. This

16 subpoena goes to --

17 THE COURT: Mr. Moscow definitely represented

18 Hermitage at a former time.

19 MR. MASTRO: Correct, your Honor.

20 THE COURT: If Mr. Moscow was now turning on the

21 former client and attacking the former client, I mean, that

22 wouldn't even be a hard case. Obviously he could not do that.

23 But the thing is, what is going on in my mind is, is he in any

24 way now taking an adverse position against your client in the

25 sense of seeking to hold your client liable or obtaining a

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1 finding of something against your client?

2 MR. MASTRO: Yes, he is, your Honor. Yes, he is.

3 He's going to try to impeach his former clients to show that

4 they are unreliable, lacking in credibility, liars, have

5 concocted a story, so that all that they have worked for to

6 expose this fraud could be destroyed by what they intend to do.

7 THE COURT: Look, that's really different from what

8 I'm talking about.

9 MR. MASTRO: Okay, your Honor.

10 THE COURT: Obviously if Hermitage and Browder, or one

11 of them, if they're going to be a witness in the trial before

12 me, and that's what we're talking about, then obviously a party

13 to the case before me would seek to take the deposition.

14 That's just simple prudent trial preparation, but it doesn't

15 seem to me to be an attack upon your client. If your client

16 isn't telling the truth, that's your client's problem and he

17 can be impeached. If he tells the truth, he's got no problem.

18 If he doesn't tell the truth, well, you expect he doesn't get

19 impeached. Of course not. Well, you finish up.

20 MR. MASTRO: Okay. Your Honor, it's not simply a

21 question of Mr. Browder and Hermitage telling the truth. It's

22 that their former counsel, with whom they had a confidential

23 relationship, is now going to be questioning them on areas that

24 were of most confidential concern to them, including going

25 after them on things like the criminal charges that were

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1 outstanding against them, and we know that this isn't going to

2 be a normal discovery deposition about what they're going to

3 say at the trial because Mr. Cymrot and others at his firm have

4 publicly said what their intentions are in going after

5 Mr. Browder. They issued the subpoena.

6 THE COURT: Wait a minute, wait a minute, wait a

7 minute. What part of the record says that? Give it to me.

8 MR. MASTRO: Certainly, your Honor. I'm going to hand

9 up again every one of Mr. Cymrot's quotes about impeaching

10 Browder as a criminal tax cheat, as somebody who's concocted a

11 story, as somebody who has made cynical and scurrilous attacks.

12 This is, unreliable, lacking in credibility --

13 THE COURT: Where does that appear?

14 MR. MASTRO: Your Honor, if I may hand up, you'll see

15 everywhere in the record that this is, and I have to say,

16 Mr. Moscow --

17 THE COURT: Where does this appear in the record?

18 MR. MASTRO: They're exhibits to our papers, your

19 Honor, or set in court filings previously. And your Honor, one

20 more thing --

21 THE COURT: These exhibits, where do they come from?

22 MR. MASTRO: They're exhibits that we have submitted.

23 They're press accounts that quote Mr. Cymrot, and Mr. Cymrot

24 said: Yes, I said those things. I said --

25 MR. CYMROT: Your Honor, I said scurrilous attacks as

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1 to Mr. Moscow. He is just twisting everything and he is

2 repeating himself, your Honor.

3 MR. MASTRO: May I please finish, your Honor?

4 MR. CYMROT: Could we have an end?

5 MR. MASTRO: May I please finish, your Honor?

6 Mr. Moscow was prepared to go into court -- his firm drafted

7 and he reviewed affidavits for Hermitage, and as an officer of

8 the court, he was going into court -- and this is Exhibit 12.

9 It's a draft declaration of Hermitage's former general counsel

10 that they prepared, and they were prepared to go into court to

11 try and get discovery based on that declaration.

12 THE COURT: I've heard about the declaration. Please

13 don't repeat and start talking about that again.

14 MR. MASTRO: But your Honor, as officers of the court,

15 that meant they believed what was in that declaration. And now

16 instead --

17 MR. CYMROT: Your Honor, we didn't file it so what is

18 this? This is just -- he's getting wilder and wilder.

19 MR. MASTRO: But your Honor, your Honor, now, having

20 represented Browder and Hermitage, and having been prepared to

21 go into court to plead their case, now they want to impeach

22 Browder, take that relationship, the trust that they had and

23 loyalty they had and impeach him and try and say he was lying

24 all along. That doesn't work in our system. And the caselaw,

25 if your Honor would please review those cases that I just

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1 cited, and if your Honor would review the other Second Circuit

2 cases, you would see that in a circumstance like this, the law

3 is crystal clear. It's not the New York Code. It's the

4 federal rule and approach. It's what Professor Green says,

5 it's what the Second Circuit has repeatedly said. When it's

6 the same lawyer that had shared confidences in the past, you

7 can't be the one who's now doing the work to impeach your

8 client, having learned things from your client from the

9 relationship before. Can't do it. Your Honor's recognized

10 they're related. Your Honor can see the adversity. And your

11 Honor, it's just not permitted, and it's wrong.

12 THE COURT: Now maybe I'm mistaken, maybe I'm missing

13 something, but I don't see that the record before me shows that

14 Mr. Moscow is going to use information he gained in 2008 and

15 early 2009 to really do anything to impeach or anything. Am I

16 right, Mr. Cymrot?

17 MR. CYMROT: Yes, your Honor. Everything that we've

18 been using is public information from the internet, and

19 Mr. Browder speaks, week after week after week, repeating the

20 same story.

21 MR. MASTRO: Your Honor, your Honor --

22 THE COURT: Week after week doing what?

23 MR. CYMROT: Repeating the same story that he's now

24 saying, or his lawyer is saying is confidential. There's

25 nothing confidential about any of this, and we demonstrated it.

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1 MR. MASTRO: Your Honor, if I may --

2 MR. CYMROT: We are using nothing from 2008 and 2009.

3 Nothing.

4 MR. MASTRO: That is not the case, your Honor, and we

5 offered to make a submission, and your Honor has said no more

6 in camera submissions. If your Honor would please allow me to

7 make on-the-record submissions --

8 THE COURT: What is the in camera submission you want

9 to make?

10 MR. MASTRO: Conversations that Mr. Moscow had with

11 Mr. Browder where he said, I'm not worried at all about your

12 tax case, where he basically said, I know you didn't do

13 anything wrong, and now that firm and Mr. Moscow are going to

14 go after Mr. Browder as a tax cheat, when they represented him,

15 discussed his tax case, and Mr. Moscow, I will submit to your

16 Honor, is saying, I'm not at all worried about your tax case.

17 I'm not --

18 THE COURT: Who said that?

19 MR. MASTRO: Mr. Moscow. And I will submit it to your

20 Honor. I will get my client to allow me to submit it. Please

21 give me that opportunity, your Honor.

22 THE COURT: Now wait a minute. Wait a minute.

23 Obviously Mr. Moscow gave some advice to Hermitage. Of course

24 he did. And the question is, in a new lawsuit against

25 Prevezon, which is not against Hermitage, is that circumstance

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1 enough to disqualify him? Of course he gave some advice to

2 your client. But your client is not even a party to the new

3 lawsuit. Please. The new lawsuit involves its own completely

4 different issues, and I'm not talking about the historical

5 issues. I'm talking about the real issues in the case, and

6 that is vastly different from what was involved in that

7 conversation you're talking about.

8 MR. MASTRO: But your Honor --

9 THE COURT: The conversation you're talking about has

10 nothing whatever to do with the issues in the case before me

11 which he is representing a client on.

12 MR. MASTRO: Your Honor, may the government please be

13 heard on this point? Because the government has told your

14 Honor that Mr. Browder and Hermitage are victims of this crime,

15 and they do have a direct stake in this case and they are

16 adversely affected by this case if their former counsel --

17 THE COURT: I read the letter. I'm familiar with the

18 letter.

19 MR. MASTRO: But perhaps the government would like to

20 be heard, if your Honor would permit it.

21 MR. MONTELEONI: Your Honor, Paul Monteleoni for the

22 government. With me at counsel table is my colleague Christine

23 Magdo.

24 I don't intend to repeat what's in the letter. I do

25 want to clarify several things that may have come out about

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1 what this case is going to be about.

2 In addition to the matters which you've described as

3 historical, which I'm not going to go into, in addition to

4 that, regarding the tracing of assets to Prevezon, we do

5 currently intend to call at least one, possibly more

6 Hermitage-affiliated persons as witnesses because of things

7 that they've learned that are relevant to that, and then

8 additionally, because this is a case where intent is going to

9 be proved circumstantially, some of the details of the history

10 will be relevant to the question of Prevezon's intent, so we do

11 believe that there is factual overlap between the issues that

12 will be in dispute in the prior representation, and we do

13 believe that we will be attempting to prove and BakerHostetler

14 will be attempting to disprove some of the same matters that

15 BakerHostetler attempted to state in the draft declaration, it

16 appears. And yes, we do believe that Hermitage is a crime

17 victim in this case and Hermitage-affiliated people will be

18 significant government witnesses.

19 And if the court has any other questions about what we

20 anticipate, I'm happy to answer them.

21 THE COURT: Look, you brought a case against Prevezon,

22 right?

23 MR. MONTELEONI: That's correct, your Honor.

24 THE COURT: You didn't, of course, sue Hermitage. Of

25 course you didn't. Now the case against Prevezon is about

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1 whether Prevezon participated in money laundering to get

2 $800,000 into the United States, right?

3 MR. MONTELEONI: That's correct, your Honor.

4 THE COURT: Okay. And are you claiming that -- I'm

5 sure you're not, but I'm going to ask you anyway. Are you

6 claiming that Prevezon was somehow working with Hermitage to

7 perform the money laundering?

8 MR. MONTELEONI: No. Prevezon certainly wasn't

9 working with Hermitage. Hermitage was the victim and Hermitage

10 people will be important witnesses against Prevezon in this

11 case.

12 THE COURT: If Prevezon was guilty of money

13 laundering, what is your case on that?

14 MR. MONTELEONI: Well, at present before discovery,

15 it's circumstantial based on the exceedingly suspicious nature

16 in which the funds were transferred through a series of shell

17 companies and --

18 THE COURT: All right. Enlarge on that.

19 MR. MONTELEONI: Yes, your Honor. So after the

20 payments from the Russian Treasury to the first layer of shell

21 companies, there were transfers over a very short period of

22 time, just a series of weeks, for five layers of transfers, I

23 think potentially hundreds of separate transactions, at least

24 dozens, through a number of different shell companies in

25 Russia. Then the transfers went to two shell companies in

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1 Moldova. Those two shell companies then transferred the money

2 to Prevezon, and they did so using wire transfers that gave

3 false descriptions for the purpose for the transfer. They

4 claimed to be payments for goods that actually weren't being

5 shipped to them. So from that and from the sophisticated

6 pattern of laundering activity, even if discovery doesn't

7 reveal more evidence of their intent, we believe that there is

8 a strong circumstantial case that they had some awareness with

9 the people who sent them the money, that the people who sent

10 them the money weren't just doing it --

11 THE COURT: And who sent them the money?

12 MR. MONTELEONI: Two Moldovan money laundering

13 companies as part of a chain of transfers from Russian shell

14 companies through several layers of transfers over a short

15 period of time.

16 THE COURT: Now how does Hermitage get into that?

17 MR. MONTELEONI: Well, some persons affiliated with

18 Hermitage did gather some information and are likely to be

19 persons in a position to authenticate that.

20 THE COURT: What?

21 MR. MONTELEONI: Documents relating to those transfers

22 and demonstrating that those transfers happened. Additionally,

23 documents that relate to --

24 THE COURT: That sounds to me like a very slim

25 connection of Hermitage.

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1 MR. MONTELEONI: Well, that may be. We don't know to

2 what --

3 THE COURT: Maybe it's the way you describe it. Now,

4 look, I'm going to make a ruling.

5 The issue before the court is whether an attorney,

6 John Moscow, and his firm, BakerHostetler, are to be

7 disqualified from this case. Another firm was working with

8 BakerHostetler, but I'm not going to refer to that other firm.

9 The court is ruling that Mr. Moscow and his firm are not to be

10 disqualified from this case.

11 MR. MONTELEONI: Your Honor, may I --

12 THE COURT: I'm dictating a ruling.

13 MR. MONTELEONI: I apologize, your Honor.

14 THE COURT: There have been arguments about this

15 matter of the most vigorous nature. A former client of

16 Mr. Moscow, namely, Hermitage and a man by the name of Browder,

17 are arguing that Mr. Moscow should not be allowed to continue

18 in the case.

19 One of the prime facts is that neither Mr. Browder nor

20 Hermitage are parties to this action. The action is against a

21 company called Prevezon, completely different from Hermitage,

22 and whatever happens in this case, whether Prevezon is held

23 liable or not held liable, will not redound to the liability or

24 legal position of Hermitage or its principals.

25 Now it is true that Mr. Moscow represented Hermitage

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1 at an earlier point for a few months in 2008 and a month or so

2 spilling over into 2009. And he represented Hermitage because

3 it appeared that, either in Russia or elsewhere, legal

4 proceedings might be brought against Hermitage, and he was

5 retained not as the principal lawyer but as a lawyer in the

6 United States to assist in trying to deflect legal proceedings

7 against Hermitage and direct the attention of the Department of

8 Justice to other possible people who might be liable besides

9 Hermitage. This representation terminated before any real work

10 was brought to fruition. There was a parting of the ways

11 between him and Hermitage. That was in early 2009, five years

12 ago.

13 Now he has been retained to represent a defendant in

14 an entirely new action, an action which is not related in any

15 substantial way to what he was doing then. He is retained to

16 represent a new client in a brand new lawsuit, raising issues

17 far beyond what he dealt with in 2008 and '9. And as far as

18 the court is concerned, the idea that he could not represent

19 his new client in this brand new lawsuit is absolutely without

20 merit.

21 It is true that he represented Hermitage at one time.

22 Hermitage is not a party to the current action. There is no

23 indication that he is in any substantial way taking a position

24 which involves an attack upon or an attempt to hold liability

25 with regard to Hermitage. There's nothing approaching such a

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1 situation. And it seems to me evident beyond any question that

2 he should be allowed to represent his brand new client in this

3 brand new lawsuit which has issues that are relevant to what is

4 claimed here, and that is that Prevezon, through a couple of

5 Moldovan companies, participated in money laundering, which

6 managed to get the grand total of $800,000 into the United

7 States, and that $800,000 has been invested in real estate.

8 That is what the current action is about. Hermitage was not

9 one of the Moldovan companies. As far as the record shows,

10 there is no connection between Hermitage and any of the

11 Moldovan companies, which are the alleged instruments of the

12 money laundering in this case. The issues in this case are

13 different in all substantial respects from what he dealt with

14 when he represented Hermitage back in 2008 and early 2009.

15 It is true that the principal of Hermitage has been

16 served with a subpoena by Moscow and his firm, and it is true

17 that the government may very well call Hermitage and its

18 principal as witnesses in its case. From a description which

19 the government has just given of what its case is, it is not at

20 all clear why that should be, but that is up to the government,

21 and if they feel they want to go into history and so forth and

22 call Hermitage or its principal as a witness, that's up to the

23 government, and I'm certainly not ruling on the government's

24 evidence at this hearing. Not at all. But in what the

25 government represents, there is not any indication that the

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1 issues are such that Moscow and his firm cannot represent their

2 new client. There's no conflict of interest which would

3 indicate that they cannot properly, without inhibition,

4 represent their new client. They are not suing Hermitage.

5 Hermitage is not a party to the new action. It is not a party

6 to the new action. The government and Prevezon are the parties

7 to the new action. And the court sees no reason whatever why

8 Moscow cannot represent Prevezon, his new client, in this new

9 action. As I have said, this new action is a different animal.

10 It is a different set of issues from anything that Mr. Moscow

11 dealt with back in his brief representation of Hermitage in

12 2008 and early 2009, five plus years ago.

13 The issue of Mr. Moscow's ability to continue to

14 represent his client has been the subject of extensive

15 litigation before me. It has raised some vigorously heated

16 controversy. All of that is, in my view, rather unfortunate.

17 But in response to obviously the requirements of their clients,

18 all the lawyers have litigated vigorously in this matter, and

19 it is time to put it to a close. And the court rules that

20 Mr. Moscow is not subject to any conflict of interest, anything

21 that impairs his ability to do his job, anything that in a

22 substantial way puts him adverse to his former client, and

23 therefore he can continue representing his client in this case.

24 Thank you very much.

25 ALL COUNSEL: Thank you, your Honor.

o0o

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1 UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x
UNITED STATES OF AMERICA,
3
Plaintiff,
4
v. 13 CV 6326 (TPG)
5

6 PREVEZON HOLDINGS LTD., et

al.,
7
Defendants.
8 ------------------------------x
New York, N.Y.
9 November 5, 2014
12:00 p.m.
10
Before:
11
HON. THOMAS P. GRIESA,
12
District Judge
13
APPEARANCES
14
U.S. ATTORNEY'S OFFICE
15 FOR THE SOUTHERN DISTRICT OF NEW YORK
For Plaintiffs
16 BY: PAUL M. MONTELEONI
Assistant United States Attorney
17
BAKER & HOSTETLER LLP
18 Attorneys for Defendants
BY: MARK A. CYMROT
19 JOHN W. MOSCOW
LAURA L. ALAVERDI
20 -and-
BAKER BOTTS LLP
21 BY: VERNON A.A. CASSIN, III
RICHARD HARPER
22 GABRIELLA VOLSHTEYA

23 GIBSON, DUNN & CRUTCHER, LLP

Attorneys for Movant William Browder
24 BY: LISA H. RUBIN
RICHARD W. MARK
25

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1 THE COURT: Good morning, everybody. What motions do

2 we have now pending?

3 MR. MONTELEONI: Good morning, your Honor. Paul

4 Monteleoni, for the government. Before the Court, the

5 government has a motion to file a proposed amended complaint

6 and a motion to file a proposed amended protective order to

7 conform to the amended complaint. The defendants have a motion

8 to dismiss.

9 THE COURT: Wait. You're going a little fast for me.

10 MR. MONTELEONI: Sorry.

11 THE COURT: You have a motion to file an amended

12 complaint and an amended protective order.

13 MR. MONTELEONI: Yes.

14 THE COURT: Okay.

15 MR. MONTELEONI: The defendants have a motion --

16 THE COURT: Let the defendants speak for themselves.

17 MR. MONTELEONI: Sure.

18 THE COURT: What other motions?

19 MR. MOSCOW: Your Honor, the defendants have, most

20 urgently, a motion to vacate or modify protective orders. We

21 have also other motions addressed to the pending indictments,

22 but the protective order motion is the urgent one.

23 THE COURT: Wait a minute. I don't have the usual

24 appearance sheet. You're Mr. Moscow?

25 MR. MOSCOW: Yes. Sorry, your Honor. John Moscow.

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1 THE COURT: Just a minute. We've got the government's

2 motion to amend the complaint and to have an amended protective

3 order. Go ahead now, Mr. Moscow. I wasn't quite up to you.

4 MR. MOSCOW: The defendants have a motion to vacate or

5 modify the protective orders, and I have to apologize to

6 Mr. Monteleoni. I thought that there had been a proposed

7 amended complaint. I hadn't seen a motion.

8 THE COURT: It doesn't make any difference. I don't

9 care about the motion.

10 MR. MOSCOW: I was rising to speak, if I might, to the

11 motion to vacate or modify the protective order entered

12 September 11, 2013. That is the one that is in effect at this

13 time.

14 THE COURT: Any other motions?

15 MR. MOSCOW: We have motions to dismiss the complaint

16 that are pending.

17 THE COURT: All right.

18 MR. MOSCOW: And I believe that those are the

19 substantive motions that we have pending at this time.

20 MR. MONTELEONI: Your Honor, may I also be heard.

21 THE COURT: Yes.

22 MR. MONTELEONI: The nonparties that were served with

23 or attempted to be served with certain subpoenas have submitted

24 a motion to quash those subpoenas, and the briefing on that is

25 currently incomplete and on hold.

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1 THE COURT: Which subpoenas are you talking about?

2 MR. MONTELEONI: There were subpoenas served on

3 multiple occasions by the defendants to various nonparty

4 entities seeking certain third-party discovery, and these

5 nonparty entities have filed a motion to quash. There is a

6 briefing schedule for further filings, including a motion by

7 the government to quash at least portions of those subpoenas,

8 and that has also been stayed by this Court's order on Friday

9 until today. So that's something that we believe we should

10 determine, what the schedule for that will be going forward.

11 We believe that that is the motion that should be dealt with

12 after all these other ones we've been discussing.

13 THE COURT: Would you please describe your proposed

14 amended complaint and how it differs from the original

15 complaint.

16 MR. MONTELEONI: Absolutely, your Honor. There are

17 two categories of changes that the proposed amended complaint

18 makes to the original complaint. One is that it significantly

19 narrows the amount of property that the government is seeking

20 to forfeit, and it describes that property with more

21 specificity. Both of those are changes that the defendants

22 have said that they wanted to be made, and this Court thought

23 that the action should be streamlined back in February, and the

24 government promptly submitted an initial version of a proposed

25 amended complaint with those changes. Now there's more

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1 information, but the new proposed amended complaint makes those

2 changes.

3 THE COURT: All right.

4 MR. MONTELEONI: It streamlines the action by focusing

5 on a more limited set of properties.

6 THE COURT: What does it focus on?

7 MR. MONTELEONI: There is real property in New York

8 that's worth approximately $10 million and then there are Euros

9 that are restrained in the Netherlands worth a little less than

10 $4 million, so the total universe of property that the proposed

11 amended complaint seeks to forfeit is a little less than $14

12 million. And we believe that that is the property that was

13 involved in the laundering of the funds.

14 Now, the other category of changes that the proposed

15 amended complaint makes are additional allegations that support

16 the defendants' knowing involvement in laundering of money and,

17 in fact, allege that defendants have laundered over twice as

18 much money as was previously alleged. The Court remembers that

19 there were numerous discussions since we've been in this case

20 about $857,000 that defendants received from the Russian fraud

21 scheme. It turns out that the proposed amended complaint

22 alleges, based on an ongoing investigation, that it's not just

23 $857,000; it's almost $2 million. And that, we believe,

24 strongly supports the government's position that it is entitled

25 to forfeit the property that's involved in laundering that $2

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1 million.

2 The complaint is still seeking to forfeit more than $2

3 million, but that's allowed under the forfeiture laws.

4 THE COURT: You're seeking to forfeit 14.

5 MR. MONTELEONI: That's correct, your Honor, and the

6 forfeiture laws permit the forfeiture of property.

7 THE COURT: The government alleges that that was used.

8 MR. MONTELEONI: Yes, exactly. And so in addition to

9 this, the fact that there is more fraud money coming in that

10 was laundered, the circumstances in which it's coming in, the

11 proposed amended complaint alleges, strongly support the

12 defendants' intent. It's coming in from a third company. It's

13 coming in with other false descriptions of what the money is

14 for. The first $857,000 was falsely described as payments for

15 sanitary equipment. This next $1.1 million was falsely

16 described, we believe, as payments for spare auto parts. So

17 from multiple different sources using multiple different false

18 descriptions of the purpose of the funds, the defendants

19 received the money and they also received it, the complaint

20 alleges, over multiple different transactions. Previously, the

21 complaint said it was just two transactions from two companies.

22 Now it's nine transactions from three companies, over a period

23 of about two months.

24 Additionally, the proposed amended complaint has other

25 evidence regarding the defendants' intent. It turns out that

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1 the companies that sent the initial $857,000 didn't just

2 falsely put in the wire transfer instructions that it was for

3 sanitary equipment. They actually doctored up fake contractual

4 documents, a contract and an invoice, in both cases claiming to

5 be between the shell company and Prevezon Holdings, the

6 defendant, that also falsely said that this money was for

7 sanitary equipment. Those contracts are signed by someone

8 unnamed purportedly from Prevezon Holdings, and the complaint

9 doesn't allege whether that was actually a genuine signature or

10 whether the money launderers who sent the money to Prevezon

11 Holdings forged a Prevezon Holdings signature. But we believe

12 that, either way, the fact that they would go to these type of

13 lengths makes it just inconceivable that they would send money

14 in that way to someone who they didn't have a trust

15 relationship with, someone who wasn't in on it, because the

16 recipient of the money, if they were innocent, might look at

17 the bank records and say I didn't sell anyone any sanitary

18 equipment, might call the bank, and might try to find out

19 what's going on, and the fact that the money launderers forged

20 sham documents would expose them to tremendous risk. So we

21 believe that that also strongly supports the inference of

22 intent.

23 And then it also alleges that the principal of the

24 defendant companies, an individual named Denis Katsyv, had

25 knowledge of Israeli laws prohibiting money laundering, which

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1 are exactly the same, in relevant part, to the U.S. laws

2 prohibiting money laundering, because he previously settled an

3 investigation about money laundering involving those laws. So

4 the idea that these transactions were innocent and that he had

5 no reason to know that they were suspicious is further undercut

6 by the fact that he had awareness of basically the same laws.

7 That's the category of changes that the amended

8 complaint makes. It limits what the government is seeking. It

9 narrows it and it focuses it, and it provides additional

10 evidence that the defendants laundered more money and stronger

11 evidence that the defendants knew that they were laundering the

12 money. And then the proposed amended protective order conforms

13 the amount of property restrained to that narrower set of

14 property that the amended complaint seeks, so that the other

15 properties sought in the amended complaint currently restrained

16 under the original protective order would be released and that

17 that would be, we believe, from what the defendants have been

18 saying, a significant benefit to the defendants. We certainly

19 have no opposition to the Court entering our proposed amended

20 protective order right away to free up that other money that's

21 not covered by the amended complaint, but we do think that we

22 should be granted permission to file the amended complaint and

23 narrow the action in that way.

24 THE COURT: Is there any opposition to the motion to

25 amend the complaint and to amend the protective order?

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1 MR. MOSCOW: Yes, your Honor.

2 THE COURT: What is the opposition?

3 MR. MOSCOW: The opposition to the motion to amend is

4 based on the fact that the complaint continues to include the

5 death of Magnitsky and it raises irrelevant and extremely

6 prejudicial remarks about Katsyv in Israel in a case which went

7 to trial against the banker where the judge found there was no

8 crime. That omission changes the fact that the owner of the

9 company settles a case with the government from knowledge of

10 misconduct to one of chicanery. We're talking here about

11 saying he should have known there were these laws even though

12 there was no crime, and he should have known about the laws in

13 Israel. Therefore, he's responsible for the laws in the United

14 States, even if he is a Russian-speaking Russian living in

15 Russia. We object to those. We cannot agree to having

16 anything to do with Magnitsky at all, flat-out, because it's

17 not true, and it is totally improper to include the stuff about

18 Israel.

19 We would like to be able to address the motion to

20 amend the complaint on papers. I understand the distinction

21 that counsel makes about the motion to amend the protective

22 order. I think he is right that it is appropriate without the

23 complaint being there; he can move to amend the protective

24 order to take cognizance of what he thinks he has learned.

25 THE COURT: Here is what I would like to do. I think

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1 it is necessary to have an amended complaint and I think it is

2 necessary to have an amended protective order. Now, I also

3 don't think that we should wait on having those documents in

4 place. I don't think we should wait on what may be valid

5 objections to parts of those documents. Consequently, I am

6 granting the government's motion to file the amended complaint

7 and the amended protective order. That is subject to the right

8 of the defense to move to strike portions as you describe.

9 MR. MOSCOW: Your Honor, could I speak to the

10 protective order, because we submitted a proposed amended

11 protective order on March 5.

12 THE COURT: Start again.

13 MR. MOSCOW: If I might speak to the proposed amended

14 protective order because we had submitted one March 5, we

15 submitted two, one which vacated a protective order altogether

16 because, in our view, Rule G, which provides protection from

17 the seizure of property, was violated. We believe that the

18 taking of this property was based on inadequate factual bases.

19 Those are spelled out in our papers, but, quite frankly, the

20 government does not spell out facts from which you can infer

21 that they're going to win this case. There is a problem with

22 tracing the money, and then there is a problem with knowledge

23 and intent, which Mr. Monteleoni spoke about. I would like to

24 focus, if I could, on the complaint itself, because the

25 government says, in connection with the protective order -- I'm

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1 sorry.

2 I would like to ask you to modify the protective order

3 down considerably from $14 million. The complaint says that

4 Prevezon had $2 million in it when Denis Katsyv bought it for

5 $50,000. That means that it was an investment company because

6 he didn't pay $50,000 for 2 million. He paid $50,000 for a

7 company which had cash on hand of 2 million and liability to

8 return that to the investors. The implication of that from the

9 complaint is that the money that was there was not his. To the

10 extent that the government says, well, gee, we think that money

11 is dirty, Denis Katsyv and Prevezon can only say we received

12 it. Receiving it does not mean we generated documents in

13 Moldova; they did not. It does not mean that they can call up

14 a bank in another country and ask what happened; they cannot.

15 Banking doesn't work that way.

16 What it means is they received money in Zurich and all

17 the money that they received was invested in Holland in buying

18 for 3 million Euros 3 percent of a $100 million real estate

19 company, which is good leverage, 90 percent from Deutsche Bank

20 and 7 percent from AFI. When they bought that, they bought

21 interest in a company, and money which was alleged to be dirty,

22 whether it's 857 or slightly less than $2 million, all of that

23 money went from Zurich to Amsterdam to buy a share of real

24 estate companies. And it stayed there.

25 THE COURT: To buy what?

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1 MR. MOSCOW: Shares, to buy an interest in real estate

2 companies.

3 They didn't put the cash in the bank accounts so they

4 could get it out again. They bought shares. And when they

5 bought the shares, the shares stayed in their names. They were

6 their assets until it was sold and the proceeds are what is now

7 frozen in Holland. We know what happened to that money. It

8 went to Holland and is frozen there. All the money that is

9 alleged to be dirty is frozen in Holland.

10 THE COURT: Can I interrupt you.

11 MR. MOSCOW: Yes.

12 THE COURT: You're making arguments about the merits

13 of the case, which, of course, your client is entitled to make

14 at the appropriate time in the appropriate way. But I cannot

15 decide the merits of the case this morning, and I haven't heard

16 anything that indicates that the government's proposed

17 complaint is improper. It may ultimately lack merit. It may

18 be that you will win the arguments that you are putting forward

19 now, but what I have said is, and I stick to it, I am granting

20 the motions. I am granting the government's motion to amend

21 the complaint. I am granting the government's motion to amend

22 the protective order, obviously, without prejudice to any

23 motion that the defense may make for summary judgment, or

24 otherwise, putting forth the arguments you are now putting

25 forth. That is the procedural way that I have said we'll

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1 proceed and I stick to that. I've said this about three times,

2 or more, the government's motions are granted and then there

3 will be an opportunity, obviously, under our rules, to make

4 defense motions to strike or dismiss or for summary judgment,

5 but I really cannot entertain such motions this morning because

6 they haven't yet been made and they don't need to be made this

7 morning.

8 MR. MOSCOW: Your Honor, if I may, just for the sake

9 of clarity, I hear you, I understand you, I was trying to

10 speak, apparently unpersuasively, to the protective order and

11 to say that the only money that the government says is tainted

12 is in Holland, and we say, cool, you want to freeze the money

13 that you say is dirty, freeze the money in Holland, it's

14 frozen, and release the other money. You're restraining cash

15 and there is no basis to do so. We've said this in our papers.

16 I am asking you, please, based on the complaint that you are

17 granting the government the right to file, the money that is

18 alleged to be from the Russian treasury is less than $2 million

19 in Holland. That's where they say it went. It is frozen

20 there. A good deal more than that is frozen there, but I am

21 speaking only to releasing the other property that is held in

22 the United States. That is not the proceeds of anything except

23 investment.

24 THE COURT: I understand what you're saying, but it

25 seems to me that the government makes allegations to the

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1 contrary of what you are saying. In other words, the

2 government says that the laundering of the money involved more

3 than what you're saying and the laundering of money involved

4 money coming into the United States and being used in the

5 United States to buy properties as part of money laundering.

6 Do I understand the government correctly?

7 MR. MONTELEONI: That's right, your Honor.

8 THE COURT: All right.

9 MR. MOSCOW: If I might, the government says because

10 Prevezon had money in Holland that whatever Prevezon did in New

11 York was part of money laundering. The money came in from

12 Zurich.

13 THE COURT: I don't think the government's allegation

14 is that narrow.

15 Am I right?

16 MR. MONTELEONI: That's correct, your Honor. A

17 representative of the defendant company said that the initial

18 $857,000 was invested in New York real estate. That's alleged

19 in the complaint.

20 MR. MOSCOW: It's all connected by bank records.

21 THE COURT: Mr. Moscow, please.

22 MR. MOSCOW: Surely.

23 THE COURT: All I can say to you is that I am granting

24 the government's motion. I'm granting the government's motion

25 to have the protective order.

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1 It is much more narrowed, is it not, Mr. Monteleoni?

2 MR. MONTELEONI: Yes, your Honor. It's significantly

3 narrower.

4 THE COURT: It's much narrower. The defense would

5 like it further narrowed, and you are certainly able to make a

6 motion to that effect, but I cannot, today, on the present

7 record go farther than that.

8 MR. MOSCOW: Your Honor, we have made a motion to

9 vacate. If you are going to deny that motion, I would ask, for

10 the sake of the record, that you say you are denying our motion

11 to vacate and granting the government's motion.

12 THE COURT: I am so ruling.

13 MR. MOSCOW: Thank you.

14 THE COURT: All right. Is there anything else we need

15 to cover today?

16 MR. MONTELEONI: Your Honor, we do believe that these

17 motions about the third-party discovery should await at least

18 the disposition of any motions that would involve the complaint

19 and preferably a discovery schedule, which we've been trying to

20 negotiate with defense at times and we understand is on hold

21 pending the dispositive motions, so we would propose that these

22 subpoena motions be further stayed.

23 THE COURT: What subpoenas are out?

24 MR. MONTELEONI: There are, I believe, five different

25 third-party subpoenas that have been filed to various

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1 nonparties. The nonparties have moved to quash.

2 THE COURT: Who has served the subpoenas?

3 MR. MONTELEONI: Sorry. The defense has.

4 THE COURT: Yes.

5 MR. MONTELEONI: The nonparties have moved to quash.

6 The United States has moved to quash in part for some of them.

7 The United States is likely to move to quash at least in part

8 for the remainder, but we think that these issues could be

9 significantly narrowed or perhaps obviated after both the

10 disposition of motions such as the pending motion to dismiss

11 the complaint, which the defendants say they wish to make at

12 the amended complaint and also narrowed by party discovery,

13 which the defendants have put on hold pending these dispositive

14 motions. What we would propose is that, once the Court

15 disposes of the dispositive motions, we set a discovery

16 schedule and that that will set a time for third-party

17 discovery and that the pending subpoena motions be stayed until

18 the time for third-party discovery.

19 MR. CYMROT: Your Honor, Mark Cymrot, for the defense.

20 We object to that proposal. Can I explain?

21 THE COURT: Of course.

22 MR. CYMROT: The subpoenas that were issued were

23 issued to Hermitage and William Browder and certain companies

24 that they have used in connection with their business in the

25 United States. Based upon what you did, we may move to strike

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1 two paragraphs of this amended complaint, but I'm not clear

2 that we're going to renew our motion to dismiss. We may get

3 right into discovery, in which case these motions to quash

4 ought to go forward, and we would like to see them resolved and

5 we would like to see discovery move forward. There's no reason

6 to wait for dispositive motions because I think at this point

7 we may not file them.

8 MR. MONTELEONI: Your Honor, may I.

9 MR. MOSCOW: Could I just follow up, Mr. Monteleoni.

10 MR. CYMROT: I'm talking about motions to dismiss,

11 your Honor. Perhaps after discovery, we'd move for summary

12 judgment. I'm not precluding that, but I'm just talking about

13 a general motion to dismiss at this point. We will move to

14 strike the allegations regarding the death of Sergei Magnitsky.

15 We will move to strike the allegations regarding the Israeli

16 money-laundering case and about the Magnitsky Act, but beyond

17 that, it may be time for us not to file a motion to dismiss and

18 see what discovery brings and file a motion for summary

19 judgment, or go to trial. These motions have been on file.

20 They are partially briefed. Why don't we finish the briefing.

21 THE COURT: What motions are you talking about?

22 MR. CYMROT: The motion to quash the subpoenas we

23 issued to Hermitage and Browder.

24 MR. MOSCOW: Very simply, your Honor, Mr. Browder was

25 physically served in the United States.

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1 THE COURT: Who?

2 MR. MOSCOW: We believe Mr. Browder was served in the

3 United States. If his counsel's arguments are correct that he

4 was not, then we would have to re-serve him.

5 THE COURT: You served him with a subpoena?

6 MR. MOSCOW: Correct. So we would like that issue

7 determined. The question of modifying the subpoena and what

8 has to be produced is something which counsel can productively

9 speak among themselves about without burdening the Court. But

10 the question of whether service was effected is one of temporal

11 urgency. We would ask that that issue be determined before

12 anything else. Thank you.

13 THE COURT: Let me just follow up on that.

14 MR. MONTELEONI: Sorry. Would you like me to address

15 that?

16 THE COURT: No. When I asked about what motions there

17 are, there are apparently motions to set aside or to quash

18 subpoenas.

19 MR. MOSCOW: Correct.

20 THE COURT: And is one ground of one motion the

21 improper service of the subpoena on Browder?

22 MR. MOSCOW: Yes.

23 THE COURT: All right.

24 MR. MOSCOW: It is that point that we need determined.

25 THE COURT: Fair enough. What's the problem about the

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1 service?

2 MS. RUBIN: Your Honor, if I may, I represent

3 Mr. Browder and Hermitage Capital Management, and we are here

4 solely to observe today's proceedings, but now that we are

5 discussing the subpoenas that have been issued to Mr. Browder

6 and to other entities, if I may, I'd like to continue the

7 special appearance that my firm has entered on behalf of

8 Mr. Browder and Hermitage to discuss these issues.

9 THE COURT: You can certainly appear specially, of

10 course.

11 MS. RUBIN: Thank you, your Honor. I appreciate that.

12 THE COURT: Before we have any further discussion,

13 what is the issue about Mr. Browder's service? Can somebody

14 address that?

15 MS. RUBIN: Sure. I would be happy to, your Honor.

16 There are issues both about the service of Mr. Browder and

17 whether or not he is subject to Rule 45 that have been

18 addressed in the motion to quash that we filed on September 12.

19 I would, however, address those, your Honor, and I would like

20 to come back to our request which we made last night in the

21 letter for a stay of the motion to quash and related

22 proceedings with respect to the nonparty subpoenas.

23 The issue with the service, your Honor, is that we do

24 not believe Mr. Browder was properly served with the subpoena.

25 THE COURT: Why not? What was the problem?

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1 MS. RUBIN: It was not handed to him personally. It

2 was attempted to be delivered by means that are not recognized

3 by the Rules of Civil Procedure.

4 MR. CYMROT: Your Honor, can I describe it for you?

5 What happened was Mr. Browder was speaking at a conference in

6 Aspen, Colorado. A process server walked up to him in a public

7 space, tried to hand it to him. He wouldn't take it, he

8 dropped it. He turned around, he ran into a car. The process

9 server put the subpoena under the windshield wiper of the car.

10 He had the driver or another person remove it from the

11 windshield wiper and drop it. It was then served at a house we

12 believe is his residence in Aspen, Colorado, and we have

13 evidence for that as well, including his own registration of a

14 car citing that address as his official residence in Colorado.

15 That they are saying was not proper service.

16 MS. RUBIN: May I, your Honor.

17 THE COURT: Can I follow up on what you said.

18 MR. CYMROT: Yes, your Honor.

19 THE COURT: The subpoena was served in relation to

20 this case pending in the Southern District of New York, right?

21 MR. CYMROT: Correct, your Honor.

22 THE COURT: And I'm probably going to recite things

23 that are so obvious, but certainly somebody can be subpoenaed

24 to appear for a deposition, etc., in this case. Right?

25 MR. CYMROT: Right, in Colorado, yes.

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1 MS. RUBIN: Your Honor, may I.

2 THE COURT: Wait a minute.

3 Isn't there something about territorial limits of

4 service?

5 MR. CYMROT: It was service in Colorado for deposition

6 in Colorado, your Honor, so it was within the territory of the

7 subpoena.

8 THE COURT: In other words, if he had been subpoenaed

9 to appear in New York City, that would have been outside the

10 territorial limits, right?

11 MR. CYMROT: Correct. This was a pretrial deposition

12 to be taken in Colorado.

13 THE COURT: But I'm sure it's the law that somebody

14 can be served with a subpoena for a deposition as long as the

15 deposition does not require the person to go, what, more than

16 100 miles, or something like that?

17 MR. CYMROT: Correct, your Honor.

18 THE COURT: So you're saying that he was properly

19 served for the taking of a deposition in Colorado.

20 MR. CYMROT: Correct.

21 THE COURT: And you have recited what your

22 understanding of the facts are, correct?

23 MR. CYMROT: That's correct.

24 THE COURT: What's the opposition?

25 MS. RUBIN: Your Honor, there are a few oppositions.

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1 First of all, we contest the facts as Mr. Cymrot just presented

2 them with respect to the service of the subpoena.

3 THE COURT: You contest what facts?

4 MS. RUBIN: The description of the service that

5 Mr. Cymrot just made. My client contests the accuracy of those

6 facts.

7 THE COURT: What do you say the facts were?

8 MS. RUBIN: Mr. Browder was walking out of a

9 conference center where he was delivering a speech. He was

10 approached by people he did not recognize who shouted his name.

11 Mr. Browder, as we have documented in some of our filings, has

12 a fear for his personal safety, your Honor, based on some of

13 the events that are at issue in this case. He heard someone

14 yell his name in a way that seemed particularly hostile to him.

15 He was with his minor son. He walked toward his car, and he

16 drove away.

17 The issues about service of the documents at other

18 places, including a residence that the Prevezon defendants

19 allege is owned by our client, we dispute. We dispute that

20 service was made there in a way that's recognized by the

21 federal rules. We also dispute that the residence is directly

22 or indirectly owned by Mr. Browder.

23 More importantly, your Honor, while Mr. Browder was

24 within Aspen at the time of the events Mr. Cymrot and I have

25 described to you, he is not subject to a Rule 45 subpoena. He

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1 does not live in Colorado. He does not work in Colorado. And

2 he does not regularly transact business in person in Colorado.

3 And all of those are the factors by which service of a Rule 45

4 subpoena is measured.

5 In our motion to quash, document 113 on the docket, we

6 argue that in addition to the improper service of the subpoena,

7 Mr. Browder is not subject to a Rule 45 subpoena in Colorado or

8 any other place. But I believe, your Honor, we have come far

9 afield from the issue that Mr. Monteleoni raised, which is why

10 Mr. Browder and the Hermitage defendants should have to

11 litigate at this juncture in the case whether or not the six

12 nonparty subpoenas that were issued to it, in addition to two

13 others that were served on Hermitage Global, which is another

14 Hermitage entity, and Mr. Browder in his purported capacity as

15 a director of that entity in March, whether any of those eight

16 nonparty subpoenas should continue to be litigated now. And,

17 your Honor, it's our position that they should not.

18 There has been no party discovery in this case. There

19 has been no party discovery planned. As Mr. Monteleoni recited

20 for you, there has been no meeting of the minds among the

21 parties as to what discovery is appropriate, and there may be

22 further briefing about what this complaint should even look

23 like. We believe that the pleadings should be settled and some

24 party discovery should be had before the Prevezon defendants

25 continue their campaign to make Mr. Browder and Hermitage the

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1 centerpiece of the case. They told you, your Honor, last month

2 that my client is not a party here. They have distanced him at

3 every possible opportunity from the events that are at issue

4 here, and yet they want to proceed with motion practice that is

5 extraordinarily costly and burdensome to Mr. Browder, who is

6 not even a citizen of the United States, nor subject to

7 jurisdiction in any of its states, rather than proceed with

8 their defense of this litigation and party discovery. That

9 simply makes no sense to us.

10 Our application last evening to your Honor in a letter

11 was that your Honor has the discretion to stage proceedings

12 here in a way that makes sense. Your Honor has the authority

13 to put these subpoenas on hold, that aspect of discovery on

14 hold, until the pleadings are more settled and until the

15 parties can come up with a reasonable plan amongst themselves

16 for party discovery, which may obviate the need for any

17 discovery from Mr. Browder in the first place.

18 Mr. Cymrot told you when we were here on the motion to

19 disqualify that he viewed the testimony that our clients could

20 give for the government as irrelevant, incompetent, and

21 unnecessary, given his view of the complaint. It's our

22 position that those issues should be resolved before any

23 further expense is shifted on to Mr. Browder, a nonparty to

24 this case.

25 MR. CYMROT: May I respond, your Honor.

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1 THE COURT: Not for a minute.

2 MR. CYMROT: Okay. Thank you.

3 THE COURT: The case before the Court now is a suit

4 against Prevezon alleging money laundering. It is being

5 defended. Like all cases, there can be discovery as long as

6 the case is pending and discovery is not closed. There are

7 various ways to obtain discovery, which we all know about. In

8 the prior proceeding, I was told about the fact that a subpoena

9 for discovery was served on Mr. Browder. However, on that

10 prior occasion, there was no need to litigate the validity of

11 the subpoena or any validity of the service. If Mr. Browder

12 came into New York City, presumably, he could be served with a

13 subpoena. He has not. What I'm told by Mr. Cymrot is that he

14 was served in Colorado, in Aspen.

15 Is that right?

16 MR. CYMROT: Yes, your Honor.

17 THE COURT: Now, if he is in Aspen and a process

18 server finds him, it is my understanding he can be served with

19 a subpoena. Am I right, Mr. Cymrot?

20 MR. CYMROT: Yes, your Honor. That's exactly what

21 happened.

22 THE COURT: Now, my understanding, and maybe I'm

23 oversimplifying things, is if he can be found by the process

24 server in Aspen, he can be served, whether he lives in Aspen,

25 whether he addresses meetings in Aspen, whether he has business

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1 in Aspen, for the sake of taking his deposition. If he can be

2 found there and served, he can be served. Am I right or wrong?

3 MS. RUBIN: Your Honor.

4 THE COURT: Please.

5 Mr. Cymrot.

6 MR. CYMROT: Yes, your Honor.

7 THE COURT: That is my understanding. And the facts

8 recited by Mr. Cymrot would indicate that proper service was

9 made. Now, if there is a factual dispute about what occurred,

10 then there obviously needs to be a way to resolve that factual

11 dispute.

12 MR. CYMROT: Your Honor, there's no factual dispute

13 because Mr. Browder has not put in an affidavit. You have

14 nothing in front of you on the record of this case other than

15 lawyers' statements in a brief. There are affidavits that we

16 submitted that put those facts in the record and no affidavit

17 from Mr. Browder that puts those facts in dispute.

18 THE COURT: That's what I wanted to get to.

19 Obviously, as an initial proposition, Mr. Browder could contest

20 the propriety of the service. Right?

21 MR. CYMROT: Correct.

22 THE COURT: And there's a way to do that.

23 MS. RUBIN: Mr. Browder has also --

24 THE COURT: Excuse me just a minute.

25 MS. RUBIN: Certainly, your Honor.

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1 THE COURT: There is a way to do that and a way to get

2 the factual contentions of the two sides before the Court.

3 MS. RUBIN: Your Honor, may I.

4 THE COURT: I'm going to ask you a question.

5 MS. RUBIN: Of course, your Honor.

6 THE COURT: What has Mr. Browder done, personally or

7 through counsel, to put the facts at issue?

8 MS. RUBIN: Your Honor, our motion to quash discusses

9 the service issues, as does my attorney declaration.

10 THE COURT: You have a motion to quash.

11 MS. RUBIN: We do.

12 THE COURT: And what factual record is contained in

13 the motion to quash?

14 MS. RUBIN: Information that was passed to counsel

15 from Mr. Browder. Mr. Browder could not put in a declaration,

16 your Honor, because to do so would risk some of the same

17 jurisdictional defenses that we have raised before, your Honor.

18 Our concern is that Mr. Browder, in submitting a declaration to

19 this Court, would be submitting himself to the jurisdiction of

20 this Court or for a deposition, which Mr. Browder maintains he

21 is not required to do as someone who is not amenable to

22 jurisdiction here.

23 THE COURT: That is just plain wrong. Somebody who is

24 contesting service of process in Aspen, Colorado, can put in a

25 declaration, can verify in an appropriate way the facts that he

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1 claims --

2 MS. RUBIN: Certainly, your Honor.

3 THE COURT: -- without under any circumstances

4 becoming a party to this litigation, which he's not a party to,

5 so I don't really know what you're even talking about.

6 MS. RUBIN: His concern, your Honor, to be clear, is

7 not about becoming a party to this litigation. It's about

8 submitting himself to the jurisdiction of this Court.

9 But, your Honor, if I may, we have talked a lot about

10 service this morning.

11 THE COURT: That is completely illusory.

12 MS. RUBIN: I appreciate that, your Honor.

13 THE COURT: It's completely illusory. I don't know

14 how he would come to be submitting himself to the jurisdiction

15 of the Court. He's not being sued. I don't know any basis for

16 what you are saying.

17 MS. RUBIN: Your Honor, Mr. Browder does not want to

18 create any predicate, factual or legal, for being called to

19 testify in this matter in this court when his position and the

20 facts support that he is not amenable to jurisdiction here.

21 But, your Honor, if I may, we have spoken quite a bit

22 about service.

23 THE COURT: Please. You're getting so far afield.

24 MS. RUBIN: I'm not trying to, your Honor.

25 THE COURT: And the thing is that if he is properly

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1 advised, and I'm sure he will be by you, he can sign a

2 declaration. He can sign it in Aspen, he can sign it in

3 London, he can sign it anywhere in the world. He can sign a

4 declaration.

5 MS. RUBIN: Mr. Browder does not reside in Aspen.

6 THE COURT: Excuse me, please.

7 He can state his side of the facts.

8 MS. RUBIN: Okay.

9 THE COURT: And he can do it through the usual

10 appropriate way, and that is to do it under oath in the form of

11 an affidavit or declaration. Apparently he has not done that

12 and apparently there is some misconception about a problem that

13 might arise. If he, in Aspen or London, or wherever, signs a

14 declaration or an affidavit and swears to it, stating that he

15 was never served or stating whatever he wants to state, then

16 that will be a proper factual record.

17 MS. RUBIN: I understand.

18 THE COURT: Apparently right now, there is no such

19 proper factual record, and I don't know why there is not. You

20 made a motion. Why didn't you submit a proper factual record?

21 MS. RUBIN: Your Honor, as I explained, it was our

22 understanding at the time that for Mr. Browder to submit a

23 declaration would be submitting to the jurisdiction of the

24 Court.

25 THE COURT: I don't understand how you could

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1 possibly -- did you advise, I'm not going to get into that.

2 That is simply wrong. Just plain wrong.

3 MS. RUBIN: Your Honor, there are issues in the

4 subpoena. We have somehow gotten into this very in-depth

5 discussion of the service of the subpoena as if our motion is

6 predicated entirely on the question of service, when that is

7 but one small component of our motion to quash. And, your

8 Honor, the reason that I appeared this morning and the reason

9 that I am here is because we have made an application to your

10 Honor that any further litigation on this motion to quash

11 should be stayed because it is putting the cart before the

12 horse.

13 Your Honor, I apologize if I am treading on ground

14 that we've covered many times, but everyone in this courtroom

15 knows that Mr. Browder is not a party, and to shift to him the

16 burden of having to respond and further litigate six nonparty

17 subpoenas that are either to or about him, when Mr. Cymrot,

18 when he was here last month, told you on the record that he is

19 interested in my client's pretrial discovery solely to the

20 extent that Mr. Browder is going to be a witness for the

21 government and otherwise it would be unnecessary. In fact, he

22 implored your Honor. He said the Court could take action to

23 make that discovery entirely unnecessary by striking

24 allegations of what was then the government's operative

25 complaint. I'm not sure how we're getting to the point where

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1 service has become the cause du jour.

2 MR. CYMROT: Your Honor, can I answer that.

3 THE COURT: Yes.

4 MR. CYMROT: The government has said Mr. Browder is

5 its key witness. Then it has said Browder is a witness. It

6 has said various things about Browder being a witness, but it

7 has always said that Mr. Browder is a witness. The scope of

8 what the government has in mind changes almost every time they

9 send a letter on this, but the fact of the matter is what

10 doesn't change is he is a witness and we're entitled to take

11 his deposition.

12 MR. MONTELEONI: Your Honor, if I could be heard on

13 that briefly.

14 THE COURT: Sure.

15 MR. MONTELEONI: We do believe that as in the course

16 of any case, the course of discovery may narrow and refine and

17 sometimes eliminate the need for certain parties to serve as

18 witnesses. That's something that, as we've been continuing our

19 investigation throughout and we intend to continue to do so

20 through discovery, we do believe that party discovery could

21 potentially entirely eliminate, the need for any action on this

22 subpoena, or could significantly limit its scope. So we think

23 that the prudent thing to do in the interest of everyone's

24 economy and in narrowing the issues before the Court and

25 avoiding potentially unnecessary burden to nonparties is to put

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1 this on hold until party discovery has progressed

2 substantially.

3 THE COURT: When you say party discovery, what are you

4 talking about?

5 MR. MONTELEONI: Both sides served document requests

6 earlier this year. However, the actual exchange of documents

7 hasn't happened yet because both sides need there to be a

8 confidentiality order of at least some kind or have asserted

9 that view. We proposed a confidentiality order to defense back

10 in March, and, as the most recent round of some negotiations,

11 and we just didn't hear back from them, and we later heard in a

12 brief that party discovery was on hold pending the dispositive

13 motions, and there were dispositive motions on the previous

14 complaint. I'm glad to hear that they're now not potentially

15 going to be instated as to this complaint, but that's the first

16 that I'm hearing of it because up until today, there was a

17 dispositive motion pending.

18 We can meet with the defendants again, see if there's

19 common ground on the discovery plan. If there is, we can

20 jointly propose it to the Court, and if not, we can propose

21 separate discovery plans to the Court. But we think that the

22 exchange of documents and other progress of the early stages of

23 party discovery, which haven't really happened yet, might go a

24 long way towards making this issue either disappear or if not

25 disappear at least diminish substantially.

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1 MR. CYMROT: Your Honor, what Mr. Moscow suggested, I

2 think, makes sense, which is we need to know whether we have

3 served Mr. Browder. Otherwise, we have to continue to attempt

4 to serve him. Issues of scope that Mr. Monteleoni and

5 Ms. Ruben are talking about are something we are perfectly

6 prepared to have conversations with counsel about. We're not

7 asking you to decide scope right now. We're just asking you to

8 decide that we have properly served him so that we know that we

9 can get his deposition and get his pretrial deposition. That's

10 the only issue that we need a decision on right now.

11 MS. RUBIN: Your Honor, may I.

12 THE COURT: Look, this Court has no reason and no

13 occasion to say that the service of a subpoena upon Mr. Browder

14 was unnecessary, was not a proper part of discovery. I have no

15 warrant for saying such a thing.

16 MS. RUBIN: Your Honor, there's a motion pending on

17 those issues and they're not just about service. Mr. Cymrot

18 has mischaracterized what our motion is about.

19 THE COURT: Can you just let me finish.

20 MS. RUBIN: Of course, your Honor.

21 THE COURT: I go back to the basic proposition that

22 the defense has a right to take discovery in the form of a

23 deposition of Mr. Browder. Now, they must properly serve

24 Mr. Browder, and if he is more than 100 miles away from New

25 York, they can't serve him with a subpoena and require him to

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1 come to New York. Things like that are well understood. Now,

2 there are several subpoenas and they're the subject of a

3 motion, but the way the Court is going to leave it is this way:

4 To start with the method of service, if Mr. Browder

5 wishes to make a motion complaining about the method of service

6 or the lack of service, he can do that with a declaration of

7 his own, and there's not any merit to the idea that that would

8 subject him to jurisdiction somewhere. All of that has no

9 merit at all. If he wishes to make a motion objecting to the

10 service, he can do so, but he needs to file a declaration or an

11 affidavit. You will undoubtedly talk to him and see if he

12 wants to make such a motion.

13 Now, as far as the substance of the subpoenas, there's

14 no reason to have a long discussion about the substance of

15 subpoenas in response to some motion. That just is never done

16 here. It is never done. All that can be done through the

17 subpoenas, and I'm sure this is included in the subpoenas, is

18 to obtain any documents he has relevant to the case and take

19 his testimony on matters relevant to the case. That's the

20 beginning and the end of it.

21 MS. RUBIN: May I, your Honor.

22 THE COURT: Please. That is the beginning and the end

23 of it, and that is my ruling relevant to all such motions.

24 That is my ruling.

25 Now, if he is properly served, he can be deposed at an

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1 appropriate place and that does not need to be the subject of a

2 lot of litigation. This goes on in case after case after case,

3 and it will go on here and it will go on in a straightforward

4 way, and that's what will go on. That's my ruling and that

5 concludes that subject.

6 MS. RUBIN: Your Honor, I'm sorry. May I.

7 I believe that your Honor has a little bit of a

8 misapprehension about the subject of our motion and one other

9 issue that is important to and tangential to the service issue.

10 Your Honor, in this court and in the Second Circuit, a court

11 must quash or modify a Rule 45 subpoena, and that is what

12 defendants have issued to Mr. Browder, where it requires a

13 person who is neither a party nor a party's officer, and that

14 describes Mr. Browder, to travel more than 100 miles from where

15 that person resides, is employed, or regularly transacts

16 business in person.

17 Mr. Browder does not reside in Aspen. He does not own

18 a home in Aspen. He was traveling to Aspen on a family

19 vacation where he also made a speech when the subpoena issuance

20 or the events in question happened. He is not employed in

21 Aspen. He does not regularly transact business in person. So

22 the validity of the subpoena issued to Mr. Browder does not

23 just turn on whether he was properly served, but there is a

24 separate and different issue as to whether he is subject to

25 Rule 45 in the first instance. Mr. Browder has no documents in

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1 Aspen. Hermitage has no documents in Aspen.

2 THE COURT: Where does he live?

3 MS. RUBIN: He lives in London, your Honor, where he

4 is a citizen.

5 THE COURT: What about that, Mr. Cymrot?

6 MR. CYMROT: Yes, your Honor. We have documents that

7 show that he has a house in Aspen. It is in the name of a

8 shell company, but in his Colorado driver's registration, he

9 listed that address as his official residence, and so he

10 resides in that official residence, according to the Colorado

11 DMV, and so he is a resident of Colorado for that purpose.

12 He was also in Colorado on what is his current

13 business, which is going around giving speeches. He was there

14 on business and so he was transacting business in Colorado as

15 well as he was present, and they're saying that by merely being

16 present in Colorado and being served by a process server is not

17 good service. And that is a novel argument.

18 MS. RUBIN: Your Honor, may I respond to that.

19 THE COURT: Just a minute.

20 MS. RUBIN: Sure. Your Honor, may I.

21 THE COURT: Look, I think briefing was actually stayed

22 to some extent. What we want to do is to get this now

23 organized. The defense asserts in court what has just been

24 asserted. Now let me ask you this. I know briefing has been

25 stayed and so forth. Mr. Cymrot, is what you're saying on the

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1 record in the form of declarations, affidavits, etc.?

2 MR. CYMROT: Correct. Yes. From our side, your

3 Honor.

4 THE COURT: From your side.

5 MR. CYMROT: From our side, not from Mr. Browder's.

6 THE COURT: But from your side, and that is in

7 response to a motion to quash?

8 MR. CYMROT: Correct.

9 THE COURT: Okay.

10 MS. RUBIN: It was a Rule 45 statement filed by

11 Mr. Cymrot sometime in September.

12 THE COURT: Okay.

13 MS. RUBIN: Your Honor, may I add one more thing.

14 THE COURT: I want to address you.

15 MR. CYMROT: Your Honor, let me explain a little. We

16 filed the service documents.

17 THE COURT: You did what.

18 MR. CYMROT: Filed the service documents. We filed

19 affidavits of service.

20 THE COURT: Right.

21 MR. CYMROT: We have not yet responded with a brief

22 because the briefing was stayed.

23 THE COURT: It was stayed.

24 MR. CYMROT: But the documents I described, the

25 affidavits I described, were filed as return of service.

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1 THE COURT: You have filed a motion to quash, right?

2 MS. RUBIN: Yes, I have, your Honor. And in it we

3 discuss a case called --

4 THE COURT: Please. You filed a motion. Does your

5 motion contain a declaration or an affidavit of Mr. Browder?

6 MS. RUBIN: No, it does not, your Honor.

7 THE COURT: All right. We go back to something

8 earlier. I am considering your motion incomplete. I'm not

9 denying it, but I'm considering it incomplete. You must, if

10 you wish to pursue this, complete your motion and have a

11 declaration or an affidavit of Mr. Browder dealing with what is

12 in those returns. If there is any question about it, I'm sure

13 you can call Mr. Cymrot and he will clear it up as to what is

14 needed, but you must complete your motion. It is not complete

15 and will not be complete without a declaration or an affidavit

16 of Mr. Browder. When that motion is complete, and you can

17 agree on a schedule, when your motion is complete, obviously

18 the defense will have the opportunity to answer that motion,

19 but none of that has been completed now, and I am not going to

20 rule on motions that are incomplete.

21 MS. RUBIN: Your Honor, we were not asking you to rule

22 on the motion. In fact, my client's application was for a

23 further stay of the motion to allow discovery to go forward.

24 THE COURT: That motion is denied.

25 MS. RUBIN: Thank you, your Honor.

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1 THE COURT: All right. Is there anything else to do

2 today?

3 MR. MONTELEONI: Your Honor, just to clarify about the

4 final procedure, my understanding, based on the comments from

5 defense, was that the current motion practice will be about the

6 service issue and we can work with defense and the nonparties

7 to work out a schedule for any issues, if there are any, about

8 the scope or content of the subpoenas. Is that right?

9 THE COURT: Right.

10 Let's adjourn. Thank you.

11 (Adjourned)

12

13

14

15

16

17

18

19

20

21

22

23

24

25

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1 UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x

3 UNITED STATES OF AMERICA,

4 Plaintiff,

5 v. 13 Civ. 6326 (TPG)

6 PREVEZON HOLDINGS, LTD. et

al.,
7
Defendants.
8
------------------------------x
9 New York, N.Y.
March 9, 2015
10 2:35 p.m.

11 Before:

12 HON. THOMAS P. GRIESA,

13 District Judge

14 APPEARANCES

15 PREET BHARARA
United States Attorney for the
16 Southern District of New York
MARGARET GRAHAM
17 PAUL MONTELEONI
Assistant United States Attorney
18
BAKER & HOSTETLER, LLP
19 Attorneys for Movants "The Prevezon Defendants"
BY: MARK CYMROT
20 JOHN W. MOSCOW
LOURA ALAVERDI
21
BAKER BOTTS, LLP
22 BY: SETH TAUBE

23 GIBSON, DUNN & CRUTCHER, LLP

Attorneys for Non-party Browder
24 BY: RANDY M. MASTRO
LISA H. RUBIN
25 RICHARD MARK

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1 (Case called)

2 THE COURT: Sit down, please.

3 Let's just get square on the procedural posture. What

4 do we have here, procedurally, in the way of motions or

5 whatever? What do we have?

6 MR. MASTRO: Your Honor, what we have is --

7 THE COURT: Your name, please.

8 MR. MASTRO: Yes, Randy Mastro, your Honor, Gibson

9 Dunn, with my colleagues Lisa Rubin and Richard Mark,

10 representing non-party William Browder who is the person on

11 whom these subpoenas were directed.

12 THE COURT: All right.

13 MR. MASTRO: And purportedly served.

14 We are here today, your Honor, in connection with

15 two --

16 THE COURT: Can you keep seated? Then the microphone

17 will pick you up. Or, go to the lectern.

18 MR. MASTRO: Certainly, your Honor.

19 Your Honor, we are here today about two subpoenas that

20 defendants -- we will call defendants Prevezon -- purported to

21 serve on our client, William Browder.

22 THE COURT: Is it a motion? I want to get technical

23 about the procedural posture. We are?

24 MR. MASTRO: Yes, your Honor; one, our motion to quash

25 the Aspen subpoena.

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1 THE COURT: All right.

2 MR. MASTRO: Two, we are ordered to show cause about

3 potential validity of the New York subpoena --

4 THE COURT: Okay.

5 MR. MASTRO: -- that Prevezon purported to serve in

6 February.

7 THE COURT: So you have got a motion about the Aspen

8 subpoena and then we will consider we are having a return on

9 the order to show cause.

10 MR. MASTRO: Correct, your Honor; on the New York

11 subpoena. They're both largely identical subpoenas and, your

12 Honor, to be clear, your Honor directed this hearing on the

13 limited issue of the following limited issues: One, whether

14 either the Aspen or the New York subpoenas are valid under Rule

15 45 of the Federal Rules of Civil Procedure; and two, whether

16 they were properly -- either of them was properly served. So,

17 we are here for that limited purpose. We are not here today

18 about the scope of the subpoenas. We are not here today about

19 the merits of the government's forfeiture case against Prevezon

20 although I should note, your Honor, that in that case a motion

21 to dismiss is pending, the case has not yet been defined for

22 purposes of what scope it will be going forward after that

23 motion. There is in fact party discovery hasn't gotten off the

24 ground yet because of the posture that Prevezon has taken.

25 THE COURT: Look. I just asked you a very limited

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1 question.

2 MR. MASTRO: Certainly, your Honor. Certainly, your

3 Honor.

4 THE COURT: Now, well, I would think on the merits to

5 be discussed your side should go first.

6 MR. MASTRO: Thank you very much, your Honor. And I

7 am prepared to go right to the heart of the matter because your

8 Honor will recall, there was some heated rhetoric at prior

9 hearings. I am here today to talk, your Honor, just about the

10 application of the law to these two subpoenas and that law is

11 Rule 45. And what does Rule 45 say? It says that a subpoena

12 may not command a person "who is neither a party nor a party's

13 officer, to travel more than 100 miles from where that person

14 resides, is employed or regularly transacts business in

15 person."

16 Now, your Honor, Rule 45 further requires that a

17 subpoena that requires a person to comply beyond the

18 geographical limits specified in Rule 45C cannot stand. It has

19 to be quashed. This is not optional. It is not how important

20 a witness may or may not be in a case. It is these geographic

21 limitations are mandatory, quote, without exception in

22 prevailing case law in this circuit.

23 So, if you are not the person to whom this subpoena is

24 directed, if that person does not reside, is employed or

25 regularly transacts business in person within a hundred miles

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1 of the jurisdiction, the subpoena must be quashed.

2 And, your Honor, we are going to spell out for you

3 today as to how both the Aspen subpoena and the New York

4 subpoena, controlling case law as to which there is no response

5 by the other side and Rule 45 case law in this circuit mandates

6 that these subpoenas be quashed under Rule 45.

7 Now, your Honor, if I may? Your Honor has already

8 been over some of this territory in connection with Hermitage

9 Global. Your Honor issued a ruling in recent weeks quashing

10 the subpoenas to hermitage Global and recognized in that

11 opinion these very limitations of Rule 45 and they apply with

12 equal force to Mr. Browder. And in that opinion your Honor

13 recognized that Browder is "a citizen of the United Kingdom"

14 that Browder's residence "is in London," that's where he also

15 works in his investment management business. And your Honor

16 also recognized there that party discovery between the

17 government and Prevezon which, as I said before, hasn't even

18 really begun because of the pendency of a motion to dismiss,

19 "could eliminate the need for Hermitage affiliated witnesses at

20 trial." Yet, we are here today about multiple subpoenas

21 directed to Mr. Browder before party discovery has even

22 commenced.

23 Now, your Honor, let's talk about Aspen first, the

24 Aspen subpoena and the thin read on which Prevezon seeks to

25 predicate a Rule 45 subpoena on Mr. Browder.

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1 Mr. Browder does not reside in Aspen. It is not even

2 alleged here that he, by Prevezon, that he works or regularly

3 transacts business there. So, let's focus on whether

4 Mr. Browder resides -- that's the word used in Rule 45 -- in

5 Aspen.

6 Uncontroverted record, he does not own any real

7 property in Aspen. He has been there from time to time with

8 his family on vacations. He has stayed in a particular

9 property that he does not own, either "directly or indirectly."

10 THE COURT: Who owns the house?

11 MR. MASTRO: It is owned by an LLC called Sundance

12 Aspen, LLC.

13 THE COURT: Let me get the name. Sundance?

14 MR. MASTRO: Aspen, LLC. Sundance Aspen, LLC, and the

15 manager of Sundance Aspen, LLC --

16 THE COURT: What is Sundance Aspen, LLC?

17 MR. MASTRO: It is a limited liability corporation.

18 THE COURT: Well, all right. That doesn't tell me

19 anything. What is it?

20 MR. MASTRO: Well, your Honor, I can only tell you

21 what it is. People often have had properties that the

22 ownership of the property --

23 THE COURT: I asked you a question.

24 MR. MASTRO: Yes, your Honor.

25 THE COURT: And I would like an answer. What is

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1 Sundance Aspen, LLC?

2 MR. MASTRO: Your Honor --

3 THE COURT: What does it do?

4 MR. MASTRO: It exists, your Honor, simply as the

5 vehicle for owning that piece of property. That's its sole

6 interest, as I understand it. Sundance Aspen, LLC is the

7 limited liability corporation whose sole asset is the ownership

8 of that property.

9 THE COURT: And who owns Sundance Aspen, LLC?

10 MR. MASTRO: Your Honor, I can tell you that the

11 uncontroverted record in this case is that it is -- as to who

12 doesn't own it --

13 THE COURT: I want to know who does own it.

14 MR. MASTRO: Well, your Honor, the uncontroverted

15 record in this case tells you who doesn't own it. William

16 Browder does not own it. But, if your Honor wants us to get

17 from Sundance Aspen, LLC the entity immediately in ownership

18 line of the LLC, we will submit that information to the Court

19 if your Honor requires that. But, I have to say, so your Honor

20 knows, the record is uncontroverted, sworn statements by both

21 Mr. Browder and the manager of Sundance Aspen, LLC -- that's

22 docket 112, Exhibit 38, paragraph 7, that "William Browder does

23 not, directly or indirectly, own Sundance Aspen, LLC."

24 Mr. Browder says in his declaration, docket 185, paragraph 51,

25 that he also does not "own, directly or indirectly, that piece

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1 of property." Mr. Browder makes clear that there are family

2 members of his who indirectly own the property but he does not

3 directly or indirectly own that property. And that's the

4 uncontroverted, sworn statements of him and the manager of

5 Sundance Aspen, LLC in this case.

6 THE COURT: In other words you have -- he is on the

7 record in this case as not owning Sundance and not only that

8 house, right?

9 MR. MASTRO: Correct, your Honor. He has sworn to it

10 and so has the manager of Sundance Aspen, LLC.

11 THE COURT: Say that again?

12 MR. MASTRO: So, not only has Mr. Browder sworn to it,

13 your Honor, but also the manager of Sundance Aspen, LLC.

14 Now, your Honor, what does their claim come down to?

15 Because Mr. Browder was on a vacation with his family when

16 there was an attempt to serve him in Aspen. Their argument

17 comes down to, your Honor, that Mr. Browder acknowledges he has

18 taken, from time to time, vacations in Aspen that he keeps --

19 he has auto registration there, he keeps a vehicle there in his

20 name. And he cites the place where he has stayed, this

21 property Sundance Aspen, LLC.

22 Now, your Honor, the very slim read on which they try

23 to establish that Browder resides in Aspen when we know he

24 resides and works in London is the fact that he has had, from

25 time to time, vacations in Aspen where he has stayed at this

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1 property he neither owns, directly nor indirectly, and has

2 vehicle registration in his name identifying that property as

3 the place where he stays in Aspen.

4 Now, your Honor, the case law is crystal clear in this

5 circuit and elsewhere that that is woefully insufficient to

6 come anywhere close to establishing for Rule 45 purposes that

7 Mr. Browder resides in Colorado. Let me be more specific, your

8 Honor. The leading case in this circuit decided by a New York

9 District Court --

10 THE COURT: I am going to interrupt you.

11 MR. MASTRO: Certainly, your Honor.

12 THE COURT: I don't want you or any other lawyers

13 waste their time. I would recommend that you not spend any

14 more time on Aspen. We will hear what the defendant says and

15 then you can reply, but I think that's the most efficient way

16 to use your time and I think we had better switch to New York.

17 We may come back to Aspen and that depends on what the

18 defendant says, but I think what I need to hear from you about,

19 really, is New York.

20 MR. MASTRO: I appreciate that, your Honor, and if I

21 can just finish the one sentence that I was saying about the

22 precedent in this circuit on Aspen it will close a loop and

23 then I'm sure Prevezon's counsel will want to respond to it.

24 THE COURT: Okay.

25 MR. MASTRO: The leading case in this area decided by

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1 a New York District Court in this circuit is called Yukos. In

2 Yukos, involving someone who had a relationship with Russian

3 spent six months, nearly, in Auburn, New York; owned property

4 there, maintained a driver's license there, voter registration

5 and car registration, all of those things over a nearly

6 six-month period. Nevertheless, the Court found when that

7 person returned to Russia, as Mr. Browder returns and lives and

8 resides in London, that there was no clear intent on his part

9 to establish residence in Auburn, New York and that, therefore,

10 Rule 45 was not meant despite all of those factors being

11 present.

12 In our case Mr. Browder neither rents nor owns,

13 directly or indirectly, in Aspen. The only indicia that they

14 point to is vehicle registration which isn't enough. It isn't

15 enough under the law here in New York. It isn't enough under

16 the law of Colorado which they point to where vehicle

17 registration, you are allowed to register a vehicle even though

18 you don't reside there.

19 So, your Honor, I think it is very clear that Aspen --

20 THE COURT: Cover New York now.

21 MR. MASTRO: Yes, I will now.

22 THE COURT: Cover New York.

23 MR. MASTRO: Thank you, your Honor. I have no

24 rejoinder to Yukos, your Honor.

25 Now, your Honor, let's talk about the New York

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1 subpoena because in New York, again, Mr. Browder does not

2 reside here, he is not employed here, so their argument reduces

3 to --

4 THE COURT: Well, was he served here?

5 MR. MASTRO: Your Honor, we are talking about Rule 45

6 first but I am happy to address service as well.

7 THE COURT: Start with service.

8 MR. MASTRO: As to service, your Honor, as your Honor

9 recognized in your recent ruling on Hermitage Global, there has

10 to be personal service under Rule 45 and in Mr. Browder's

11 case -- and I think when one looks at the videotape that was

12 done -- it was not at all clear to him as he was entering his

13 car, that given the credible threats the government has

14 described exists now for Mr. Browder, that he was being --

15 someone was attempting to serve him with a subpoena and he left

16 his car. Someone rushes his car as he is getting in trying to

17 close the door, and he left his vehicle in fear not knowing,

18 walking away and then running if you watch the entire video,

19 not knowing what was going on. To us, your Honor, that is not

20 proper service. That is not proper personal service.

21 But, your Honor, more importantly, you don't even have

22 to reach that question because under Rule 45 they can't

23 possibly meet the standard for a valid subpoena on William

24 Browder in New York. Let me explain.

25 Browder, it is not even alleged here that he resides

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1 here. He resides in London. It is not alleged here that he is

2 employed here in New York. He is not. It comes down to the

3 third Rule 45 factor which is related to the employment factor,

4 it is whether Mr. Browder regularly transacts business --

5 business -- in person in New York. And, your Honor, once

6 again, the case law in this circuit, in this very district

7 could not be clearer on the point and Prevezon has no rejoinder

8 to it. Let me explain, your Honor.

9 Regularly transacting business in person. Business

10 has a plain meaning. It involves employment, work, commercial

11 activity. Mr. Browder's commercial activity is he has been

12 running an investment management firm, an investment management

13 firm that now invests his own assets accumulated over time, but

14 that has been an investment management firm for more than two

15 decades.

16 Now, your Honor, that's his business. On that basis

17 where Courts have consistently interpreted Rule 45 to mean your

18 work or your employment, the advisory committee notes on Rule

19 45 refer to where a person is employed or transacts business in

20 person means where the person works. That's the word from the

21 advisory.

22 And, your Honor, the case law consistently, including

23 in the Second Circuit itself, talks about where someone has

24 their home or works. The Edelman case on which they purport to

25 rely, Edelman and the Kohne case which talks about regularly

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1 transact business in person means just what it says, where the

2 person works: In a commercial business activity.

3 Having said that, your Honor, here is the clear case

4 law to which they have no rejoinder. Judge Chin, right here in

5 the Southern District now on the Second Circuit, one of your

6 colleagues for many years, Judge Chin issued really what we

7 consider to be the applicable if not controlling authority in

8 this area. A case involving someone from the UK -- a UK

9 resident like Browder -- who came to New York on business,

10 commercial business, an average of between seven and a half to

11 almost 10 days a year on average. And the person I have to

12 add, your Honor, had a concrete interest in the litigation, a

13 pecuniary interest. Remember your Honor pointed out that

14 Mr. Browder has no pecuniary interest in this litigation, he is

15 a mere potential witness. In that case Judge Chin was faced

16 with someone subpoenaed who was paying the attorneys' fees of

17 the plaintiff and actually had a right to a share of the

18 judgment if the plaintiff proceeded and Judge Chin ruled --

19 ruled -- seven and a half to nearly 10 days a year is not --

20 not -- regularly transacting business in person in New York.

21 THE COURT: That's very nice to hear about that case.

22 What are the facts here?

23 MR. MASTRO: Thank you, your Honor, which is exactly

24 where I was going to come next. Thank you.

25 Here Mr. Browder has explained in his sworn

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1 declaration that starting in 2010 he has been in New York for

2 work relating to his investment management business 33 days

3 since the beginning of 2010.

4 THE COURT: Starting in 2010?

5 MR. MASTRO: Yes. So, your Honor, we can do the math,

6 and the math is --

7 THE COURT: Wait a minute. Repeat the number.

8 MR. MASTRO: Yes. 33 days here in New York on

9 investment management business. That's six years if you count

10 2015 so that would be about five and a half days a year. If

11 you take 2015 out where he has only had one day here on

12 investment management business, that's 32 days between 2010 and

13 2014, that would be an average of less than six days a year or

14 just barely six days a year.

15 THE COURT: What about other activities because he

16 certainly has other activities.

17 MR. MASTRO: That's correct, your Honor, but those

18 other activities, to be a human rights advocate, to be here on

19 issues relating to personal beliefs that are not commercial

20 activity, your Honor, that is not here on business.

21 Mr. Browder has a right to come to New York to visit. That

22 doesn't count towards Rule 45.

23 The fact of the matter is that what the defendants try

24 to conflate here is that Mr. Browder being here as a human

25 rights or a civil rights advocate, the unpaid activism for

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1 which he is here, that that should count towards "regularly

2 transacting business, in person, in New York." There is not a

3 single case, they cite none and we are aware of none, where any

4 court has ever held in the Rule 45 context that non-commercial

5 activity counts at all, one wit, towards determining whether

6 someone is regularly transacting business.

7 THE COURT: You are saying it cannot.

8 MR. MASTRO: Correct.

9 THE COURT: In other words there are things called

10 non-profits.

11 MR. MASTRO: Correct, your Honor.

12 THE COURT: And they engage in all kinds of activities

13 and can a non-profit which is active in some cause, can't that

14 be the transaction of business within the meaning of Rule 45?

15 MR. MASTRO: Well, your Honor, they've cited no case

16 to that effect but I'm going to take your Honor's hypothetical.

17 THE COURT: I'm asking you whether as a matter of

18 principle.

19 MR. MASTRO: And, your Honor, the principle, if I work

20 for a non-profit, if I were the president of the Legal Aid

21 Society, I happen to be a volunteer vice chair, not a paid

22 president of the Legal Aid Society, your Honor, if I were the

23 paid president of the Legal Aid Society I would be here, in

24 that sense, in my employment.

25 THE COURT: I'm not understanding you now. Say that

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1 again.

2 MR. MASTRO: Your Honor, if I were paid staff of a not

3 for profit that would be my employment and I would be covered

4 by Rule 45 because Rule 45 says where I reside, am employed or

5 regularly transact business in person. But when I am here of

6 my own free will volunteering as part of a cause of advocacy,

7 I'm an unpaid activist who cares about the cause, your Honor,

8 it is no more consistent with Rule 45 to say that when Martin

9 Luther King was Marching in Selma because he was compelled by

10 that cause, that he would be subjecting himself to Rule 45

11 subpoena power when he was there of his own volition as a

12 volunteer leading a march. And that's what Bill Browder does

13 in his advocacy. He has never taken a dime for his advocacy,

14 your Honor. His advocacy is about a human rights campaign and

15 he has written a book. He is not taking a dime from his book

16 he is giving it all to that cause. Volunteer, that is not

17 transacting business.

18 THE COURT: What cause is that?

19 MR. MASTRO: Your Honor, it is the human rights cause

20 about the oppression and corruption of the Putin scheme and

21 what they did to Mr. Browder's Russian lawyer, Sergei

22 Magnitsky, imprisoning him, torturing him, and murdering him

23 and advocating that the Putin regime in Russia -- we have all

24 seen the horrors -- the regime in Russia is corrupt to its core

25 and he wants to expose that internationally. That's his human

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1 rights advocacy, your Honor. In the memory of his one Russian

2 lawyer and to expose the corruption in Russia. He has a right

3 to do that in his free time.

4 Your Honor, I have been involved in some causes in my

5 day too and I have gone to multiple jurisdictions to advocate

6 on behalf of those causes. When I am an unpaid volunteer and I

7 am going there because I care about the cause, I am not

8 subjecting myself to Rule 45 jurisdiction subpoena power for

9 regularly transacting business in person there because it is

10 not business, it is not commercial activity.

11 Now they point to, your Honor, only one case -- one

12 case -- it is called Operation Rescue. It is not a Rule 45

13 case. Rule 45, it is a very clear mandate. You have to

14 reside, be employed, or regularly transact business in person

15 in a jurisdiction to have a Rule 45 subpoena be valid. They

16 point to the Operation Rescue case which was about long-arm

17 personal jurisdiction in New York, a different standard about

18 doing business or transacting business under New York Law for

19 purposes of long-arm jurisdiction as to whether you could be

20 made a party to a case, completely different standard. Court

21 after Court, including Kohne in California and others, have

22 rejected just that and said what a state views as longarm

23 jurisdiction has nothing do with Rule 45. Rule 45, as the

24 Kohne Court said means just what it says: You have to be

25 regularly transacting business, a commercial activity, in

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1 person in the jurisdiction.

2 Now, your Honor, they do not cite to a single case in

3 this country, anywhere, where any Court has ever held that you

4 can be regularly transacting business as person in a

5 jurisdiction simply for showing up as an unpaid advocate. No

6 place, no how, no Court, yet they ask you to do that, your

7 Honor. We are aware of no case but we are aware of Judge

8 Chin's decision.

9 THE COURT: All right. I have heard about that.

10 MR. MASTRO: And just to be crystal clear, your

11 Honor --

12 THE COURT: All right.

13 MR. MASTRO: -- it wouldn't -- they've had Bill

14 Browder trailed for a long time; investigators trying to find

15 out where he is, what he is doing. They crow to you in this

16 case, in this particular application, that they've managed to

17 track down what they say are 20 other days when Bill Browder

18 was in New York. That's how closely they're monitoring him, 20

19 other days since 2010 when Bill Browder has been in New York on

20 his unpaid human rights campaign and they ask you to count

21 those days.

22 Now, your Honor, we explain in our papers, and of

23 course if Browder had been here they would know because they've

24 been trailing him, they're on him like a cheap suit like they

25 say about the investigative trade, and they have an army of

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1 people trying to track him but they came up with what they say

2 are 20 extra days on top of the business days when Browder was

3 here since 2010.

4 Now, your Honor, we went over those days. They only

5 actually identify 19 dates in their papers but we went over

6 them and some of them, they are basing that on something like a

7 TV interview or something that showed up in the press when, in

8 fact, Browder was not here in New York on those days. Some of

9 them are duplicates of days that Browder has acknowledged of

10 having been here on business for his investment firm. But, the

11 fact of the matter is even if you counted all 20 of the extra

12 days they want you to count, it is a wrong count, it is

13 overinflated, but they want you to count those 20 days. That's

14 53 days since 2010, 10 of them they say have been in 2015 since

15 the book came out and there was more advocacy work in

16 connection with the book coming out, again, a book where Bill

17 Browder is not making a dime, it is all for the campaign. He

18 has not made a dime on his advocacy work at all, it is not

19 business for him.

20 If you use just the 43 days from 2010 through 2014

21 that's less than nine days a year. If you included 2015 --

22 THE COURT: I am going to interrupt you.

23 MR. MASTRO: Certainly, your Honor.

24 THE COURT: There obviously has been an extensive

25 amount of work, investigative work, other kinds of work, legal

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1 work on the issue of Mr. Browder's deposition. I am going to

2 tell you as a Judge listening to all of this, this is all way

3 out of line. He can be deposed. He can be deposed in England

4 where he resides and I just have to tell all of you that the

5 amount of observance and calculation and so forth about what he

6 does or does not do in the United States of America is such a

7 colossal waste.

8 He is not the only witness in the case, there will be

9 other witnesses, presumably called by the government and called

10 by the defense. And it may very well be that Mr. Browder has

11 testimony to give which is germane to the case but the way to

12 get it is to go to his residence in England.

13 MR. MASTRO: Correct, your Honor.

14 MR. CYMROT: May I speak to that your Honor?

15 MR. MASTRO: If your Honor --

16 THE COURT: The thing is the effort of investigators,

17 the effort of lawyers with respect to whether he is deposed in

18 the United States to me has not been not a useful exercise. In

19 the first place if he stays in England, he can't be deposed in

20 New York City or Aspen or anywhere else in the United States.

21 Now, I'm sort of short changing you in a way in your

22 argument but I am going to have to tell all of you, as a

23 federal judge I feel that we could carry on, this is all very

24 well done, very good legal work on your part and the other

25 people who will speak but when all is said and done, if he is

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1 in England he can't be deposed in New York City or Aspen or

2 anywhere else here. That's where he resides.

3 MR. CYMROT: May I speak to that your Honor?

4 THE COURT: Yes.

5 MR. MASTRO: Your Honor, I would --

6 MR. CYMROT: Thank you.

7 MR. MASTRO: Your Honor, may I just respond briefly?

8 I am almost done, your Honor.

9 THE COURT: You go ahead.

10 MR. MASTRO: Thank you very much.

11 THE COURT: You are doing fine but I have to make that

12 comment and I will hear from the other people, of course.

13 MR. MASTRO: I appreciate it, your Honor, because I,

14 in one sense I have to say, I couldn't agree more with what

15 your Honor just said, and it is something that we have been

16 saying. Our client got these subpoenas. Our client recognizes

17 that in London, through the Hague Convention and other

18 mechanisms, he could be deposed in London. And, your Honor,

19 the only point that I was making about counting the days is no

20 matter how you count them, about regularly transacting business

21 in New York under Judge Chin's M'Baye decision, it is less days

22 here even though all the days they want you to count than Judge

23 Chin found to be insufficient for regularly transacting

24 business now having said that.

25 THE COURT: What you are presenting is very relevant

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1 to the issues that have, are being discussed here, of course

2 they are.

3 MR. MASTRO: I understand, your Honor. And I

4 appreciate I have to present them because Rule 45 is mandatory

5 and they cite no case that would permit a Rule 45 subpoena to

6 stand against Bill Browder in New York or Aspen, but I had to

7 litigate those things for Bill Browder because Bill Browder is

8 not consenting to jurisdiction in the United States. He has

9 not even agreed to be a witness in this case and we have told

10 the government that and in our papers that he has not agreed to

11 appear here or be subject to subpoena here for trial. But,

12 your Honor, the fact of the matter is --

13 THE COURT: I don't understand what you are saying

14 right now. Please.

15 MR. MASTRO: I am saying, your Honor, he has not

16 consented to be a witness at this trial. He has told the

17 government that he doesn't agree that he could be subpoenaed by

18 either Prevezon or the government. But your Honor is

19 absolutely right, we have three things that should have been

20 done here, we think, before Mr. Browder was hounded around the

21 world, literally, to try and throw a subpoena at him if he

22 showed up someplace for a vacation or showed up someplace for

23 his advocacy.

24 Now, your Honor, one, there is party discovery.

25 THE COURT: What?

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1 MR. MASTRO: There is party discovery. The party

2 discovery. Whatever Browder has given to the government that

3 will be the subject of party discovery eventually and may

4 obviate the need, as your Honor pointed out, for Browder to be

5 a witness in the case. Two --

6 THE COURT: Well, I don't agree with you on that. A

7 party can subpoena and take the deposition of a non-party.

8 MR. MASTRO: Correct, your Honor.

9 THE COURT: And they don't have to -- they're not

10 limited to the parties. Don't waste time on that.

11 MR. MASTRO: No, not suggesting they're limited, your

12 Honor, suggesting that when you are talking about a non-party

13 foreigner, typically party discovery occurs first and there is

14 a legion of cases on this, your Honor, and to reduce the burden

15 on the non-party foreigner. Not suggesting it would obviate

16 any testimony necessarily but it certainly is how things

17 typically happen. Number one.

18 Number two, the Hague Convention provides a mechanism

19 for obtaining both deposition in London and specifically

20 identified documents. The other side has told you, your Honor,

21 incorrectly, that England has restricted that in some way. The

22 actual rules of England are submitted in the materials to you

23 and you will see that under the Hague Convention they can get a

24 deposition of Browder in London and they can get specifically

25 identified documents.

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1 Finally, your Honor,the fact of the matter is that

2 there will be no prejudice to Prevezon here from Rule 45 being

3 applied as it's mandatorily required to be applied under the

4 federal rules.

5 The question of Browder now as opposed to Browder

6 after party discovery or Browder after Hague Convention or

7 whether Browder would ever even be a witness at the trial

8 because, as your Honor has noted, the government's theories

9 have changed. The other side has said Browder may not have

10 anything relevant to say that this case given that he didn't

11 even live in Russia when the money laundering occurred.

12 Your Honor, my point is a simple one. The defendants

13 are not prejudiced in any way by having party discovery first,

14 pursuing other options. We are simply pointing out under

15 well-established case law, Rule 45 -- and I am forced to

16 litigate these issues, your Honor, because my client was

17 purportedly served with subpoenas and I have to respond, so I

18 have had to make these legal arguments, they are mandatory.

19 That's what Judge Chin said right here in this court house and

20 that's all I have to say, your Honor.

21 THE COURT: Look. Wait a minute.

22 We do have the issue about whether there was proper

23 service in New York.

24 MR. MASTRO: Correct, your Honor.

25 THE COURT: And of course there is the issue which you

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1 have addressed and devoted time quite properly on and that is

2 the other aspect of Rule 45. But what I would suggest to you

3 is that you suspend now and if it is necessary for you to come

4 back and discuss further the service or anything, but so we can

5 move along, let's hear from the other side now and we will be

6 back to you, if necessary.

7 MR. MASTRO: Thank you, your Honor. It is covered in

8 our papers, the proper service. I just wanted the Court to

9 know how disproportionate this effort is to try to force

10 Browder into a subpoena where Rule 45 doesn't permit it.

11 Thank you, your Honor.

12 THE COURT: Thank you.

13 MR. CYMROT: Thank you, your Honor. Mark Cymrot for

14 Prevezon.

15 First of all, your Honor, Mr. Mastro has misdescribed

16 Rule 45 because 45(c) says that a subpoena can be served

17 anywhere in the United States. The place of compliance has

18 been separated when they made amendments and that is a place

19 where the person resides or transacts business.

20 So, what did we do first? We went to his lawyers and

21 we said, Will you sit for a deposition under the U.S. rules?

22 And he said, No. Under no circumstances. And he points to the

23 Hague Convention. And the Hague Convention cannot be used for

24 pretrial discovery. In England there is a specific reservation

25 and the Second Circuit has described pretrial deposition in

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1 England under the Hague Convention as not helpful and it is

2 not, it is extremely limited, and for our purposes would be

3 largely useless.

4 If he had agreed to a U.S.-style deposition in London,

5 none of this would have happened but he refused.

6 THE COURT: Say that again.

7 MR. CYMROT: If Mr. Browder had said he would sit for

8 a deposition under the Federal Rules of Civil Procedure, in

9 London, we would have accepted that and none of this would have

10 been necessary. But he said no.

11 So, we then served him through a registered agent, the

12 least imposition on an individual. He challenged that and you

13 quashed it. So then we have the issue we have to personally

14 serve him. So, we served him, personally, in Aspen, Colorado.

15 Now, he says he does not reside in Aspen, Colorado. But, he

16 has put in the DMV records of Colorado an admission that this

17 is his residence. It is an admission subject to penalty of

18 perjury. End of inquiry, he resides there whether he owns the

19 house or he doesn't own the house or he put the house in shell

20 corporations owned by members of the family, all of that is

21 irrelevant. He has an admission --

22 THE COURT: Wait a minute. Can I interrupt you?

23 MR. CYMROT: Yes.

24 THE COURT: In what form and exactly what is the

25 language about him, as you say, admitting residence in

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1 Colorado?

2 MR. CYMROT: It is docket 189, 12 and 13. Let me get

3 it right here.

4 MR. MASTRO: Your Honor, I'm happy to hand it up, your

5 Honor. It refers to legal address in Aspen, not residence. I

6 am happy to hand it up to your Honor, a very different thing.

7 That's the legal address in Colorado where the car is going to

8 be kept, it is not residence.

9 Thank you.

10 THE COURT: Where on this form? My eyes don't travel

11 that fast.

12 MR. MASTRO: Sorry, your Honor.

13 MR. CYMROT: Sorry, your Honor. Let me point it out.

14 Legal address.

15 MR. MASTRO: Legal address.

16 THE COURT: Oh, I see. All right. All right.

17 MR. CYMROT: And what he says about that is, your

18 Honor, that he doesn't own it personally, it is owned by

19 Sundance. We subpoenaed Sundance to find out who owns it and

20 Sundance, represented by the same lawyers, objected to that

21 subpoena; that is in front of you today. If there is any

22 question about the legal residence you can let us proceed with

23 those subpoenas.

24 But this is a house he admits his family owns and he

25 appeared there and he has registered two cars there. This

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1 isn't some occasional place that he goes to. But, the fact of

2 the matter is if he served there, which we say he was, then you

3 can order a deposition in London under the Federal Rules of

4 Civil Procedure. What we will not do voluntarily and go under

5 the Hague Convention where he has already had and he admits in

6 his papers, he has had subpoenas quashed under the Hague

7 Convention.

8 THE COURT: I don't understand what you are saying

9 now. Go over that again, please.

10 MR. CYMROT: Yes.

11 The procedure Mr. Browder wants us to follow is the

12 Hague Convention on the taking of evidence abroad except

13 England, when it acceded to the convention, made a resolution.

14 The resolution is it cannot be used for pretrial discovery.

15 This is in our papers we have attached the relevant documents.

16 So, the Hague Convention and the Second Circuit has

17 said the Hague Convention is not a useful procedure for

18 depositions in London but once he is served in the United

19 States under Rule 45(c) you have jurisdiction over him and you

20 can order him to a deposition under the Federal Rules of Civil

21 Procedure in London. And you are right, that would put an end

22 to all of this. But he wouldn't agree to it. We offered that.

23 THE COURT: Let's pause there just a minute.

24 MR. CYMROT: Yes.

25 THE COURT: I want to make sure I understand what you

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1 are saying.

2 MR. CYMROT: Yes.

3 THE COURT: Let's assume -- and I haven't held yet but

4 let's assume -- that he was properly served in New York City.

5 MR. CYMROT: Correct.

6 THE COURT: Now, are you saying that he could be

7 ordered to be deposed in London? Do I understand you? I'm not

8 sure I understand you.

9 MR. CYMROT: That's correct. If you look, there is

10 45(c) which says the subpoena can be served anywhere in the

11 United States. Once the subpoena is served you have

12 jurisdiction. Then there is 45(b)(2), a subpoena can be served

13 anywhere in the United States.

14 THE COURT: Just a minute. I want to be with you.

15 MR. CYMROT: (b)(2).

16 THE COURT: For some reason I don't see what you are

17 talking about.

18 MR. CYMROT: Can I hand up a copy of the rules that

19 has been marked, your Honor?

20 THE COURT: I have the rule in my hand.

21 MR. CYMROT: Okay. 2, service in the United States, a

22 subpoena may be served at any place in the United States.

23 THE COURT: I heard D, as in David. I'm sorry.

24 MR. CYMROT: Okay, (b)(2).

25 THE COURT: You are talking about B as in boy.

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1 MR. CYMROT: Yes.

2 THE COURT: All right. Let me look at that.

3 (pause)

4 Let me see if I understand you and you are going to

5 need to correct me but I will try.

6 What you are saying is under 45(b)(2) a subpoena may

7 be served at any place within the United States. Okay. Let's

8 assume that a subpoena was served.

9 MR. CYMROT: Correct.

10 THE COURT: Somewhere in the United States. Then we

11 go to 45(c).

12 MR. CYMROT: 45(c).

13 THE COURT: Place of compliance. Now, how have you

14 applied, in your argument before me, how have you applied

15 45(c)? Can you go over that again, please?

16 MR. CYMROT: Once the subpoena is served, the Court

17 has jurisdiction over the deponent and can order him to appear

18 within 100 miles of where he resides or transacts business.

19 So, it doesn't have to be you serve him in New York and it has

20 to be the deposition in New York. We say he transacts business

21 here but if you disagree with us, you would say I find there is

22 no dispute on the record that he resides and transacts business

23 in London, I am ordering him to a deposition in London under

24 the Federal Rules of Civil Procedure.

25 THE COURT: Let me go with that again, slowly, with

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1 you.

2 MR. CYMROT: Yes.

3 THE COURT: If he has been served then you are saying

4 that the place of the deposition does not have to be in the

5 United States. Is that what you are saying?

6 MR. CYMROT: Exactly.

7 THE COURT: Are you sure of that?

8 MR. CYMROT: There is no case law on this, your Honor,

9 either way. There is a case where you exercise your discretion

10 not to order a deposition in Switzerland but Swiss wouldn't

11 allow a U.S. deposition. So --

12 MR. MASTRO: It is your decision, your Honor.

13 MR. CYMROT: Excuse me.

14 MR. MASTRO: I'm sorry. I'm happy to hand it up to

15 your Honor.

16 MR. CYMROT: I didn't interrupt you.

17 MR. MASTRO: I'm just trying to be helpful.

18 MR. CYMROT: I just told him about it. You exercised

19 your discretion not to order a deposition in Switzerland but

20 Switzerland would find it illegal to have a U.S. deposition in

21 Switzerland. England does not find it illegal to have a U.S.

22 deposition in England. So, you could order a deposition in

23 England. There are no cases either way on this, your Honor.

24 THE COURT: Mr. Mastro, you stood up?

25 MR. MASTRO: Yes, your Honor.

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1 Actually, there is a case right on point, it is your

2 decision in NML Capital, and your Honor will recall there was

3 proper service on a Mr. Caruana in New York, and this very

4 argument was made to you. Rule 45, there was no ability to

5 have a valid subpoena. He was properly served but Rule 45 said

6 no valid subpoena and the argument was made that you could

7 order him to give a deposition in Switzerland. I am going to

8 give it to you, by written question and you ruled: Neither

9 Caruana nor anyone else at BIS would be required to travel more

10 than 100 miles, however, the Court does not believe that Rule

11 45 is a device for having the discovery rendered in a foreign

12 country as plaintiffs suggest.

13 You have ruled on it. Definitive on it. Rule 45

14 doesn't permit you to order the deposition in a foreign

15 country. And I am going to hand it up to your Honor. So, I

16 think that answers the question, your Honor has answered it.

17 And we have other cases that reach the same

18 conclusion, your Honor, including the Fortress case by Judge

19 Lynch, same conclusion. Rule 45 doesn't allow the subpoena to

20 be valid even though properly served, can't order the discovery

21 in a foreign country.

22 MR. CYMROT: Your Honor, once you have jurisdiction

23 over him under (c), 45(c), which you gain by the service of the

24 subpoena, there is nothing -- I'm sorry, (b) -- under 45(b)

25 there is nothing in 45(c) that limits it to the United States.

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1 There is nothing in the commentary, there is nothing

2 in the rule itself. You have jurisdiction over him.

3 Now I can go on to talk about residence and doing

4 business in New York.

5 THE COURT: Okay. Go ahead. You address that.

6 MR. CYMROT: All right.

7 THE COURT: You address that.

8 MR. CYMROT: So, as I said, we have talked about Aspen

9 and the DMV records. If you need more evidence on that, then

10 we have subpoenas to the agent, Ms. Tarantino, who would have

11 additional records about who is paying for that house and whose

12 residence it is.

13 THE COURT: You are talking about Aspen?

14 MR. CYMROT: That's Aspen. I will move to New York.

15 THE COURT: Let's move to New York.

16 MR. CYMROT: All right. Mr. Moscow reminds me that it

17 is Mr. Mastro who represents the agent and it is Mr. Mastro who

18 represents Mr. Browder. It is Mr. Mastro who represents all of

19 these companies suggesting that there is a single set of

20 ownership here but the --

21 MR. MASTRO: I represent only Mr. Browder, your Honor,

22 no one else.

23 MR. CYMROT: You represent Tarantino and you filed the

24 motion to quash the other subpoenas to the agents.

25 THE COURT: Please, let's not get off into that.

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1 MR. CYMROT: Okay.

2 THE COURT: Let's stick to the point.

3 MR. CYMROT: Now, in New York what Mr. Browder has

4 told you is he does investment business in New York. All

5 right. Well, that's business in New York. He has sold a book

6 this year in New York, he contracted with Simon & Schuster. He

7 has been advertising. He has been in New York 10 days in

8 February. He has only admitted to two days. We have not been

9 trailing him. He has a tweet and other internet-type

10 disclosures, it is advertised where he is. 10 days in February

11 for a book. He says, Well, I'm not keeping the money. That's

12 not the point. Publishing a book, getting the income out of

13 New York is business by any definition. How he spends his

14 money is his own business.

15 But, publishing a book in New York, which he has done,

16 and advertising that book and marketing that book in New York

17 which he has done at least on 10 days in February alone, is

18 doing business on top of his investment business.

19 THE COURT: What do you say are the 10 days again?

20 MR. CYMROT: Your Honor, we put a chart together.

21 Mr. Mastro would like to correct himself. He signed a

22 pleading for Sundance, Aspen, Michael --

23 THE COURT: I can't hear you.

24 MR. CYMROT: I'm sorry. Mr. Mastro would like to

25 correct himself that he actually represents all of these

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1 companies to which subpoenas were issued about the Aspen

2 property.

3 MR. MASTRO: Yes, your Honor. We have appeared on

4 behalf of them as well but I am not really sure why we

5 interrupted the proceedings for that. But anyway, go ahead.

6 MR. CYMROT: So, Mr. Browder admits to 33 days in New

7 York between 2010 and 2015. His math is a little off because

8 we have only begun 2015 but I won't get into that.

9 These additional times in New York come from the

10 public record and the cites are right there. They come from

11 websites of appearances in New York. He says he wasn't there

12 on the particular day of the broadcast. He hasn't said that he

13 wasn't there to do the interview. And all of this could be

14 solved, your Honor, if Mr. Browder would give you his passport

15 which would tell you --

16 THE COURT: His what?

17 MR. CYMROT: He should give up his passport to you.

18 It will show you exactly how many times he has been to New York

19 over the last five years conducting business. But he hasn't.

20 What he has done is he has narrowly defined business and then

21 he has told you only about his investment business. He hasn't

22 told you about his book business which is clearly business, the

23 sale of a book in New York, and he hasn't told you about his

24 non-profit business because he says that that is not doing

25 business when it, as you pointed out, non-profit business is

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1 business and he has admitted that as CEO of Hermitage, his

2 company, that Hermitage is engaged in this worldwide human

3 rights campaign that he describes that as business. He says

4 that is my principal occupation now. That is what his

5 affidavits say. He is now engaged in non-profit business and

6 he hasn't disclosed to you the times he has been in New York or

7 Aspen or other places for that business.

8 So, what he does is he defines a term very narrowly,

9 he discloses only as to that term, and he does not give you

10 full disclosure about transacting business in New York. And

11 from the public record we could show 10 days in February, while

12 we are trying to get his deposition, and Rule 45 was amended,

13 45(c) was created for the convenience of the witness. Any one

14 of those 10 days, a day before or a day after he could have sat

15 for a deposition. He chose not to, he chose to run away. He

16 is being irresponsible. We would have taken a deposition in

17 London and none of this would have been necessary as long as it

18 was under the federal rules.

19 Let me go to the issue of party discovery. We have

20 taken party discovery to the extent of a Rule 30(b)6 deposition

21 and what did we learn? We learned from that 30(b)6 deposition,

22 on at least three occasions, the government said they got the

23 documents from Mr. Browder and the government doesn't know

24 where he got them from. So, we have to go to Mr. Browder.

25 This is central to the case, your Honor -- central to the case.

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1 THE COURT: I am not clear what you are saying now.

2 MR. CYMROT: I am saying why take Mr. Browder's

3 deposition? The government and Mr. Browder says take party

4 deposition first, take party discovery first. We did that. We

5 took a Rule 30(b)6 deposition of the government and the

6 government, on three occasions, said we got the key documents

7 that link Mr. Katsyv to the alleged fraud. We got those

8 documents from Mr. Browder and we do not know where he got

9 them. Let me quote page 174, line 18, of the deposition:

10 "Q How did Browder get the records he gave you?

11 "A You have to ask Mr. Browder."

12 175, line 7:

13 "Q How did Browder obtain the bank records that he gave you?"

14 Then the witness consults with counsel, the Assistant

15 U.S. Attorney. Answer page 176, line 6:

16 "A You have to ask Hermitage. Bill Browder never told me

17 where he was getting some of the information."

18 And that is then repeated at the bottom of the page:

19 He didn't tell us where he was getting his records.

20 177, line 7:

21 "Q Did you ask about the source and the authenticity of the

22 records?

23 Let me start that again, line 5:

24 "Q In the course of your investigation before you froze the

25 property, did you ask about the source and authenticity of the

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1 records?

2 "A Yes, we did. And Mr. Browder, to the best of my knowledge,

3 wouldn't reveal the source of some of his records."

4 This is the key link. There is the first 100

5 paragraphs of the complaint that tell the story about Russia

6 and the government and the theft and then there is this thin

7 link of these bank records that is the reason that the

8 government says Prevezon got some of the money. And

9 Mr. Browder gave those records to the government and would not

10 tell the government where he got them or whether they were

11 authentic. And, you know, how they could have proceeded takes

12 my breath away but they proceeded and now we are entitled to

13 take discovery of Mr. Browder about where those records came

14 from and whether they are authentic. And no matter how many

15 witnesses the government comes up with, Mr. Browder is the

16 source of those documents.

17 I might say, your Honor, we filed an affidavit. The

18 government says it has new witnesses. We filed an affidavit

19 with our papers from a Mr. Lurie who is a reporter in Russia

20 who spoke with Mr. Magnitsky in prison, they were both in

21 prison and Mr. Lurie says that he was approached by people

22 representing themselves to be representatives of Browder and

23 offered a bribe to change his story.

24 MR. MASTRO: Your Honor --

25 MR. CYMROT: So the government is coming --

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1 MR. MASTRO: Your Honor, I object to this.

2 MR. CYMROT: Sit down. I listened to you.

3 MR. MASTRO: This is a Lurie ambush to smear our

4 client, your Honor. We object to this.

5 MR. MONTELEONI: Your Honor, if the Court wishes --

6 MR. CYMROT: Excuse me, Mr. Monteleoni. I did not

7 interrupt --

8 THE COURT: There is one lawyer at the podium and I

9 don't think we have to have a bunch of other lawyers standing

10 up and speaking. We will take one at a time.

11 MR. CYMROT: My point, your Honor, is no matter how

12 many witnesses the government comes up with, Browder's

13 deposition is still a legitimate and necessary deposition in

14 this case and we will take it if you will order it in London

15 pursuant to the Federal Rules of Civil Procedure but we are

16 entitled to take it in New York. And the advantage of New

17 York, your Honor, is you could assign a magistrate to oversee

18 that deposition, sit in, resolve any disputes that come up in

19 that deposition because the way this has been litigated, that

20 deposition is going to be very difficult without a court

21 ordered officer present. And we would ask that it be ordered

22 in New York because he regularly transacts business in New

23 York. He has not been candid with you about how many times he

24 comes to New York and it would be better to be taken in New

25 York in front of a court officer who could resolve any disputes

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1 that would arise in the deposition.

2 THE COURT: Thank you.

3 MR. CYMROT: Thank you, your Honor.

4 THE COURT: Government?

5 MR. MONTELEONI: Yes, your Honor.

6 The government doesn't believe that it is necessary to

7 get into some of the points that Mr. Cymrot was making about

8 the deposition or these documents to resolve the issues that

9 are before the Court now, but if the Court has any questions

10 about that, I would be happy to explain some things that I

11 believe Mr. Cymrot was describing and didn't provide the full

12 picture.

13 So, I can explain if you want, but I don't need to be

14 heard if the Court isn't interested.

15 THE COURT: Thank you very much.

16 MR. MASTRO: Your Honor, just very briefly, and again,

17 I said we are not here today to get into the merits but

18 Mr. Cymrot has previously told you and your Honor noted it in

19 your Honor's opinion quashing the subpoena issued to Hermitage

20 Global that, "defendants claimed that, quote, Browder was not

21 in Russia when the key events in the verified complaint are

22 alleged to have occurred, has limited competent evidence on

23 peripheral subjects with no competent evidence about key issues

24 affecting defendants."

25 So, we hear something different today, but the fact of

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1 the matter is even the government has told you in the letter

2 that they submitted on March 6th that "it is not clear what

3 role, if any, Browder will play at trial of this case and to

4 what extent, if at all, he possesses relevant information not

5 obtainable through party discovery" because the government's

6 theory of the case has changed and have put in an amended

7 pleading, as your Honor is well aware.

8 Now, your Honor, two things: Mr. Cymrot asked you to

9 go where no Court in this country has ever gone and he cites no

10 case that has ever gone there. And he ignores your own

11 decision in NML where your Honor was asked to do exactly this:

12 A subpoena properly served in the Southern District but in

13 violation of Rule 45 and it was argued to you, you should

14 nevertheless order that person to sit for a deposition by

15 written question in Switzerland and your Honor said not doing

16 that. Can't do that.

17 THE COURT: Whoever can answer this, answer it:

18 The New York subpoena, I know I have got it in papers

19 before me but save me a little time.

20 MR. MASTRO: Yes, your Honor.

21 THE COURT: The New York subpoena was served when?

22 MR. MASTRO: February 3rd, your Honor; as Mr. Browder

23 was leaving a television interview that he gave in connection

24 with the human rights campaign and the book in the evening --

25 early evening of that day.

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1 THE COURT: All right. Now look. It is obvious that

2 the issue about taking Mr. Browder's deposition has been under

3 review, discussion and so forth for at least since very early

4 February. Now, I think it was Mr. Cymrot who gave me this

5 sheet that says Browder's New York appearances. Is that what

6 you gave me?

7 MR. CYMROT: Yes, your Honor.

8 THE COURT: Now, what this shows is that Mr. Browder,

9 since February 2, has been in New York for a book signing, for

10 appearance on television shows, etc., etc., numerous times. I

11 am not making rulings at the moment but I want to discuss

12 something.

13 MR. MASTRO: Certainly, your Honor.

14 THE COURT: All the lawyers here knew that the taking

15 of his deposition was a very hotly, highly discussed topic.

16 Why wasn't his deposition taken? He was in New York.

17 MR. CYMROT: He wouldn't agree, your Honor, and we had

18 to serve him and he ran away. That's why.

19 MR. MASTRO: Your Honor, if I can please address that?

20 THE COURT: I simply do not understand why his

21 deposition was not taken when he was in New York. Maybe during

22 that whole time of the first half of February or maybe he was

23 in and out of New York, but he was in New York over at least,

24 if not continually, over and over and over during early

25 February.

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1 MR. CYMROT: Your Honor, he is --

2 THE COURT: Why? His deposition will ultimately be

3 taken if it has to be taken in England. It will be taken

4 unless the defendant gives up on it. And I don't see any sign

5 of the defendant giving up on it.

6 Now, why were things not simplified so that he was

7 deposed in February when he was in New York either continually

8 or in and out of New York all the time? What an unbelievable

9 waste to be going through all of this when he should have been

10 deposed during that time.

11 MR. MASTRO: May I address that, your Honor?

12 THE COURT: Yes. You must have known they wanted his

13 deposition, didn't you.

14 MR. MASTRO: Your Honor --

15 THE COURT: The answer is yes, isn't it?

16 MR. MASTRO: The answer is yes.

17 THE COURT: Of course, it is. Why wasn't he deposed?

18 Why didn't you produce him?

19 MR. MASTRO: Your Honor, whether they want his

20 deposition or not, my client, a non-party to these proceedings,

21 does not have to consent to being deposed and to having the

22 burden which he has already sworn to the Court would cost

23 hundreds of millions of dollars to collect his documents that

24 they've requested.

25 THE COURT: Oh please. Please. Please.

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1 MR. MASTRO: My client, your Honor.

2 THE COURT: Please.

3 MR. MASTRO: My client does not have to consent to a

4 deposition just because they want one. My client has not even

5 agreed to appear here as a witness in the trial. My client

6 lives and works in England and has not agreed to be a witness

7 in this case.

8 THE COURT: You are really, really getting off the

9 point that I am trying to address.

10 MR. MASTRO: Please, your Honor. I want to address

11 your point.

12 THE COURT: It is a very simple, direct point. I have

13 a calendar which shows that he was in New York during the time

14 when he and all the lawyers knew that there was a desire for

15 his deposition. Now, of course he didn't need to consent to

16 it. I know that. But, there are times when people consent to

17 things and lawyers work with their clients to simplify and

18 prevent extensive and useless litigation and that's what should

19 have been done here.

20 MR. MASTRO: Your Honor, and I say this with great

21 humility, Mr. Browder finds himself as a human rights activist

22 standing up to the Putin regime in Russia as someone who the

23 government informed him there are credible threats going to his

24 personal security. He has very concerned about those issues --

25 THE COURT: Well, apparently --

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1 MR. MASTRO: -- and not subjecting himself --

2 THE COURT: Apparently the credible threats did not

3 prevent him from going on The Daily Show on February 3, Fox and

4 Friends on February 3, appearing on Sirius on February 3, going

5 on CNBC Squawk Box on February 3, going on MSNBC on February 5,

6 going on Greg Greenberg's program on February 6th.

7 Apparently the threats didn't prevent him from doing

8 that. Now why could he not have been deposed?

9 MR. MASTRO: That is correct, your Honor, and if you

10 actually aggregate those instances it occurs over a five to

11 six-day period.

12 THE COURT: A very important five or six-day period.

13 MR. MASTRO: I understand, your Honor, but

14 Mr. Browder -- Mr. Browder has put himself at risk to promote

15 the human rights campaign that he cares so deeply about but he

16 is not required and has not agreed to be a witness in this case

17 or to consent to being questioned in this case and Rule 45.

18 THE COURT: I know that. I know that. I know that

19 very well but I think it is regrettable because ultimately he

20 will, undoubtedly, be deposed, and it would have been so much

21 simpler to get it over with and have it in New York. That's

22 all I'm saying.

23 MR. MASTRO: Well, your Honor, I understand what your

24 Honor is saying. I respect what your Honor is saying. The

25 calendar that is in front of you is not actually accurate as to

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1 what days Mr. Browder was actually here as opposed to some

2 things having been taped and then played on a subsequent date,

3 so we would ask to be able to correct the record in that regard

4 but more importantly, your Honor, Mr. Browder has in fact not

5 agreed to be a witness in this case.

6 If they had gone through the Hague Convention which

7 they can do and there is no restriction in England on a

8 deposition -- the Hague convection restrictions of England are

9 at 184 of this record -- he could do that. And the fact of the

10 matter is they never asked us, in reality, because other

11 counsel who has worked on this matter is here before us here,

12 in this courtroom, and says that they never asked us or

13 Hermitage Global's counsel for a London deposition consistent

14 with those procedures.

15 Your Honor, what the fact of the matter is that Rule

16 45 exists for a reason. It means that unless somebody actually

17 resides, is employed or regularly transacts business in a

18 jurisdiction, they can't be subject to a Rule 45 subpoena.

19 THE COURT: I know. I am pretty familiar with Rule

20 45.

21 MR. MASTRO: I understand.

22 Your Honor, I just wanted to say that these extra days

23 that they're talking about, even if you counted all of them and

24 they're wrong in the count and we would be happy to put in an

25 additional submission to explain to you why they're wrong in

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1 the count and that it wouldn't move the needle the times he has

2 been here in connection with non-commercial activity, the fact

3 of the matter is that even if you counted all of their days in

4 the count, it would be less than nine days a year and Judge

5 Chin ruled that that is not enough for transacting business

6 even if you considered his human rights activity to be part of

7 that.

8 So, on the record before your Honor --

9 THE COURT: Let me interrupt you. I'm sorry.

10 MR. MASTRO: Certainly, your Honor.

11 THE COURT: I want to rule now on some things that

12 have not been completely discussed but they are on the record

13 here but they are discussed in the papers at length and I want

14 to rule on certain things before we go forward.

15 I want to rule on whether Mr. Browder was served in

16 Aspen and whether he can be deposed in Aspen under Rule 45. I

17 want to rule on whether he was served in New York and can be

18 deposed in New York under Rule 45. I want to rule on that

19 because it has been discussed very thoroughly in the papers and

20 time is going on this afternoon. So, if you could sit down I

21 will make my rulings.

22 Thank you.

23 MR. MASTRO: Certainly, your Honor.

24 THE COURT: My ruling is, as far as Aspen, as follows:

25 Although he may have been served in Aspen, he cannot be

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1 required to attend a deposition pursuant to that service.

2 My ruling and finding is that he does not reside in

3 Aspen, nor does he regularly transact business in Aspen and he

4 cannot be deposed in Aspen. So, if there are subpoenas

5 requiring him to be deposed in Aspen, those subpoenas are

6 quashed.

7 Let's come to New York:

8 I have reviewed the affidavits and declarations on the

9 issue of whether Browder was served properly in New York. I

10 have also seen a video of the events attending what occurred in

11 New York and it is my ruling that Browder was properly served

12 with process in New York City.

13 I do not accept the argument that somehow that service

14 of process was ineffective because of some fear of harm from

15 Russian officials. My ruling is that he was served in New York

16 City and properly served.

17 The next question is whether he is subject to

18 deposition in New York under Rule 45 and we are talking about

19 Rule 45(c), and it provides that a subpoena may command a

20 person to attend a deposition within 100 miles of where the

21 person resides, is employed, or regularly transacts business in

22 person. He certainly does not reside in New York but it is my

23 finding and holding that he has regularly transacted business

24 in New York, in person. During the years 2010 through 2014 he

25 has been in New York on a reasonably regular basis to discuss

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1 the matters occurring in Russia about Magnitsky that was not

2 commercial business but it was obviously important to him in

3 his human rights activity which he has become more and more

4 involved in. In my view, if you become an activist in a cause

5 for human rights or some specific aspect of human rights

6 dealing with the Russian government, for instance, then that is

7 the doing of business within the meaning of the rule, not

8 commercial business but it was a business that he undertook and

9 was in.

10 When we came around to February which was obviously

11 very recent, the records show he was very active in his human

12 rights activity and, in my view, looking at the record, I

13 conclude and find that he has started to become regularly

14 involved in the transaction of his human rights activity and

15 that is within the meaning of Rule 45(c) and places him within

16 the realm of being deposed in New York.

17 Now, therefore, I think there is a motion to quash

18 subpoena or subpoenas -- plural -- served in New York and that

19 subpoena or those subpoenas will not be quashed.

20 Now, Mr. Browder resides in England. As far as the

21 Court knows he is not in New York now and of course there is no

22 process by which this Court can direct him to come from his

23 home in England to New York or anywhere else in the United

24 States. So, although there has been service and there would be

25 a proper occasion for a deposition under Rule 45, the Court

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1 cannot order any deposition because he simply is, as far as the

2 Court knows, he is in England and that's where that stands.

3 MR. CYMROT: Your Honor?

4 THE COURT: Yes.

5 MR. CYMROT: You have found that he was properly

6 served in New York. You have jurisdiction over him and you can

7 tell him to come to New York and produce documents and give a

8 deposition. That's the whole point of serving a subpoena in

9 New York.

10 I would point out, your Honor, that he has already

11 announced he is going to be in Washington, D.C. on April 30th,

12 and so it is not a real inconvenience for him to come to New

13 York and give the deposition before or after that appearance in

14 Washington, D.C. And I would ask that you order him to do that

15 because you have jurisdiction over him, you found that. He

16 regularly transacts business in New York and it is not an

17 inconvenience for him to be here. And certainly, your Honor,

18 you can order him, even from England, to produce documents here

19 pursuant to that subpoena.

20 THE COURT: Let's take a short recess, please.

21 (recess)

22 THE COURT: The subpoena of Mr. Browder was adjourned

23 from its original date until the time of the hearing which has

24 occurred today. Therefore, the subpoena needs to have a new

25 date and the subpoena will now be returnable Wednesday, April

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1 15.

2 Now, it is time to get going on other aspects of this

3 litigation. This litigation is not all about Mr. Browder or

4 his deposition so the parties need to move forward on the

5 litigation, on the aspects that are central to the litigation,

6 and I think we need to have a conference on that. You work

7 that date out with my deputy clerk sometime in the next few

8 days and work out a schedule for the litigation as a whole.

9 As far as Mr. Browder is concerned, I have given you a

10 new date for his deposition. If there are any application

11 relating to his deposition we want to reduce the legal work and

12 paperwork to, I hope, zero, or almost zero. Therefore, if

13 there is any application about his deposition, anything about

14 his deposition further, we will cover it in a telephone

15 conference call on the record and that will be that. And

16 please do not file letters and other documents. No paperwork.

17 We have had enough of it and we don't need any more about

18 Mr. Browder's deposition.

19 That concludes today. We will have a conference about

20 the litigation as a whole at a time which you will work out

21 with my deputy clerk.

22 Thank you.

23 MR. MONTELEONI: Your Honor, may I be heard briefly?

24 THE COURT: What?

25 MR. MONTELEONI: It is true that there has been a

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1 great deal of paperwork about aspects of Mr. Browder's

2 deposition but the government has not yet had an opportunity to

3 submit motions that both parties have long known that it

4 intended to submit raising issues about certain extremely

5 important areas of the scope of the deposition. There are some

6 questions that the answers to which could potentially, in the

7 government's view, put people at risk and the government does

8 intend to seek a modification of the deposition and has always

9 intended to file this motion. That's why the service issues

10 came first. But the government does need an opportunity to do

11 that and that is going to have to be done on paper.

12 I would propose, if we are already going to have a

13 conference with the deputy in a few days, that between now and

14 then the government can talk to defense counsel about working

15 out a schedule for that --

16 THE COURT: No.

17 MR. MONTELEONI: Well, your Honor.

18 THE COURT: I mean it. We are having a conference.

19 Anything you need to raise can be raised on the record on a

20 sealed record and under no circumstances are we going to start

21 having a lot of more voluminous motions.

22 We can do everything we need on the record orally and

23 those records can be sealed if there is confidentiality

24 involved. That's the way we are going to proceed. We are not

25 going to start another round of voluminous motions. We won't

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1 do it. You come to the conference next week and you will see.

2 Okay?

3 Thank you.

4 o0o

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1 UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x

3 UNITED STATES OF AMERICA,

4 Plaintiff,

5 v. 13 Civ. 6326 (TPG)

6 PREVEZON HOLDINGS, LTD, et

al.,
7
Defendants.
8
------------------------------x
9 New York, N.Y.
March 16, 2015
10 2:50 p.m.

11 Before:

12 HON. THOMAS P. GRIESA,

13 District Judge

14 APPEARANCES

15 PREET BHARARA
United States Attorney for the
16 Southern District of New York
PAUL MONTELEONI
17 MARGARET GRAHAM
Assistant United States Attorneys
18
BAKER & HOSTETLER
19 Attorneys for The Prevezon Defendants
BY: MARK CYMROT
20 JOHN W. MOSCOW
LOURA ALAVERDI
21 -and-
BAKER BOTTS
22 BY: SETH T. TAUBE
-and-
23 GABRIELLA VOLSHTEYN

24

25

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1 (Case called)

2 THE COURT: Let me just start by noting for the record

3 that I received a letter from Michael Kim, dated March 13, and

4 this letter is on behalf of the Kim firm's client, William

5 Browder, and says that arrangements are being made for him to

6 produce documents and appear for deposition on April 15. Now,

7 I must say that that is extremely helpful and eliminates

8 potential further dispute on that subject.

9 There is a motion to dismiss by the defense and then

10 there is an interlocutory appeal that has been filed. So what

11 are the suggestions as to how to proceed further?

12 MR. MONTELEONI: Good afternoon, your Honor, Paul

13 Monteleoni for the government. On behalf of the plaintiff may

14 I go to the lecturn and address you on that matter?

15 THE COURT: Please do.

16 MR. MONTELEONI: Your Honor, as the Court noted, there

17 is a pending interlocutory appeal and there are pending motions

18 to dismiss and there is some overlap between those.

19 But what we believe would be most productive to

20 address today would be to set a discovery schedule going

21 forward or, if the Court doesn't wish to resolve some disputes

22 over the discovery schedule today, the Court could refer that

23 matter to the assigned magistrate judge. Regardless of the

24 pendency of the motions, the government believes, and we

25 understand that defense believes, that discovery should begin,

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1 should go forward.

2 Now, just to step back and to understand how we got

3 here, this case was filed in the fall of 2013 and it progressed

4 for several months and then in the spring of last year, almost

5 a year ago today, the defendants put party discovery on hold

6 because they had filed a dispositive motion, motion to dismiss,

7 and they didn't want to do discovery while they awaited that.

8 So during that time, though party discovery was on hold, they

9 pursued subpoenas, the last of which the Court recently

10 sustained, and the government also continued its investigation,

11 which resulted in an amended complaint.

12 In any event, party discovery has been on hold because

13 of the action of the defendants to put it on hold for about a

14 year. And we believe it's time for party discovery to go

15 forward. We'd like to set a schedule to do that.

16 Now, this is a complicated case and, as the Court

17 recognized last spring, the issues raised by discovery will

18 take a little bit of time to work out. If you remember last

19 spring, the defendants requested a very immediate trial, a

20 trial in a few weeks, and the Court initially was receptive to

21 that, but then the Court adjourned the trial because the

22 government pointed out there is going to be intensive document

23 discovery, there will be documents in Russian. Those documents

24 need to be translated. Experts may need to analyze those

25 documents, make reports about it. There may need to be

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1 extensive depositions. There is just a lot to do.

2 So the Court found that the government's objections

3 that there needed to be some decent time for discovery were

4 well founded, and the Court adjourned the trial, then

5 defendants put discovery on hold. So as far as party

6 discovery, we have not really gotten much farther since then.

7 There has been some third-party discovery from defendants and

8 the government has done some other investigation. But there is

9 still a lot that needs to be done as far as party discovery.

10 We have a plan which provides for a period of

11 discovery of several months. I can go into it in detail. We

12 understand that defendants have a plan that would call for a

13 very truncated period of discovery. We believe that several

14 months are required for discovery in a case of this complexity.

15 We propose that four months be set for document

16 discovery, that then because there may need to be international

17 depositions, that there be two months for depositions with

18 depositions to start after document discovery, to avoid

19 duplication. Then two months for experts and then the Court

20 can set a postdiscovery conference to set a quick motion

21 schedule, if there are any motions, and a trial schedule. That

22 would have the case teed up for trial around the end of this

23 year, and we believe that that is a reasonable proposal that

24 moves this case expeditiously forward, but allows the complex

25 issues that are involved in this case to be worked out.

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1 THE COURT: Let me ask you this. I think you are

2 assuming that the case will not be terminated in the Court of

3 Appeals by that interlocutory appeal, right?

4 MR. MONTELEONI: Yes, that's correct. Of course, we

5 could just stop discovery if the Court of Appeals or this Court

6 terminates the case. But in case they don't, we are happy to

7 start discovery going forward.

8 THE COURT: What do you say about this. The substance

9 of what's being presented to the Court of Appeals is almost

10 word for word what is presented in this court in a motion to

11 dismiss. Am I right?

12 MR. MONTELEONI: That's correct, your Honor, with the

13 exception of a few other arguments, but, yes, almost word for

14 word.

15 THE COURT: This is an odd posture, to say the least.

16 MR. MONTELEONI: Absolutely, your Honor.

17 THE COURT: But I certainly can't dismiss the appeal.

18 Has a schedule been worked out about the appeal?

19 MR. MONTELEONI: It is set for expedited briefing.

20 The briefing will conclude at the end of this month. We have

21 not yet received a calendar notice for oral argument, but it is

22 on an expedited schedule.

23 THE COURT: I intend to hold off deciding the motion

24 to dismiss until the Court of Appeals is finished with the

25 appeal. Whatever the Court of Appeals does, things can move

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1 quickly after that as far as the issues raised.

2 What you are proposing is to go ahead with, you say,

3 party discovery, right?

4 MR. MONTELEONI: That's correct, your Honor.

5 THE COURT: What do you have in mind as far as party

6 discovery?

7 MR. MONTELEONI: Your Honor, I have a little proposed

8 chart I will hand up to you, if you'd like.

9 THE COURT: I would like it.

10 My question was a little more specific. What do you

11 have in mind as to who will provide discovery and what you call

12 party discovery?

13 MR. MONTELEONI: Yes, your Honor. The United States

14 has come into possession of a number of documents that support

15 the allegations in the complaint and the United States will be

16 providing those to the defendants. The United States has also

17 served document requests on the defendants and intends to serve

18 some additional follow-up requests for documents in the

19 possession of the defendants, corporate records, contractual

20 records, bank records of theirs, certain relevant

21 correspondence and other such documents that may shed light on

22 whether the transactions that are really undisputed took place,

23 whether they were money laundering transactions.

24 So we believe that documents will need to be exchanged

25 and we believe that representatives of the defendants and

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1 affiliates of the defendants who were involved in the

2 transactions will need to sit for deposition. The United

3 States will identify individuals it would intend to call as

4 witnesses and will work with defendants to make them available

5 for deposition as well. And then once fact discovery is done,

6 then there might be experts.

7 THE COURT: Let's come back to depositions. What are

8 you talking about? We have got one deposition which is going

9 to take place on April 15 of Mr. Browder. What other

10 depositions do you believe need to take place?

11 MR. MONTELEONI: Well, we believe that the United

12 States is going to need to take depositions of the people who

13 were the owners and the officers of these companies, the

14 Prevezon companies, the people with knowledge of the

15 transactions that are the basis for the complaint. And the

16 United States is going to call some witnesses, also, in its

17 case and we understand that defendants may want to take

18 depositions of them and those witnesses won't be just

19 Mr. Browder and may not even include Mr. Browder. There may be

20 other government witnesses, but we also do believe that it will

21 be important to take the deposition of the people who were at

22 the defendant companies conducting the transactions that this

23 case is about.

24 THE COURT: These are employees of defendants, you

25 say?

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1 MR. MONTELEONI: Yes. Employees, owners, beneficial

2 owners, and the like.

3 THE COURT: I'm sure I've got it here, but can you

4 just help me out. Do you have a list of the defendants?

5 MR. MONTELEONI: Yes, your Honor.

6 THE COURT: Obviously, it's in the pleading, but I

7 don't have it right here. Wait a minute. I've got the

8 complaint here. I would like to look at that a minute.

9 The amended verified complaint has a list of

10 properties being sued in rem I take it, right?

11 MR. MONTELEONI: That's correct, your Honor.

12 THE COURT: I have your proposed schedule.

13 Who wants to speak for the defense, please?

14 MR. CYMROT: I will, your Honor. Mark Cymrot.

15 Your Honor, I don't agree with the history

16 Mr. Monteleoni just set out. You have an injunction in place

17 over all the properties of the Prevezon defendants and last

18 year we asked for a quick trial. You gave us a date at the end

19 of March 2014. And then the government asked for an extension.

20 They have now had another year to investigate this case. They

21 have been using a grand jury to investigate this case and not

22 giving us any of the information that the grand jury has

23 collected. They are using criminal MLATs, criminal mutual

24 legal assistance treaty requests to foreign governments to get

25 information about this case and not giving us access to that

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1 information. They treat this case as a civil case when it

2 serves their purpose and a criminal case when it serves their

3 purpose. But when they get Brady material or Jencks Act

4 material, they don't give it to us either.

5 THE COURT: When they get Brady material?

6 MR. CYMROT: Or Jencks Act material, things that in a

7 criminal case they would have to turn over. So, in other

8 words, they have gone for another year. We have now had 18

9 months of investigation by the government and they want

10 basically the rest of this year. And you have tied up all of

11 the property in an injunction of the Prevezon defendants.

12 There are two other defendants, Kolevins and Ferencoi,

13 both companies that have moved to dismiss on the grounds that

14 they have never done any business in the United States and you

15 don't have jurisdiction over them. That issue is not in front

16 of the Court of Appeals. And we would ask that you set a

17 schedule for arguing that motion or without argument decide

18 that motion because those defendants shouldn't be here.

19 THE COURT: Wait a minute. Let's slow down a bit.

20 MR. CYMROT: Sure.

21 THE COURT: What motion or motions to dismiss have the

22 defendants filed?

23 MR. CYMROT: There are two, your Honor. The Kolevins

24 and Ferencoi defendants have moved to dismiss on grounds of

25 lack of personal jurisdiction. And the other defendants, what

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1 I'm calling the Prevezon defendants, they have moved to dismiss

2 for failure to state a claim. While the grounds are, as you

3 noted, the same in the Court of Appeals, the issue is not the

4 same.

5 THE COURT: Why isn't the issue the same?

6 MR. CYMROT: Because the issue in the Court of Appeals

7 is only the injunction and there is a totally different burden

8 we have in overturning an injunction than there is if you were

9 just to dismiss the case because we say there is no claim

10 stated in that complaint. So you could moot the appeal, you

11 could moot the need for discovery, and you could dismiss the

12 case because the complaint fails to state a claim. And I can

13 go into that in greater detail if you want. I don't think you

14 need to wait.

15 THE COURT: Again, there are two motions to dismiss,

16 correct?

17 MR. CYMROT: Right.

18 THE COURT: What are their names?

19 MR. CYMROT: Ferencoi and Kolevins, the last two on

20 the list, your Honor.

21 THE COURT: For lack of personal jurisdiction.

22 MR. CYMROT: Yes. They are foreign companies that

23 have never done any business in the United States.

24 THE COURT: Then the other motion is what?

25 MR. CYMROT: Failure to state a claim in the amended

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1 complaint. In other words, the claim in general terms requires

2 two things. It requires a crime that can be found in the

3 United States called a specified unlawful activity. And we say

4 there is no allegation of a crime that can be prosecuted in the

5 United States in that complaint. They originally said it was

6 wire fraud because there was one wire, intermediary wire

7 transfer that they identified in the United States, but then

8 the Supreme Court decided the Morrison case and the Second

9 Circuit agreed with another case saying that's a domestic

10 statute, not a foreign statute. So that claim that specified

11 unlawful activity is no longer actionable. They claim two

12 other crimes in the complaint. One, allegedly, is the bribery

13 of a foreign official. But they have no foreign official who

14 has received any bribes alleged in the complaint. And the

15 third is fraud against a foreign bank, and they have no fraud

16 against a foreign bank alleged in the complaint. So that's in

17 the first hundred paragraphs. That's how they justified the

18 first hundred paragraphs, which supposedly alleges a specified

19 unlawful activity, and we say there is none.

20 The second piece is tying the specified unlawful

21 activity to the defendants. And this we have complained about

22 from the very beginning. There are supposedly tracing of 98

23 transactions where there is $1.9 million they claim went into

24 the bank account in Switzerland of Prevezon Holdings, one of

25 the defendants. And we say on the face of that tracing it is

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1 inadequate. I'll give you one for instance. They claim that

2 there was 19 and a half million dollars that went through a

3 Russian bank by the name of Krainiy Sever. They say, out of

4 that, $1.9 million went to the defendants. But they can't

5 separate the 19.5 from the 1.9. There is no link. And there

6 are other grounds in the motion to dismiss, also, your Honor.

7 THE COURT: It is my impression and information that

8 you're raising the same points in the Court of Appeals on this,

9 whatever you want to call it, interlocutory appeal and on the

10 appeal. Aren't you raising the same points?

11 MR. CYMROT: We are saying that an injunction should

12 not have been entered because there is no claim. So, yes, we

13 are raising the same arguments in the Court of Appeals, but on

14 a different issue, whether there was a sufficient grounds to

15 enter an injunction as opposed to just dismissing the whole

16 complaint, which is a lesser burden than overturning the

17 injunction.

18 If the complaint is invalid, the injunction is

19 invalid, so the issues overlap. But you have a lesser burden

20 here to dismiss the complaint.

21 Judge, if we win the appeal, we still have a case. If

22 we win the appeal, that eliminates the injunction, but you

23 still have a case to try and we want to schedule it because we

24 have had an injunction in place for 18 months. The government

25 has been taking discovery through grand juries. It's time to

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1 set the case for trial.

2 They say we suspended party discovery. We never

3 suspended party discovery. We said we wouldn't give them

4 documents that they were going to give to a grand jury. They

5 shouldn't be using a civil case for a criminal investigation.

6 And they didn't move to compel. And they wouldn't give us

7 documents.

8 So the government has had 18 months since the case has

9 been filed. We want a trial. Last November you said we could

10 have a trial in the spring. We would like a trial by June. We

11 can do whatever party discovery there has to be. He wants four

12 months to exchange documents. Why does it take four months to

13 exchange documents? We ought to be able to do it in 30 days.

14 THE COURT: How long will the trial take?

15 MR. CYMROT: The government says three weeks.

16 THE COURT: What do you say?

17 MR. CYMROT: Probably less than that, but we can

18 schedule for three weeks.

19 THE COURT: Can I have the scheduling book.

20 I won't try to review how we got to where we are

21 today. But a lot of attention had to be given to Mr. Browder's

22 deposition and that matter has been settled now. We have

23 motions to dismiss. There is an interlocutory appeal. You

24 must know that this court inevitably is concerned about the

25 existence of something in the Court of Appeals. What do I do

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1 in light of that? And whether it was a good idea for you to

2 file an interlocutory appeal, that's not up to me to say. If

3 the Court of Appeals doesn't feel there is jurisdiction, they

4 will dismiss the appeal. If they feel that they are going to

5 get to the merits, they will get to the merits. I don't know

6 what they will do. But something is there. And it's difficult

7 for me to see how I can schedule a trial until I know what is

8 going to happen in the Court of Appeals. I've got certain

9 things on my schedule that are crowded, as so often happens,

10 towards the end of the spring and so forth.

11 I think the best thing we can do is to schedule a

12 trial. But for various reasons it is not possible to schedule

13 a spring trial.

14 I am looking at September. Labor Day is the 7th and

15 I'm informed that Jewish holidays are the 14th --

16 THE DEPUTY CLERK: The 14th, the 22nd and the 23rd,

17 your Honor.

18 THE COURT: We can do it in two ways. A lot of it

19 depends on what the lawyers suggest. Look at September. As

20 far as I am concerned, I could start a trial on the 8th and if

21 there is a requirement for a recess for a Jewish holiday, we

22 can do that, or we can completely clear of holidays and start

23 the trial on the 28th or Monday, the 5th of October.

24 Considering everything, people help assisting me feel

25 that it would be a good idea to start the trial the 5th of

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1 October and we are clear of holidays, we are clear of certain

2 other matters that the Court is concerned with. So we will set

3 a trial date for this case and it will be the 5th of October.

4 MR. CYMROT: Thank you, your Honor.

5 With respect to the motions to dismiss, you want to

6 wait on those? Especially Ferencoi and Kolevins. They

7 shouldn't be participating in discovery when they have a motion

8 to dismiss on personal jurisdiction.

9 THE COURT: They are moving on personal jurisdiction

10 grounds. That should be decided soon.

11 Now, on the motion to dismiss on other grounds, I

12 don't know what the Court of Appeals can do with that

13 interlocutory appeal, but that's not my business. It's their

14 business and it seems to me that since we now have a pretty

15 long time before trial I would want to wait until the Court of

16 Appeals acts before I do the motion to dismiss.

17 MR. CYMROT: I understand. And I think within that

18 schedule we can work out with the government documents and

19 things like that. I don't think we need to resolve that today

20 with deadlines.

21 THE COURT: We don't need to do that.

22 MR. CYMROT: We can work it out.

23 THE COURT: I think that's all we can do today.

24 Anything else?

25 MR. MONTELEONI: Your Honor, if I may be heard on one

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1 or two things that could.

2 THE COURT: Go back to the lecturn, if you would.

3 MR. MONTELEONI: Absolutely.

4 One or two things that may help us move forward.

5 First, it's certainly the government's view that until such a

6 time as a motion to dismiss is granted against Ferencoi or

7 Kolevins, they are in the case and are subject to discovery if

8 discovery isn't on hold, just like any other party in the case.

9 In any event, it may be moot because Ferencoi and

10 Kolevins may be under the control of people who are in the

11 case. But the other thing that would help today is if the

12 Court could enter a confidentiality order governing the

13 exchange of documents.

14 THE COURT: Are you ready to present such an order?

15 MR. MONTELEONI: Yes, your Honor. I presented such an

16 order to defense counsel on Friday and have not heard back from

17 them.

18 MR. CYMROT: We don't agree, your Honor. The

19 principal issue being that they want to be able to use

20 documents from this case in criminal proceedings.

21 THE COURT: I got to hear you.

22 MR. CYMROT: I'm sorry.

23 THE COURT: Go back over that.

24 MR. CYMROT: We have a disagreement with that order,

25 we have for the last year, over the fact that the government

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1 wants to be able to use civil discovery in this case from our

2 clients to give to a grand jury and to use in other unspecified

3 proceedings, and we think that's improper. And I think if you

4 are going to decide that, we ought to brief that because that's

5 a very serious issue.

6 MR. MONTELEONI: Your Honor, I certainly don't have

7 any objection with submitting briefing on it. But I think that

8 defense counsel is not really accurately stating what's in the

9 order. I have a copy here, if I could hand it up.

10 THE COURT: What is the problem about this order? Who

11 wants to raise a problem?

12 MR. CYMROT: Mr. Moscow is going to speak to this,

13 your Honor.

14 MR. MOSCOW: Your Honor, this is a very peculiar case

15 in the sense that the government is using grand jury subpoenas

16 to collect evidence and they now want to put on civil parties

17 the obligation to produce records from all around the globe so

18 that they can use them against the civil parties who produced

19 them. We negotiated for a while over a protective order and

20 the way to resolve it is a very simple very classic one, to say

21 that whatever is produced in this case will not be used by the

22 United States in any criminal proceeding, full stop. The

23 government has refused that. Their view is that it will not be

24 used absent the right of law, absent the legal claim. But, of

25 course, what that means is, that in a civil case the party

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1 producing the documents, a grand jury issues a subpoena, the

2 documents go to the grand jury, or the transcript goes to the

3 grand jury. And we are saying, agree not to use it in any

4 grand jury, full stop. They say no.

5 THE COURT: Wait a minute. I'm lost on what you are

6 saying. Go over this again.

7 MR. MOSCOW: This is a civil case in which the

8 government is improperly using a grand jury to gather evidence.

9 Although there is nothing wrong with a grand jury gathering

10 evidence, you don't have the same people doing the civil case

11 and the criminal case at the same time using grand jury process

12 to collect documents. That's what they are doing. That's what

13 they have been doing. And we are not in a position to stop

14 them.

15 THE COURT: Can I interrupt you. You are raising

16 issues now that I'm not familiar with. I don't know what the

17 rules and regulations, what the law is about what you are

18 talking about.

19 MR. MOSCOW: Then could we brief it. I think it would

20 be simpler. I know we have burdened you with too many briefs

21 on too many subjects, but this is a very important one because

22 it deals with the intersection or the abuse of the criminal law

23 as a means of gathering evidence or the abuse of the civil law

24 to gather evidence in a criminal case, and it can be barred. I

25 would like to brief it, if we may.

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1 THE COURT: What does the government say?

2 MR. MONTELEONI: Your Honor, the short answer is that

3 we are happy to brief this issue on a schedule that moves

4 promptly and doesn't interfere too much with discovery now that

5 we have a trial date. But I would just point out that a number

6 of the remarks that Mr. Moscow have made are just not correct.

7 He said that the same people can't get grand jury information

8 in a civil action.

9 Actually, as we will point out in our briefs, under

10 Title 18 of the United States Code Section 3322(a), it's

11 entirely proper for grand jury information to be used in these

12 proceedings. He said that the government has been conducting

13 an investigation into crimes and that is true. There has been

14 a grand jury investigation that is also, however, entirely

15 proper. And he also said that the confidentiality order that

16 we proposed just allows unrestricted disclosure of this to a

17 grand jury. That's not actually what the order does.

18 And usually, in the ordinary case, the protection that

19 someone in a civil case has from incriminating themselves

20 through discovery is invoking the Fifth Amendment. Now, that's

21 what most people have to do. As an extraordinary accommodation

22 to the defendants, we offered a mechanism where they would not

23 have to be put to that burden of invoking the Fifth Amendment

24 privilege, like everyone else would. They think that this

25 isn't enough of an accommodation, that's fine, we are happy to

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1 brief it. But we request that it be set on an expedited

2 schedule for briefing, because this could hold up all

3 discovery.

4 MR. MOSCOW: On March 4 of last year the government

5 issued a subpoena which said: Please don't disclose because

6 it's a grand jury subpoena request, calling for the bank

7 records --

8 THE COURT: They did what on March 4?

9 MR. MOSCOW: They issued a subpoena to William Browder

10 asking that he keep secret the subpoena because they were

11 calling for the production of bank records, and they even sent

12 a certified --

13 THE COURT: Who did they issue the subpoena to?

14 MR. MOSCOW: William Browder, calling for the

15 production of UBS bank records.

16 Now, that is improper, and there is no way to get

17 around it. I don't know to whom they have issued the other

18 subpoenas about which they talk. I do know about the issue of

19 MLATs in countries which are only criminal, and they are

20 gathering evidence with those. We have to be very careful in

21 reading documents to make sure that there are not loopholes

22 because they will be exploited.

23 I would like to brief this. I suggest that the

24 resolution is for the government to simply say they will not

25 use the evidence we produced to them in any criminal

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1 proceeding. That's not all that hard. But if they refuse to

2 do that, which raises problems in itself, I would ask that we

3 get a decision from the Court on this.

4 THE COURT: Usually, pretrial issues are briefed when

5 somebody makes a motion. Now, that is certainly not something

6 that's invariable. But a motion does mean that there is a

7 clearcut issue. And to simply say, we are going to have

8 briefing on issues, that is not satisfactory because I don't

9 know what the boundary is of the legal problem presented and it

10 seems to me that if there is to be briefing there needs to be

11 some motion. And there can be a motion to allow the government

12 to do something. There can be a motion to prevent the

13 government from doing something. But a motion at least frames

14 the issue in a way that is not vague and advisory. There is

15 something definite.

16 If anyone wishes to make a motion now or file a

17 motion, that can be done. Obviously, it is better to file a

18 motion than to simply have it on the floor here, but it can be

19 done on the floor.

20 Is there a motion?

21 MR. MONTELEONI: Yes, your Honor. We will file a

22 motion to have the Court enter this confidentiality order. May

23 I confer with my colleague on a schedule?

24 THE COURT: Of course.

25 Let me amend what I said. I think I was not entirely

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1 accurate in what I was saying. It is, of course, a perfectly

2 regular procedure for one or all parties to ask the Court to

3 enter a confidentiality order, and I've been handed a proposed

4 confidentiality order. So I am going to ask that it be marked

5 Court's Exhibit A for this hearing and it will be part of the

6 record.

7 Now, the government is proposing this, right?

8 MR. MONTELEONI: Yes, your Honor.

9 THE COURT: That's certainly an application. Does the

10 defense object to this?

11 MR. MOSCOW: We do and we will be submitting a counter

12 order for your consideration.

13 THE COURT: That's fair enough. When will you present

14 that?

15 MR. MOSCOW: Can we have a week from tomorrow?

16 THE COURT: Of course. By a week from tomorrow, which

17 is March 24, we will get these on the file in some orderly way.

18 We will have the government's proposed confidentiality order

19 and the defendant's proposed confidentiality order.

20 And then let's assume the government files the first

21 brief. When can you file your brief?

22 MR. MONTELEONI: The following Monday, your Honor.

23 THE COURT: What's the date? What's that date?

24 THE DEPUTY CLERK: March 30, your Honor.

25 THE COURT: The government's brief in support of its

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1 confidentiality order will be filed March 30.

2 And the defendant's brief will be filed when, please?

3 MR. MOSCOW: The end of that week, your Honor. If

4 March 30 is the Monday, we could file on Friday.

5 THE COURT: What date is that?

6 THE DEPUTY CLERK: April 3, your Honor.

7 THE COURT: April 3. We have a schedule for briefing.

8 I'll enter a short order so that that's a matter of record. If

9 somebody needs to reply, that can be done, we will say, in due

10 course.

11 Is there anything else we need to do this afternoon?

12 MR. MONTELEONI: Nothing from the government, your

13 Honor.

14 MR. CYMROT: No, your Honor. Nothing further.

15 THE COURT: Thank you very much.

16 o0o

17

18

19

20

21

22

23

24

25

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1 UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x

3 UNITED STATES OF AMERICA,

4 v. 13 CV 6326(TPG)

5 PREVEZON HOLDINGS, LTD., et

al.,
6
Defendants.
7
------------------------------x
8
New York, N.Y.
9 May 27, 2015
2:30 p.m.
10

11 Before:

12 HON. THOMAS P. GRIESA,

13 District Judge

14
APPEARANCES
15 PREET BHARARA
United States Attorney for the
16 Southern District of New York
PAUL M. MONTELEONI
17 MARGARET GRAHAM
Assistant United States Attorney
18
BAKER & HOSTETLER, LLP
19 Attorneys for Movant Prevezon
MARK CYMROT
20 JOHN W. MOSCOW
GABRIELLA VOLSHTYN
21 PAUL LEVINE

22 BAKER BOTTS, LLP

Attorneys for Movant Prevezon
23 SETH T. TAUBE

24

25

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2 Appearances (Cont'd)

4 KOBRE & KIM, LLP

Attorneys for Non-party Browder
5 MICHAEL S. KIM
LINDSEY WEISS HARRIS
6

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

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1 (In open court; case called)

2 THE DEPUTY CLERK: All parties are presented, your

3 Honor.

4 THE COURT: Sit down, please. I take it we have a

5 motion. Who wants to speak for the motion?

6 MR. CYMROT: Mark Cymrot for the defendants, your

7 Honor.

8 THE COURT: Yes.

9 MR. CYMROT: Your Honor, you signed an order last time

10 we were here that set April 15th as the return date on the

11 subpoena to William Browder and he produced some documents; but

12 as to at least 10 categories of documents in the subpoena, he

13 produced nothing or it was incomplete. I have a chart I wanted

14 to hand up if I could along with another document to show the

15 relevance of all of this.

16 THE COURT: I have this. Go ahead.

17 MR. CYMROT: So I have handed up two documents. One

18 is a chart we prepared that shows the subpoenaed document

19 request and shows that we relied upon in making that request

20 specific paragraphs of the amended complaint and then it shows

21 what was produced and you will see that the production is

22 substantially incomplete. We are now six weeks past the return

23 date on the subpoena and they are in violation of your order to

24 produce documents pursuant to the subpoena.

25 Now, their response is: This case between the

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1 government and Prevezon, leave us alone, we've done what we can

2 do. But that is not a proper response and I particularly

3 wanted to direct you to the relevance of one series of

4 documents that came out as a result of the deposition, which is

5 the other document I handed you. If you look at the second

6 page of it, it appears to be some sort of spreadsheet. This

7 was the basis for the purported tracing of money from the

8 Russian treasury through six layers of Russian and Moldavian

9 banks into the Prevezon account. This is the basis for the

10 lawsuit. It is some sort of spreadsheet that Mr. Browder could

11 not explain. Three categories of document requests asks for

12 documents regarding that tracing. That tracing is central to

13 this lawsuit. If the money is not traced into the Prevezon

14 Holdings account from the Russian treasury, there is no case.

15 This is what it is based upon.

16 THE COURT: What is it based on?

17 MR. CYMROT: Yes, the tracing of money from the

18 Russian treasury.

19 THE COURT: This is completely unreadable to me.

20 MR. CYMROT: Exactly, your Honor. This is the way it

21 came. We've enlarged it to try to make exhibits out of it, but

22 what does it mean? Mr. Browder couldn't explain it yet there

23 are documents that this had to be based upon. There are

24 documents in his possession that led to this document, which is

25 largely unreadable and certainly ununderstandable. You cannot

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1 understand how they could trace anything with this document.

2 THE COURT: Was he asked about this?

3 MR. CYMROT: Yes, he was. He says he doesn't know,

4 talk to his team. His team supposedly knows about this. This

5 is the man who has been going around the world saying that our

6 clients took money, a theft from the Russian treasury and this

7 is what it is based upon. He can't explain it and he produces

8 no documents backing it up. This is the case right here. You

9 are right it is unreadable. What do the columns mean? I don't

10 know what the columns mean. What documents were these based

11 upon? I don't know. He hasn't produced whatever documents he

12 has to back these up, yet this is the heart of the case. So

13 we're asking that you compel him to produce the documents that

14 you ordered him to produce.

15 THE COURT: This case was brought by the United States

16 government; right?

17 MR. CYMROT: Based upon this.

18 THE COURT: It is brought by the United States

19 government?

20 MR. CYMROT: Correct.

21 THE COURT: Now, if there is some discovery needed,

22 further discovery, further specification of what the claims

23 are, the United States government should answer that.

24 MR. CYMROT: If they want to specify claims, that is

25 fine.

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1 THE COURT: They are the plaintiff. We spent an

2 enormous amount of time and energy on the question of

3 Mr. Browder's deposition and I will tell you right now I don't

4 think anymore time or effort right now should be spent on

5 Mr. Browder. It seems to me obviously that you may need

6 information and you may need specifics; but if we keep spending

7 time on Mr. Browder, we'll never get the case completed. So I

8 am saying put Mr. Browder aside temporarily.

9 There has been almost no discovery of other people.

10 There has been almost no depositions. It could be that the

11 government needs to respond to some interrogatories about the

12 basis for the claim. If you are concerned about the basis for

13 the claim against your client, which you should be, but that is

14 the direction to go in. If we spend more time -- I am

15 repeating myself -- on Mr. Browder, we're not going to get

16 anywhere.

17 MR. CYMROT: I hear you, your Honor, and we'll follow

18 that lead. Can we keep the subpoena in place so that you have

19 jurisdiction over him so that if we can't get it from the

20 government, we get it from Mr. Browder because the story in the

21 complaint is his story?

22 THE COURT: I think it is a good thought. Keep the

23 subpoena.

24 MR. CYMROT: Continue the return date.

25 THE COURT: I can do that. You want to have an order

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1 that the return date is adjourned on anything further, I will

2 be glad to sign that order. We now have a trial date of

3 October 5. I think probably it's not possible to keep that

4 because there is a lot of work to be done. Let's get going on

5 the other work, other discovery. If there is a need for

6 knowing what the basis of the government's claim is

7 interrogatories could be asked of the government.

8 MR. CYMROT: We have taken a 30(b)(6) deposition so we

9 have what they say.

10 THE COURT: Who was deposed?

11 MR. CYMROT: The government designated Agent Hyman,

12 their chief agent as the deponent and we took his deposition.

13 THE COURT: Was that productive?

14 MR. CYMROT: Well, it's not completed. Was it

15 productive, well, the way we got to Mr. Browder was Mr. Hyman

16 said this case is based upon information provided by

17 Mr. Browder and his staff and nothing else -- very little else.

18 I don't want to overstate it.

19 THE COURT: You are talking about the deposition you

20 took of who?

21 MR. CYMROT: Agent Todd Hyman who is the chief

22 Homeland Security agent in charge of the case.

23 THE COURT: How do you spell it.

24 MR. CYMROT: H-y-m-a-n.

25 THE COURT: Agent Hyman.

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1 MR. CYMROT: Yes.

2 THE COURT: You took his deposition?

3 MR. CYMROT: Yes.

4 THE COURT: Well, he should know what the basis for

5 the case is. Did he testify to that?

6 MR. CYMROT: He did. He said it was Mr. Browder and

7 his staff and his documents which is why we spent so much time

8 on Mr. Browder because Agent Hyman pointed to Mr. Browder as

9 the source of the information.

10 THE COURT: If Mr. Hyman answered the relevant

11 questions in that way, that was certainly an inadequate answer.

12 What did he learn from Mr. Browder that he used to bring to

13 this case, did you ask him that?

14 MR. CYMROT: Yes, your Honor.

15 THE COURT: What did he say?

16 MR. CYMROT: You have got some documents and this was

17 among it. The document I pointed you to was among the

18 documents that we didn't have at the time of Agent Hyman's

19 deposition. We've gotten it since, but this is what the

20 tracing was based upon. So Agent Hyman said that he would have

21 done a more comprehensive job. The tracing was done by

22 Mr. Browder and his staff. They would not disclose the source

23 of the information, but they filed a complaint on that basis

24 anyway. This is why we're going after Mr. Browder because

25 after that kind of testimony what choice do we have?

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1 THE COURT: The choice you have is to require the

2 government to say what it learned and what it made use of in

3 filing this case. The government filed the case. Mr. Browder

4 didn't file the case.

5 MR. CYMROT: We asked them for interrogatories. We

6 propounded interrogatories and got responses also.

7 THE COURT: What were the responses? What

8 interrogatories did you propound?

9 MR. CYMROT: I can hand them up. If you look at

10 Interrogatory No. 1, it is Mr. Browder who is going to testify

11 to many things in the complaint. Mr. Kleiner is one of

12 Mr. Browder's employees. We're talk about other agents of

13 Hermitage. These are who the witnesses are. They are claiming

14 privilege. So we didn't get a lot of substantive information

15 other than go to Mr. Browder because he is going to testify to

16 all these things and then he couldn't testify to all of these

17 things. That is why these documents become so important, but I

18 heard you on the documents.

19 THE COURT: Look, am I correct or incorrect that you

20 are seeking to find out the specifics of what government claims

21 and the basis for the claims; isn't that right?

22 MR. CYMROT: That's correct.

23 THE COURT: Your client is being sued for

24 participating in money laundering; right?

25 MR. CYMROT: Correct.

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1 THE COURT: And you want to find out what is the basis

2 for that claim and what the evidence is in support of the

3 claim; right?

4 MR. CYMROT: Correct.

5 THE COURT: Well, I am telling you and I am telling

6 the government you go to the government and if the government

7 says, We'll see Mr. Browder, you better come back to me and I

8 will say think again. Spent enough time and effort on

9 Mr. Browder. If there are some things about the case that

10 you're entitled to know in the way of specifics or the basis of

11 the claims, get it from the government. The government. If

12 the government gives you a problem, then obviously I will take

13 care of that hearing both sides. That is where to go now.

14 MR. CYMROT: Can I ask you, your Honor, I understand

15 you are going away for some time so how should we handle it

16 while you're gone? Should we submit it to you in normal cause?

17 THE COURT: Submit it to my office. I am sure there

18 is not going to be something constant.

19 MR. CYMROT: We'll do that then, your Honor.

20 THE COURT: What other discovery? Mr. Browder is

21 being put aside. What other discovery are you going to seek?

22 MR. CYMROT: You signed the protective order and

23 resolved that issue so the parties can now exchange documents.

24 We'll probably finish Mr. Hyman's deposition. I don't know who

25 else from the government they are going to call as witnesses.

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1 These witnesses are outside the United States, the ones that

2 are listed in the interrogatory answers.

3 MR. KIM: Judge, Michael Kim for Mr. Browder. Since

4 we're not a party here, may we be excused?

5 THE COURT: Of course you may.

6 MR. KIM: Thank you.

7 MR. CYMROT: Your Honor, there are a couple of issues

8 that maybe we can discuss how they get resolved.

9 THE COURT: Okay.

10 MR. CYMROT: The government noticed a deposition of

11 Dennis Katsyv who is the owner of Prevezon Holdings and these

12 others companies, but they won't give him a visa to come into

13 the United States to defend this case. So we couldn't appear

14 for his deposition. I don't know how we resolve that. The

15 other thing is the government has sent Mutual Legal Assistance

16 Treaties requests to at least three countries I believe and two

17 that I know of for sure and they will not give us copies of

18 those. That's evidence they have that we ought to be entitled

19 to in a civil case. So we would like to tee those up to be

20 resolved because the government is saying we cannot have them.

21 THE COURT: What does the government say?

22 MR. MONTELEONI: Thank you, your Honor. The

23 government has told Mr. Cymrot in writing in an e-mail that was

24 submitted to the Court the last time Mr. Cymrot claimed that we

25 were preventing Dennis Katsyv from entering the United States,

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1 that when a deposition date for Mr. Katsyv was set, we would

2 parole him into the United States and give him letters of safe

3 passage. That issue is not a dispute. I don't know why

4 Mr. Cymrot claims that it is.

5 With respect to the MLAT requests, we've made various

6 requests.

7 THE COURT: What kind of requests are you talking

8 about?

9 MR. MONTELEONI: Well, we have treaties and

10 relationships with various governments that under which they

11 provide information both for criminal and for civil

12 investigations. We have received some information from various

13 governments and we will produce it to the defendants in

14 discovery.

15 THE COURT: Will what?

16 MR. MONTELEONI: We will produce the information that

17 we received from the governments, that is the evidence, we'll

18 produce that to defendants in discovery. Our correspondence

19 with the governments is not evidence of anything. Those are

20 confidential communications from one government to another.

21 The evidence that we've gotten, we will produce in discovery,

22 which we will undertake.

23 THE COURT: Good.

24 MR. CYMROT: Can I speak to that, your Honor?

25 The government of the United States used a criminal

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1 treaty to go to the Netherlands to enjoin property of Prevezon

2 Holdings. They will not give us that.

3 THE COURT: Say that again.

4 MR. CYMROT: Yes. They went to the Netherlands and

5 they asked the Netherlands government to go to a Dutch court

6 and get an injunction that duplicates the injunction that you

7 entered, the protective order that you entered. So there is

8 property that is enjoined in Holland that duplicates property

9 that is enjoyed here. Duplicates in value. We asked them to

10 give us a copy of that request because that treaty is strictly

11 criminal and they will not give it to us. That we ought to

12 have because we ought to know what they are saying to the Dutch

13 that duplicates. The property cannot be in Holland and also in

14 the United States. We filed motions on this. The property is

15 in Holland. It shouldn't be enjoined in the United States.

16 There is no case here. We ought to see what the government is

17 saying about that because they cannot have a case there and

18 have a case here. It is inconsistent.

19 We have been saying all along that the money went from

20 Switzerland, the alleged tainted money went from Switzerland

21 into shares of stock in Holland. The government after they got

22 an order from you enjoining property here went over there and

23 enjoined the same value of property over there. So there is €3

24 million that is frozen over there and you have frozen something

25 in the nature of $10 million over here. It duplicates. There

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1 is only $1.9 million of allegedly tainted money. So either

2 there is jurisdiction over there or jurisdiction over here. We

3 should be entitled to see what they are saying to the Holland

4 and what Holland has responded.

5 THE COURT: Really I don't understand what you are

6 saying.

7 MR. CYMROT: All right.

8 MR. MOSCOW: Your Honor, John Moscow.

9 THE COURT: The microphone will not pick you up. Keep

10 seated.

11 THE DEPUTY CLERK: Remain seated and bend the

12 microphone towards you.

13 MR. MOSCOW: Your Honor, the problem in Holland as

14 opposed to other countries is that the treaty is exclusively

15 criminal and the application for use of evidence in a civil

16 case. We're sort of very much interested in knowing what the

17 government said to the government of Holland about that and how

18 they say that there is money due in Holland given your order

19 here. The question of the use of the treaty and the reason why

20 we want more than the evidence, we want to know what was said,

21 is precisely because it is a criminal treaty.

22 There is a treaty with Russia that does permit for an

23 application of evidence in connection with forfeiture, though

24 it may be criminal forfeiture that was in mind rather than

25 civil. There are treaties with other countries. They each

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1 have different language and I have not seen any nation's treaty

2 that the government said has gone to that nation that permits

3 the transmission of evidence in a civil forfeiture case. I

4 have read the treaties, I have studied them, I have worked with

5 them in the past and I just don't see it.

6 So we have evidence being gathered by one apparent

7 misuse of the treaty process in the name of the United States

8 to gather evidence in a civil case by telling the foreign

9 country that it is criminal. That is disturbing to the extent

10 that we wanted to know what was gathered and the government

11 says we will not tell you. There are answers that are given to

12 questions that are asked which may not themselves be evidence.

13 The answers hypothetically dealing with the validity of the

14 government's claim are themselves evidence and yet are not

15 being produced because the government says we don't have to

16 produce our correspondence with foreign countries. I think

17 they are using it both as a shield and a sword. They are

18 allowed to misstate what they are doing and keep it secret

19 because it is diplomatic. That is a problem I have with these

20 multiple MLAT requests.

21 THE COURT: With the what?

22 MR. MOSCOW: Multiple Mutual Legal Assistance Treaty

23 requests. We're told at least of requests in Holland, in

24 Russia, and in Abu Dhabi, United Arab Emirates.

25 THE COURT: What is the last country?

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1 MR. MOSCOW: United Arab Emirates. There are

2 supposedly records of relevance from the complaint in Dubai,

3 which is one of those emirates.

4 If the government, for example, asks the Dutch to

5 freeze property but does not ask them to gather evidence and

6 then comes and misstates the purpose of the flow of funds,

7 which they could have gathered had they sought evidence, that

8 is an aspect of the case.

9 THE COURT: I am going to interrupt you.

10 MR. MOSCOW: Yes.

11 THE COURT: We started this hearing at least as far as

12 any statement of mine is concerned with the idea that we would

13 at least for the time being spend no more time or effort and

14 have no more direction from the Court as to Mr. Browder. The

15 idea was that the Court assumes there is other discovery that

16 needs to go on before the case is tried. I am told that a

17 government employee by the name of Hyman -- do I have it right?

18 MR. MOSCOW: Yes.

19 THE COURT: -- was deposed and now I want to go back

20 to Mr. Cymrot.

21 MR. CYMROT: Yes, your Honor.

22 THE COURT: Is there other discovery that you believe

23 you should have either something further with Mr. Hyman or

24 other forms of discovery?

25 MR. CYMROT: Yes, your Honor. We need to finish

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1 Mr. Hyman's deposition because he had childcare

2 responsibilities so we didn't finish. We have to do that. We

3 need documents from the government.

4 THE COURT: You need?

5 MR. CYMROT: First we need documents.

6 THE COURT: Has there been a request for production of

7 documents addressed to the government?

8 MR. CYMROT: Yes, your Honor.

9 THE COURT: Has the government responded?

10 MR. CYMROT: Yes, your Honor. Then we had the issue

11 of confidentiality which you've now resolved.

12 THE COURT: I want to back up a bit.

13 MR. CYMROT: Yes.

14 THE COURT: You've addressed a document request to the

15 government; right?

16 MR. CYMROT: Yes.

17 THE COURT: And I am going to ask you again, though

18 you probably answered, has the government responded to that

19 document request?

20 MR. CYMROT: Well, they responded in a pleading that

21 set forth objections. They have not yet given us documents.

22 THE COURT: They haven't produced documents. What

23 have they done?

24 MR. CYMROT: Well, we had this dispute about the

25 confidentiality agreement, which you recently resolved so we're

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1 now at the stage where we can exchange documents.

2 THE COURT: Very good. Document requests you believe

3 can now go forward but it has not been accomplished yet; right?

4 MR. CYMROT: That correct.

5 THE COURT: So there will be documents produced you

6 assume?

7 MR. CYMROT: Yes.

8 THE COURT: Now, are you contemplating any other

9 discovery before the trial of this case besides what we have

10 mentioned?

11 MR. CYMROT: Yes, your Honor. We have to finish

12 Mr. Hyman's deposition.

13 THE COURT: You've already talked about that.

14 MR. CYMROT: Unfortunately the witnesses they list in

15 response to interrogatories are not within the jurisdiction so

16 we're going to have to try to resolve whose actually showing up

17 at trial and how we get those depositions.

18 THE COURT: Wait a minute. You mentioned

19 interrogatories. Have you addressed interrogatories to the

20 government?

21 MR. CYMROT: Yes. That's what I handed up and this is

22 the response.

23 THE COURT: Just a minute, please.

24 Let's talk about interrogatories. The complaint has

25 been amended and I don't have in my memory the date of that,

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1 but I assume that you are considering whether it is necessary

2 to serve further interrogatories in view of the amendment of

3 the complaint. I don't know whether that is necessary or not.

4 I want to mention it so if it needs to get done, it will get

5 done and we won't wake up four months later with something that

6 needs to be done that should have been done now. I want to

7 just say on the subject of interrogatories if it is necessary

8 to review the interrogatories, review the answers to

9 interrogatories and determine whether there is any need for

10 further interrogatories or further answers in view of any

11 circumstances such as the amendment of the complaint. Please

12 do it promptly.

13 Do you understand me?

14 MR. CYMROT: Yes, your Honor.

15 THE COURT: Now, that is interrogatories. As far as

16 document requests, the same thing. I don't know what has

17 happened about document requests and I don't want to go over

18 the details of that at all, but again make sure you consider

19 whether the document requests that you have made are sufficient

20 and consider whether there is a need for any further document

21 requests in view of amended pleadings or for any other reason

22 and let's do that promptly so we don't wake up the day before

23 trial and realize something hasn't been done. So that covers

24 interrogatories and document requests.

25 Apparently this deposition of Mr. Hyman was not

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1 completed. You'll of course want to complete that; right?

2 MR. CYMROT: Yes, your Honor.

3 THE COURT: Now, are there any other depositions that

4 the defendant wishes to take?

5 MR. CYMROT: Well, your Honor, I think we're now close

6 enough to trial that the government ought to be able to tell us

7 who their witnesses are because at this point what we have is a

8 list here of foreign persons who may or may not be witnesses

9 and we have no idea how they are going to get bank records into

10 evidence. That is the critical issue in the case.

11 THE COURT: What list is that?

12 MR. CYMROT: This answer to interrogatory basically

13 we're look for witnesses and the first response is William

14 Browder. The second one is Vadim Kleiner, who is an associate

15 of Mr. Browder. There are some other people listed here

16 without addresses and appear to be foreign persons and there

17 are no other specifics. I think at this point the government

18 ought to able to tell us who their witnesses are and the

19 critical witness is who is going to put in records to trace the

20 money from the Russian treasury allegedly into the Prevezon

21 holding account. We need to know what witness or witnesses is

22 going to do that. If you look at No. 4 in their answer, there

23 is a list of people. It says, Current addresses unknown.

24 Well, how are we supposed to take those depositions?

25 THE COURT: Are you talking about the answers?

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1 MR. CYMROT: Yes. On page 5 there is a No. 4. This

2 is a list of four people. It says, We want to know where they

3 are. We don't even know who they are. It says, Current

4 addresses unknown. How can we take those depositions?

5 THE COURT: Just a minute.

6 MR. CYMROT: Yes.

7 THE COURT: As everyone in this room knows this is not

8 a routine case, but it is a case that the government has

9 brought and it makes what is on the face of it a very serious

10 claim that the defendant participated in money laundering.

11 That is to say the least something that would present any

12 defendant with some difficulty.

13 My view at this point is as follows: The government

14 needs to disclose to the defense everything it knows about its

15 case. Everything. In other words, the evidence at trial, the

16 evidence which the government will introduce at trial is to

17 disclose now or very promptly. There is no other way for the

18 defense to defend in my view. So witnesses that the government

19 intends to call, even people that the government doesn't intend

20 to call who the government believes has information relevant to

21 the case must be disclosed. The substance of what the

22 government intends to prove must be disclosed. Obviously we're

23 not going to have a trial conducted on paper and that is not

24 what I am talking about. I am talking about the substance of

25 what the government intends to prove must be disclosed. Not

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1 every detail, not every word of the potential testimony but the

2 substance. What is that the government is going to claim at

3 the trial, that has to be disclosed and disclosed promptly.

4 As far as further discovery, if the government

5 discloses what I have said had to be disclosed promptly, then

6 obviously the defense will have to decide what depositions,

7 what further discovery it needs, including depositions. Now,

8 it may be that there are people who might be potential

9 witnesses but whose depositions cannot be obtained because they

10 are in foreign countries or there may be circumstances. So the

11 government can't do the impossible and there may be some gaps

12 in what the defense is able to do if they would like to do.

13 Maybe there is nothing that can be done about that.

14 I want to leave everybody this afternoon with those

15 directions and what the essence is to get the defense fully

16 informed of what the government intends to prove at the trial

17 by whom.

18 MR. CYMROT: Your Honor, can we submit a written order

19 for your signature to that effect?

20 THE COURT: Sure. Let's adjourn this. Thank you.

21 MR. CYMROT: Thank you, your Honor.

22 MS. GRAHAM: Thank you, your Honor.

23 o0o

24

25

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1 UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x

3 UNITED STATES OF AMERICA,

4 Plaintiff,

5 v. 13 CV 6326 (TPG)

6 PREVEZON HOLDINGS, LTD., ET

AL.,
7
Defendants.
8
------------------------------x
9 New York, N.Y.
August 13, 2015
10 2:34 p.m.

11 Before:

12 HON. THOMAS P. GRIESA,

13 District Judge

14 APPEARANCES

15 U.S. ATTORNEY'S OFFICE

Attorneys for Plaintiff
16 BY: MARGARET GRAHAM
ANDREW ADAMS
17 JAIME NAWADAY

18 BAKER & HOSTETLER LLP

Attorneys for Prevezon Defendants
19 BY: MARK CYMROT
LOURA ALAVERDI
20 JOHN W. MOSCOW

21 BAKER BOTTS, LLP

Attorney for Prevezon Defendants
22 BY: SETH T. TAUBE

23

24

25

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1 (In open court)

2 (Case called)

3 THE COURT: Sit down, please. Sit down. There has

4 been correspondence of substance, and I wanted to start with

5 some comments on that correspondence. Of course, I want to

6 hear from the lawyers, but let me start because I have received

7 these written materials.

8 The government set or recommended a schedule. This

9 was attached to their letter of July 27, and it is a somewhat

10 detailed schedule. You've all seen it. It has, among other

11 things, after a number of other items, it has expert

12 depositions to be completed by January 29, 2016, and then it

13 contemplates that there will be motions for summary judgement,

14 or partial summary judgement, that would be filed and briefed

15 by February 29, and then trial would be scheduled after the

16 motions for summary judgement are decided, which means that the

17 trial would go into the spring of next year.

18 Now, the defense, in a letter dated July 29, requests

19 a more expedited schedule and the details are not listed, and

20 they don't need to be, but the request is that all document

21 discovery should be completed by August 7. Well, August 7 has

22 passed, but basically the request is a much more expeditious

23 handling than what the government proposes. The request in the

24 defense letter is to have depositions in August, and then

25 there's a recommendation that there be a discovery cutoff of

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1 September 15th.

2 Now, the crucial thing on the timing is the trial

3 date. Although motions for summary judgement are discussed,

4 and there may be motions and I don't know how they will be

5 ruled on, but I've got to contemplate, at this point, a trial.

6 Now, currently, there's a trial date set for October 5. It

7 seems to me, subject to comments from any of you here, that

8 that is now unreasonable, but I do not think it is fair to the

9 defense to talk about a trial date going on into next spring.

10 Consequently, I would like to set a trial date, subject to your

11 comments, but the trial date I propose is December 7.

12 Now, some other dates that I would propose, subject to

13 your comment, are the following: document discovery to be

14 completed by September 15; all discovery, including expert

15 discovery, fact discovery, completed by October 15. That would

16 allow any motions that people have a right to make to be made

17 and completed before the trial date I set.

18 So that is the schedule that I am setting, and, of

19 course, I would welcome any comments that any of you have. I

20 should note that I have a motion to modify or vacate the

21 protective order, but that's not been fully briefed, and I'm

22 not going to try to hear argument on that or make any ruling on

23 that today. So I'd be glad to hear any comments and have you

24 bring up anything else that you wish to bring up.

25 MS. GRAHAM: Yes, your Honor. Thank you. Margaret

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1 Graham on behalf of the government. I should note first that

2 Mr. Monteleoni very much wished to be here. He is, of course,

3 the attorney who is normally speaking at these conferences, but

4 he is currently in the hospital with his wife, who just gave

5 birth to their first child.

6 THE COURT: Well, convey our congratulations.

7 MS. GRAHAM: Thank you, your Honor. So he does send

8 his regrets.

9 THE COURT: I think that's a good reason to have you

10 here. All right.

11 MS. GRAHAM: Thank you, your Honor. I will convey

12 those to Mr. Monteleoni.

13 Your Honor, we agree that a trial cannot happen on

14 October 5th, and are entirely in agreement with that. Just to

15 briefly detail what has already happened with discovery, in the

16 hope that that will be helpful to your Honor. Joint discovery

17 in this case began on June 15th for various reasons, which I'm

18 happy to get into.

19 Since then, the government has produced 179,836 pages

20 of discovery, along with a 12-page summary of its anticipated

21 proof at trial at that time, in an effort to be helpful, which

22 was, of course, not required by the Federal Rules of Civil

23 Procedure. By contrast, the Prevezon defendants have produced

24 only 18,927 pages of discovery, 9,000 of which were produced

25 only last night at 5:00 p.m.

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1 Defendants Ferencoi and Kolevins, of course, have not

2 produced any discovery because there was a stay pending the

3 decision of the motion to dismiss. Of course, now we expect

4 them to promptly begin producing discovery.

5 There are numerous important deficiencies in the

6 defendants' document productions, which I'm happy to get into,

7 but I think that the key is where we stand today. Where we

8 stand today is the defendants have not yet answered the

9 complaint or asserted any affirmative defenses. After which

10 there, of course, may be need for further discovery and further

11 requests by the government, depending on their answer and the

12 affirmative defenses that they assert.

13 Of course, as your Honor knows, we need to conclude

14 document discovery, including any motions to compel, that might

15 be necessary. After that's over, we need to take at least 19

16 depositions, possibly more, depending on their answers and

17 affirmative defenses that they assert. And then, of course,

18 the experts will need the complete document discovery to

19 finalize their reports and the experts will also need to be

20 deposed.

21 And then, as your Honor noted, once discovery is

22 complete, we need time to brief the summary judgement motions.

23 We certainly intend to move for partial summary judgement,

24 potentially full depending on how the --

25 THE COURT: Let me interrupt you.

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1 MS. GRAHAM: Yes, your Honor.

2 THE COURT: I don't know who the 19 people to be

3 deposed are, but that's a lot of depositions, and what is a

4 good idea is to start with the most important and it may end up

5 that you only need two or three. But to sit here today and say

6 a schedule will involve 19 depositions taken by the government,

7 no.

8 MS. GRAHAM: I apologize, your Honor, that's by both

9 sides.

10 THE COURT: Well, all right. But that's still a lot

11 of depositions, and it will shake out. Depositions are

12 expensive, and if the parties take the most important ones, it

13 may be they don't have to go all the way with all those others.

14 That can shake out.

15 What I'm getting at is that -- and I'm interrupting

16 you, and I want to go back to you, but it is very important, in

17 fairness to the defense, to have as prompt a trial as possible,

18 and that's what we're going to do. You go ahead.

19 MS. GRAHAM: Absolutely, your Honor, and I welcome

20 your interruptions, of course. Your Honor, we are interested

21 in as prompt a trial as is possible. The defense, on the one

22 hand, has been claiming that they want an immediate trial, but

23 on the other hand, they are the ones who are not producing

24 document discovery, who are not telling us when they will be

25 able to conclude producing document discovery, who are not

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1 setting forth meaningful schedules that allow for both parties.

2 Essentially, they've been demanding discovery from the

3 government. They've been trying to notice all of the

4 government's witnesses for deposition, or at least nine of

5 them, without producing their own document discovery. And so I

6 think the fairness point that the defendants are pressing is

7 perhaps a bit unfair, given their actions, which have, in fact,

8 delayed discovery beginning until June 15th.

9 We only began discovery two months ago, and of course,

10 the government's only interest is in having sufficient time to

11 take adequate discovery because, of course, both parties in a

12 civil trial have the right to sufficient discovery from the

13 other side. And so really our only concern is to have adequate

14 time, and to proceed, as your Honor said, as quickly as is

15 possible to trial.

16 So given that, we think that a bit more of an

17 extended -- we're fine with document discovery by

18 September 15th. That would, of course, be joint document

19 discovery. However, we do think that there will be more time

20 needed for the depositions, and then I wasn't sure what timing

21 your Honor had in mind for motions for summary judgement. That

22 will, of course, require several weeks to brief, two weeks to

23 respond, a week to reply, and then time to decide it.

24 So given all that, we are concerned that the

25 December 7th trial deadline is tight. We're also concerned

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1 because we believe that we may need motions to compel certain

2 discovery productions from the defendants, and so we wanted to

3 make sure that there was time for all of that in the schedule

4 because we would hate to move the trial date yet again. Our

5 focus is really on a realistic trial date moving forward, your

6 Honor.

7 THE COURT: All right. Let's hear from the defense.

8 MR. CYMROT: I'm going to move to the podium, your

9 Honor.

10 THE COURT: Of course.

11 MR. CYMROT: Your Honor, the case is about to be two

12 years old. We were prepared to go to trial on October 5, and

13 we were taking discovery to do that. We noticed the

14 government's depositions, their witnesses, and they just

15 defaulted on the notice and said they would be available in a

16 couple of months. In 40 years I've never had somebody just

17 default on a notice and not come to the Court and ask for a

18 protective order. It was extraordinary.

19 THE COURT: Well, let me say this to you. If

20 depositions were dually noticed and the government was supposed

21 to attend those depositions and didn't -- is that what you say

22 happened?

23 MR. CYMROT: Exactly.

24 THE COURT: All right. It was open to you to

25 immediately come to court and get an order because no one has a

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1 right to simply, without agreement or without a court order, no

2 one has a right to fail to attend the deposition that has been

3 dually noticed. If that occurred, you had a right to come to

4 court, and I would have given you a remedy.

5 Now, are there still depositions that are noticed, and

6 is there still reason to believe that the government won't

7 attend, or has there been agreement on the schedule?

8 MR. CYMROT: There has not been an agreement on the

9 schedule, and the government has not been willing to produce

10 their witnesses. So we will re-notice them. We wrote you a

11 letter under the local rule, but I suppose we could have come

12 in with an order to show cause. I think you were away at the

13 time, but we did write you a letter about this.

14 THE COURT: Okay. Well --

15 MR. CYMROT: I would --

16 THE COURT: I've been away from court. Anyway, let's

17 just focus on the present.

18 MR. CYMROT: Yes, exactly. So the government says

19 that we haven't produced documents. Actually, we've produced

20 most of our documents. They say 18,000 documents. Seems like

21 a small number for them, but we're talking about a holding

22 company that held eight properties. How many documents can

23 there be?

24 We have another production to make next week, and

25 there may be some odd documents here and there. We're trying

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1 to get documents from third parties, but there are not huge

2 numbers of additional documents for the defense to produce.

3 We want to go ahead with the government's depositions.

4 They have been taking discovery through criminal process for a

5 year to a year and a half with grand jury subpoenas and MLAT

6 treaty requests. So to say that discovery started on June 15th

7 is really disingenuous. We haven't had discovery because we

8 can't use criminal process or MLAT requests, but they've been

9 doing it for 18 months, at least a year.

10 We, as you say, want an early trial date. There's

11 been an injunction in place for two years now, and we're

12 entitled to an early trial date. As you said, we agree with

13 that. You know, given where we are, your schedule is perfectly

14 fine with us.

15 We don't think the government should be permitted --

16 and this is one thing I would ask you to say -- to tell us what

17 order we have to take discovery in. That's what they said.

18 They said that we hadn't produced documents; therefore, they

19 weren't producing their witnesses. Well, that's largely behind

20 us, but we may not be entirely completed, but we're entitled to

21 take their witness depositions, and we would like to do that at

22 a fairly early time so that we know if there's anything else

23 that we need to do to prove the case.

24 Their case keeps changing. They keep changing

25 theories. You ordered them on May 29th to tell us what their

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1 theories are. They wrote us a letter, but even since then, on

2 the motion to vacate, now they have new theories. We want to

3 tie them down with depositions and with interrogatories so that

4 we know what case we're defending. We'd like to do that early

5 on so we would just ask that they not be permitted to set

6 preconditions to us noticing depositions of their witnesses.

7 Beyond that, I would ask --

8 THE COURT: I don't understand.

9 MR. CYMROT: They said we're not producing witnesses

10 because you haven't given us your documents yet, and then they

11 defaulted on the notice. We wrote you a letter. So they

12 shouldn't be able to tell us what order we can take discovery.

13 THE COURT: Let's start with the present.

14 MR. CYMROT: Yes.

15 THE COURT: Have you noticed depositions?

16 MR. CYMROT: Yes.

17 THE COURT: Then all parties must attend, unless they

18 get excused by an agreement or by order of the Court. That

19 will be the format from now on.

20 MR. CYMROT: Thank you.

21 THE COURT: Summer is over. Vacations are over.

22 We're back.

23 MR. CYMROT: Okay.

24 THE COURT: At least my vacation is over.

25 MR. CYMROT: Mine's about to begin, but that's not

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1 going to interfere with this.

2 THE COURT: It will not. But we will not talk about

3 vacations.

4 MR. CYMROT: It's too painful a subject.

5 THE COURT: But the point is that I will not put up --

6 if this happened, I will not put up with further failure to

7 attend depositions that have been properly noticed, and if I

8 received a letter from you and didn't respond with a remedy, I

9 apologize, but let's start with the present.

10 MR. CYMROT: Okay. So we have an answer due and

11 interrogatory answers due, and we would ask that you set the

12 time for that next Friday, a week from tomorrow, for our

13 answer. You just ruled on the motions to dismiss.

14 THE COURT: I know. That's fine.

15 MR. CYMROT: So next Friday for interrogatories also.

16 THE COURT: Now, next Friday for what again?

17 MR. CYMROT: The answer to the complaint and answers

18 to the government's interrogatories.

19 THE COURT: All right. Next Friday being? What's the

20 date?

21 THE DEPUTY CLERK: 21st, your Honor.

22 MR. CYMROT: 21st.

23 THE COURT: 21st, that's the due date for that. Very

24 good.

25 MR. CYMROT: All right. I think that takes care of

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1 the present. Let me just --

2 (Pause)

3 Sorry, your Honor. There is one issue that you might

4 be able to resolve. The government has said they're only

5 producing documents from the U.S. Attorney's Office in

6 Manhattan and from Homeland Security. Well, clearly, with this

7 scheme, there are documents in other locations in the

8 government, even the Justice Department. Mr. Browder has

9 visited the White House and the Treasury Department. There are

10 other departments, the FBI and Treasury and State and the

11 executive office, all should have relevant documents to the

12 scheme because they either investigated or Mr. Browder visited

13 them and made representations about this scheme.

14 So we would like you to broaden their discovery beyond

15 the Manhattan U.S. Attorney's Office and Homeland Security,

16 which is the one agency that investigated with Manhattan U.S.

17 Attorney.

18 THE COURT: Has Browder's deposition been taken?

19 MR. CYMROT: Yes, your Honor. It hasn't been

20 completed. If you recall, you retained jurisdiction over him,

21 and you told us that we had to wait for the government to

22 produce first. We may come back to you about that at a later

23 point in time because we're not getting from the government

24 everything that Mr. Browder should have, but we haven't

25 presented that to you yet.

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1 The situation now is you have jurisdiction over him,

2 and you've told us to finish our -- to go to the government

3 first, which we are doing.

4 THE COURT: I'd like to get an idea of what you feel

5 are relevant documents in this case. Obviously, it's not a

6 lawsuit on a registration statement.

7 MR. CYMROT: Yes.

8 THE COURT: It's not a lawsuit about an investment in

9 the ordinary sense. What do you believe are the kind of

10 documents that exist and that you should be getting?

11 MR. CYMROT: Yes. Yes, your Honor. There is, as

12 we've said, the big fraud scheme allegedly from the Russian

13 treasury, and the complaint tells a version of that story that

14 supposedly, according to the government, comes directly from

15 Mr. Browder. So in his deposition, I think there were parts of

16 that story that didn't hold up. The government I don't think

17 will have those documents and Mr. Browder does.

18 There should be documents that contradict his story,

19 and I could be more specific in a letter, but it's difficult

20 right now. But there is a couple of things that really go to

21 the heart of the case. The government says their specified

22 unlawful activity is fraud on a foreign bank, which in this

23 case is HSBC, as trustee for certain Hermitage companies.

24 Hermitage is Browder's companies, and we've gotten nothing on

25 that.

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1 There doesn't appear to have been any fraud on HSBC as

2 a trustee. They were only a trustee for a trust, but the whole

3 structure -- we've asked them for the structure, documents

4 relating to the structure of what HSBC was doing in this trust

5 and how Hermitage organized itself. We haven't gotten anything

6 on that. How could we defend against fraud on a foreign bank

7 if we don't have those documents? That's one category I know

8 we haven't gotten things.

9 There are other parts of this. For instance, the big

10 tracing from the Russian treasury --

11 THE COURT: Can I interrupt you?

12 MR. CYMROT: Yes.

13 THE COURT: Has there been anything between you and

14 the government which really defines the issues? Obviously, if

15 you start at the very outset what is claimed and what is really

16 in the complaint, you get into this problem with the Russian

17 government and funds of the Russian government and so forth and

18 so on.

19 I have serious questions of whether all of that is

20 relevant to Prevezon, and it seems to me that this is not a

21 case in which the Russian government is a defendant, or it's

22 not a case in which various other people who may have been

23 involved in the Russian government entities and so forth.

24 That's not this case. This case is about Prevezon, and it's

25 not going to do the government any good, the Court any good, or

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1 Prevezon any good, unless the issues are reasonably defined and

2 don't get into history, which is of interest, but not relevant

3 to Prevezon.

4 MR. CYMROT: I'll tell you --

5 THE COURT: What are the issues here about Prevezon?

6 MR. CYMROT: All right. There is issue -- principal

7 issue is, did it receive any money allegedly stolen from the

8 Russian treasury. The government claims $1.96 million. So

9 they have to trace that through more than a hundred different

10 transactions, according to them. That's one thing.

11 THE COURT: Wait a minute. Wait a minute. You're

12 going a little fast for me.

13 MR. CYMROT: Yes. If Prevezon didn't received the

14 proceeds of the theft, then the case ends right there. Right?

15 And the theft alleged is from the Russian treasury; so --

16 THE COURT: Well, what's the evidence pro and con what

17 you're talking about?

18 MR. CYMROT: All right. The government traces,

19 allegedly, through Russian banks and Moldovan banks, into a

20 Swiss bank, through more than a hundred transactions. They say

21 they can use accounting assumptions and show that $1.96 million

22 ended up in Prevezon's account in Zurich. A very complex

23 analysis.

24 We don't think they have admissible evidence, and we

25 don't think you can use accounting assumptions, and we don't

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1 think any accounting assumption will result in any proceeds of

2 a theft ending up in Prevezon's account in Zurich. That's

3 No. 1.

4 THE COURT: Now, wait a minute. Wait a minute.

5 MR. CYMROT: Sure.

6 THE COURT: Just give me a minute.

7 MR. CYMROT: Okay.

8 THE COURT: Where is my decision? I guess I've got it

9 here. I've got it here. Just a minute, please.

10 MR. CYMROT: Sure.

11 (Pause)

12 THE COURT: Look, I'm going to interrupt what we're

13 all talking about and say, of course, we're not trying the case

14 today, and we certainly won't go any farther in that direction,

15 if we even started. It seems to me that in the pretrial, which

16 will occur before the trial date we've set, it seems to me

17 legitimate to have a reasonable approach to the issues.

18 Prevezon is not being charged, as I understand it,

19 with taking the money from the Russian government. Although,

20 everybody seems to concede that money was taken. Prevezon is

21 charged with laundering. All right. It's a reasonably

22 specific allegation of what was involved, how much money and so

23 forth, with Prevezon claiming -- I'm talking about claimed by

24 the government.

25 Now, what I'm getting at is that in this pretrial

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1 period there should be an effort by the parties and also by the

2 Court to define the issues in this, what is undoubtedly an

3 unusual case.

4 MR. CYMROT: Your Honor, can I say something?

5 THE COURT: Please.

6 MR. CYMROT: Our case is very simple. Prevezon got

7 $1.9 million.

8 THE COURT: Say it a little louder.

9 MR. CYMROT: Yes. Prevezon got the $1.9 million --

10 the government claims it was from the Russian treasury -- from

11 an investor by the name of Leonid Petrov, invested it in

12 Holland, and then with its own --

13 THE COURT: Where did Prevezon get the money?

14 MR. CYMROT: From an investor, a retired Russian

15 businessman by the name of Leonid Petrov.

16 THE COURT: Petrov, okay.

17 MR. CYMROT: Petrov. Okay. Our case is simple. It

18 came from Mr. Petrov, and we invested his money, along with

19 some of Prevezon's own money, in real estate holding companies

20 in Holland. And then Prevezon, separately, invested its own

21 money and some of its -- other money of its owners, Mr. Katsyv,

22 in U.S. real estate, unrelated to this money, the $1.9 million,

23 except $540,000 in income from the Dutch investments, came to

24 the United States, that's it.

25 Our case is very simple. Their case is very

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1 complicated because they have to say this $1.9 million were the

2 proceeds of a fraud. They don't even have any witnesses to

3 talk about Prevezon. They have no witnesses that know anything

4 about Prevezon. So we have great sympathy for the idea it

5 ought to be simple. It's simple from our side. Their side is

6 this very complicated story that there was fraud on the Russian

7 treasury, bribery of Russian officials and fraud on a foreign

8 bank.

9 All of that is very complicated, and we say has

10 absolutely no basis, but our case is very simple. The money

11 they say came from the Russian treasury, we can identify the

12 man who gave it to us, and we gave them receipts

13 contemporaneous at the time, and that's it. So, you know, in

14 terms of our case, it's simple.

15 THE COURT: I have a memory that in the record thus

16 far there are references to certain east European countries.

17 MR. CYMROT: Yes. The government claims --

18 THE COURT: And I can't remember the names right now,

19 but you know what I'm talking about.

20 MR. CYMROT: Yes, Moldova, Latvia, Lithuania. They

21 claim this money that came from the Russian treasury came

22 through all of those countries and eventually found its way to

23 Prevezon. That's their case. It's very complicated, and we

24 say has absolutely no basis. They don't have admissible

25 evidence. They don't have a proper tracing. They can't

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1 possibly trace through all of those countries and, all of a

2 sudden, $1.9 million ends up in our accounts in Switzerland,

3 Prevezon's accounts in Switzerland. That's their case.

4 THE COURT: All right. They have their case, and

5 we're not going to try the case today, but the government

6 lawyer is standing up. What would you like to say?

7 MS. GRAHAM: Yes, your Honor. I stand up not to

8 address that.

9 THE COURT: What?

10 MS. GRAHAM: I stand up on a discovery point because I

11 know your Honor has said that we are not trying the case today,

12 and we will respect that. In our comments we believe that your

13 Honor certainly had plenty of time to consider these issues in

14 the motion to dismiss and will, of course, have time to

15 consider them in any motions for summary judgement.

16 But going to discovery today, we did want to ask your

17 Honor for one thing. We had initially planned on filing a

18 motion to compel because we had sent defense counsel a letter

19 on July 25th setting forth certain deficiencies, things that

20 they hadn't produced, and asking them to respond whether they

21 were going to produce those documents and, if so, by what date.

22 And those include things like Prevezon Holdings' own bank

23 records.

24 THE COURT: Prevezon's what?

25 MS. GRAHAM: Prevezon Holdings' own bank records.

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1 MR. CYMROT: We've produced them, your Honor.

2 MS. GRAHAM: Your Honor, they have not produced --

3 THE COURT: One at a time. One at a time.

4 MS. GRAHAM: Thank you. They have not produced their

5 accounts at Marfin Bank in Cyprus or a Swiss bank account that

6 they have. They have not produced their own tax filings, as

7 opposed to these subsidiaries, their own financial statements,

8 or really much as to the source of the money. And this is

9 based on our review thus far.

10 So we had asked them on July 25th to respond to that

11 letter, to let us know if they would be producing them. They

12 said they would, but they didn't. So rather than filing a

13 motion to compel and bothering your Honor with unnecessary

14 briefing, we would simply ask that they respond to our

15 July 25th letter within one week from today so that we can know

16 if we will need to file a motion to compel or not.

17 MR. CYMROT: Your Honor, we're producing everything

18 within our possession, custody and control. We're going to

19 third parties. For instance, there was an accountant --

20 THE COURT: A little louder.

21 MR. CYMROT: Yes. We are producing everything within

22 our possession, custody and control that's not privileged. We

23 are going to third parties. For instance, there was an

24 accountant that used to do work, who quit when you entered the

25 worldwide protective order. We're trying to get him to give us

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1 documents. I don't know whether he will or he won't, but

2 everything that our clients have that is called for and not

3 privileged will be produced. Most of it already has.

4 There will be another production next week, and there

5 may be some odds and ends after that, certainly within the

6 deadline that you've set. So that's where we stand.

7 MS. GRAHAM: Your Honor, all that we would ask is that

8 they respond to our letter within a week saying whether they're

9 going to produce them or not. That's all that I we would ask.

10 We set forth very specific documents, their own tax filings and

11 their own bank accounts. And we just want a "yes" or "no" on

12 whether they're going to produce them, and we think that that

13 would help avoid the need for unnecessary motions to compel.

14 Although, there may still be the need for them in the future.

15 MR. CYMROT: Your Honor --

16 THE COURT: Wait. I don't have the July 25th letter

17 on the bench. Can I --

18 MS. GRAHAM: Your Honor, I'm happy to pass that up.

19 That was between the parties.

20 THE COURT: Why don't you pass it up. I probably have

21 it, but it doesn't hurt to --

22 MS. GRAHAM: Your Honor, it was not filed. It was

23 simply between parties.

24 (Pause)

25 THE COURT: Well, the government raised the July 25

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1 letter, which was not filed with the Court and didn't need to

2 be, but as long as the government raised it, if there's an

3 issue about that, we may as well deal with that issue while

4 we're together this afternoon. Is there an issue, Mr. --

5 MR. CYMROT: Your Honor, I'm saying if there's

6 something on this list that we have, we'll produce it, but --

7 THE COURT: You mean the July 25 letter?

8 MR. CYMROT: Yes. For instance, they want to know

9 whether there are tax returns for Prevezon, which is a Cyprus

10 company, and I just told your Honor that the accountant quit

11 when you entered the worldwide protective order. We are

12 communicating with him. I don't know if there are any

13 obligations to file a tax return in Cyprus. If there are and

14 we can get them from him, we will do it. But that's No. 1. We

15 have produced all the tax returns of the New York entities.

16 All right? They've already been produced.

17 There are certain accounting records, No. 2, that were

18 in the hands of this accountant who quit. To the extent we

19 have any, they're either in the production or will be in the

20 production next week, but they're very limited.

21 The Marfin account we will produce, if we have any.

22 MS. GRAHAM: Your Honor?

23 MR. CYMROT: We want to produce it. It's helpful to

24 us.

25 MS. GRAHAM: Your Honor, we would simply ask that they

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1 respond to the letter. That's all we're asking, and that you

2 order --

3 MR. CYMROT: Well, we've told them the same thing over

4 and over again, but it's up to your Honor whether we have to

5 write letters or not.

6 THE COURT: You say respond to the letter. The letter

7 is a very detailed letter, and it seems to me, Mr. -- What is

8 his name?

9 MS. GRAHAM: Mr. Cymrot, your Honor.

10 MR. CYMROT: Cymrot, your Honor.

11 THE COURT: It seems to me what he is saying is they

12 will respond. They haven't completely responded. As to any

13 discovery issue, if it turns out that there is a legitimate

14 request for discovery by one party and the other party

15 allegedly hasn't responded, well, you apply to the Court, but

16 it seems to me it's -- I don't know that you're making any

17 application now. It seems to me it's premature because I think

18 what Mr. Cymrot is saying is that they intend to respond.

19 Right?

20 MR. CYMROT: Yes, your Honor.

21 THE COURT: All right. Let's leave it this way this

22 afternoon. We've set a schedule, and that's the more important

23 thing. There is, obviously, discovery that's going to take

24 place. If there are objections to how any party is responding

25 to the discovery, well, there's a court here you can apply to.

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1 What I ask is, to cut the paperwork to a minimum, is

2 to either have problems raised on a telephone conference or in

3 a conference here. I would like to avoid paperwork as much as

4 possible. And let's leave it at that for the day. All right.

5 Thank you.

6 MR. CYMROT: Thank you, your Honor.

7 THE DEPUTY CLERK: Thank you, all.

8 MR. CYMROT: Thank you, your Honor.

9 MS. GRAHAM: Thank you, Judge.

10 (Adjourned)

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18

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25

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F927PREC

1 UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x

3 UNITED STATES OF AMERICA,

4 Plaintiff,

5 v. 13 Civ. 6326 (TPG)

6 PREVEZON HOLDINGS, LTD, et al.,

7 Defendants.

8 ------------------------------x
New York, N.Y.
9 September 2, 2015
2:00 p.m.
10
Before:
11
HON. THOMAS P. GRIESA
12
District Judge
13
APPEARANCES (via telephone)
14
PREET BHARARA
15 United States Attorney for the
Southern District of New York
16 BY: PAUL MONTELEONI
JAIMIE NAWADAY
17 Assistant United States Attorneys

18 BAKER & HOSTETLER LLP

Attorney for Defendants
19 BY: JOHN MOSCOW
MARK CYMROT
20

21

22

23

24

25

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1 (In chambers)

2 DEPUTY COURT CLERK: Counsel, please identify

3 yourselves for the record, beginning with plaintiff's counsel

4 for the government.

5 MR. MONTELEONI: Good afternoon, your Honor. Paul

6 Monteleoni and Jamie Nawaday for the government.

7 MR. MOSCOW: John Moscow and Mark Cymrot for the

8 defendants, your Honor.

9 THE COURT: All right. I think you all wanted a

10 conference. What do you want to accomplish at the conference?

11 MR. MONTELEONI: Well, your Honor, consistent with the

12 instructions that your law clerk conveyed to us on Friday, we

13 have been conferring with defense counsel. We have both been

14 conferring in good faith to try and narrow and streamline the

15 issues to present the case for trial. We have been proposing

16 some stipulations for them; we are engaging on that. So, for a

17 lot of matters there aren't issues that are ripe for your

18 resolution.

19 The government has one or two issues that it believes

20 are ripe now concerning the depositions of sort of the

21 principals of the defendant companies, a deposition of one

22 witness who has unusual safety issues, and the providing of

23 additional information related to some of the defendants'

24 discovery production so far. So, that's what the government

25 thinks is ready for the court's consideration now, and we can

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1 obviously take those issues in any order you want.

2 MR. MOSCOW: Your Honor, we had written to ask for a

3 conference because we were asking the government to let us know

4 from among the 167,000 pages of documents which they say they

5 produced the range in which their witnesses will be testifying.

6 And we disagree on that. They say that since we know the name

7 of the witness and it's only 167,000 pages, they have no

8 obligation to tell us anymore. And we are trying to get this

9 done. We have noticed the depositions, but it's a whole lot

10 easier if we know generally what they are talking about.

11 THE COURT: Well, listen, what is it that you want a

12 ruling from the court on? I take it you really want some kind

13 of rulings.

14 MR. MOSCOW: Yes. I'm sorry to disturb you under

15 these circumstances, but I would ask you to direct them to give

16 us the base ranges about which they say their witnesses are

17 going to testify. They say it's be about certain websites, and

18 we're asking which ones. And we may be able it work that out,

19 but I would ask for direction that we be told which websites,

20 what pages they are talking about in foreign language websites.

21 THE COURT: Wait a minute.

22 MR. MONTELEONI: May I be heard from the government on

23 that?

24 THE COURT: Just a minute, please.

25 DEPUTY COURT CLERK: Counsel, please identify

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1 yourselves before you speak so his Honor knows who is speaking.

2 MR. MOSCOW: Yes, I apologize. That was John Moscow.

3 THE COURT: Now, look, can you just go over that

4 again? I'm trying to make notes. Of course we have a court

5 reporter here, but I'm trying to make notes.

6 Mr. Moscow, what are you asking for a ruling on?

7 MR. MOSCOW: I'm asking you to direct the government

8 to let us know the base ranges of the documents. When they say

9 a witness is going to be testifying about certain documents, we

10 would like to know generally which ones so that we can look at

11 them and be prepared to depose them. We've noticed the

12 depositions; we are trying to go forward, but that would

13 greatly simplify life.

14 THE COURT: OK. Let me see if I understand. Give me

15 just a second.

16 Mr. Moscow, let me ask you this. I take it you're

17 talking about depositions that you will be taking; is that

18 right?

19 MR. MOSCOW: Depositions of government witnesses who

20 they have told us are --

21 THE COURT: I asked a very simple question.

22 MR. MOSCOW: Yes. The answer is yes.

23 THE COURT: All right. Let me make a note.

24 Now, on depositions that you will be taking, you want

25 in advance for the government to identify what?

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1 MR. MOSCOW: The documents which they will be asking

2 the witness to put into evidence.

3 THE COURT: Well, you are the one who is taking the

4 deposition.

5 MR. MOSCOW: Yes. Let me clarify that. The

6 government has told us the names of witnesses whom they intend

7 to call at the trial; and as to some of those witnesses we have

8 agreed they will be off the witness list. As to those who will

9 be testifying on the government list, we would like to depose,

10 for example, the agents, and ask them -- rather than

11 guessing -- we would like to know which documents it is that

12 they will be putting into evidence.

13 THE COURT: In other words, you want to know what

14 documents the government intends to put into evidence through

15 that witness; is that right?

16 MR. MOSCOW: Correct.

17 THE COURT: Let me make a note. Give me just a

18 minute.

19 It seems to me that this is a reasonable request on

20 the part of the defense. In other words, they are taking the

21 deposition of, say, a particular witness. Now, the reason

22 they're taking the deposition of that particular witness is to

23 find out in discovery in advance of trial what the witness is

24 going to testify at the trial. They have a right to do that.

25 Now, apparently there is a large body of documents

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1 potentially usable at the trial, and what the defense is

2 saying, as I understand it, is this: They can't sensibly ask

3 the witness to describe the documents the government intends to

4 use through that witness; it's up to the government to provide

5 that information, and then the defense can sensibly interrogate

6 the witness about that document or those documents.

7 Now, it seems to me, if I'm understanding the defense

8 request on that particular subject, that that is a sensible

9 request. I ask Mr. Moscow, am I stating it correctly?

10 MR. MOSCOW: You have correctly understood the

11 request.

12 THE COURT: All right. Now, it seems to me that is a

13 sensible request. Is there any objection by the government?

14 MR. MONTELEONI: Paul Monteleoni for the government.

15 Yes, to an extent.

16 We think that we can accommodate the defense to an

17 extent by selecting particular documents that we think are the

18 most likely to be used. In fact, we had talked about proposing

19 stipulations to the defendants last night, that we were going

20 to send over the numbers of these documents where there might

21 not even be questions about them at all. So, I was a little

22 surprised that this had to be a litigated issue right now.

23 The thing that we do object to though is, you know,

24 the idea that it would have to be exclusive, that we would have

25 to sort of come up with a list at the beginning before

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1 discovery is completed of essentially everything that would be

2 happening at trial through a witness document-wise. That would

3 be, we believe, like a trial on paper, which is what this court

4 has said that obviously we're not going to do.

5 So, we are very willing to provide -- we have already

6 provided substantial detail about what a number of these

7 witnesses will be testifying about. We will provide additional

8 detail about the documents. We just can't necessarily make

9 binding, exclusive identifications of every single document and

10 no others, until discovery is done and we have had the

11 opportunity through the summary judgment and pretrial order

12 process to really narrow the issues.

13 So, on the understanding that it's not going to be

14 exclusive, it's not going to be for all time, we will

15 definitely in good faith be happy to provide them with what we

16 think is salient.

17 THE COURT: What you say is how I believe it should be

18 done.

19 MR. MONTELEONI: Understood. Then no objection.

20 THE COURT: Let me just flesh what I said out. In my

21 wording this is a best efforts situation. In other words,

22 there should be best efforts to identify documents which the

23 particular witness will be asked about at the trial -- or

24 witnesses plural, because there will be depositions plural --

25 but it could very well be that despite best efforts, the

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1 government comes to trial and seeks to introduce into evidence

2 something that has not been previously identified. Well, if

3 there has been best efforts, then I would tend to admit what

4 I'm talking about into evidence, subject to what almost never

5 happens -- but it can happen -- maybe a short adjournment to

6 avoid prejudice, something like that. But I'm really basically

7 saying I think what you both have been saying, and really

8 that's my view of things.

9 MR. MONTELEONI: Thank you, your Honor. And can we

10 just ask to confirm that that applies to defense witnesses too?

11 THE COURT: Of course. Now, look, is there anything

12 else you want to cover in this conference?

13 MR. MONTELEONI: Yes, your Honor. The government has

14 one issue which it wishes a ruling on right now.

15 As the court may understand, there are some safety

16 concerns with several different witnesses in the case, but the

17 government has an issue with one particular witness who has

18 especially significant safety concerns. And to avoid needing

19 to redacting the transcript, I just won't mention the witness'

20 name, but the defense counsel know who this witness is.

21 MR. MOSCOW: We disagree with the characterization.

22 It's your wording, not ours.

23 MR. MONTELEONI: Sure. But you know who I'm talking

24 about.

25 MR. MOSCOW: Yes, absolutely. Paul, can I cut you

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1 short? If we schedule a deposition for October 1 --

2 THE COURT: Can I interrupt? Both were taking a bit

3 at the same time. Whoever is going to address this, can you

4 start over. And obviously no names will be mentioned. I

5 assume you know the names of the people you are talking about,

6 and they don't have to be named on the record before me. But

7 just without mentioning specific names, can you start over on

8 this issue, please.

9 MR. MOSCOW: John Moscow here. I and the government

10 have been discussing the scheduling of a particular deposition,

11 and I am proposing October 1.

12 MR. MONTELEONI: OK.

13 MR. MOSCOW: Does that resolve the question the

14 government was looking for?

15 MR. MONTELEONI: I think that that should. Certainly

16 if there are further issues, we can talk about it between the

17 two of us. And if there are more issues that the court would

18 need to resolve, then we will raise it then; but we think

19 that's fine, and we don't need a further ruling on that.

20 THE COURT: Now, is there anything else we need to

21 cover in this conference call?

22 MR. MOSCOW: Briefly. The schedule for experts calls

23 for the names of experts to be turned over -- I'm sorry, John

24 Moscow again -- before the conclusion of document turn-over,

25 and that's not appropriate; and government complained, and

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1 they're right. So, I am suggesting that we go for September 22

2 for the expert reports, and we go for October 20 for the reply.

3 But if that is too tight for the government, another week is

4 not going to kill anybody.

5 MR. MONTELEONI: Yes, we would request just another

6 week. We think one more week besides what you are saying would

7 be great.

8 THE COURT: One more week.

9 MR. MOSCOW: So September 27 and --

10 MR. MONTELEONI: Yes. Sorry. September 29, October

11 27.

12 MR. MOSCOW: OK.

13 MR. MONTELEONI: So, that's resolved.

14 THE COURT: All right, very good. Anything else for

15 this conference call?

16 MR. MONTELEONI: Nothing from the government, your

17 Honor.

18 THE COURT: Mr. Moscow, anything from you?

19 MR. MOSCOW: Oh, yes, there is a problem coming along

20 in regard to getting witnesses into the country, and I have

21 been speaking with Mr. Monteleoni about that.

22 I would ask that the court agree that it will order

23 that witnesses who come in pursuant to such an agreement not be

24 arrested, so we don't have to worry about which district we're

25 dealing with.

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1 MR. MONTELEONI: This is Paul Monteleoni for the

2 government. I think that with respect this may be a little

3 premature. We think that an order of that sort raises a number

4 of issues, like constitutional issues, that don't necessarily

5 need to be reached, and certainly shouldn't be reached by the

6 court in a call like this.

7 We have sent over a proposed safe passage letter, and

8 we're happy to discuss the wording further with defense

9 counsel. But, you know, I think that courts don't order

10 criminal prosecutions to happen or not happen, so we think that

11 there is a way that we can avoid the need for the court to

12 resolve whether to issue an unprecedented order of that sort.

13 MR. MOSCOW: We're not certainly seeking an order

14 regarding whether there is a criminal prosecution; we're merely

15 seeking an order barring any agency of the United States from

16 arresting somebody coming here to give evidence in a case

17 brought by the United States.

18 It's very hard to persuade people to come here under

19 circumstances where there is a criminal investigation going on

20 and their names are on the papers, and then they're told they

21 have to show up in the United States. It's very difficult.

22 The reason I raise it now is because, subject to the

23 government's agreement, if they aren't going to agree that

24 these people should come, then that's fine. No one is asking

25 the court to order them to. But if they do agree, we would

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1 like a court ordered stipulation, that's all, because then at

2 least we could negotiate. Otherwise, I don't know what the

3 clients will do.

4 THE COURT: Mr. Moscow, is there anything you want to

5 have a ruling on, order from me today?

6 MR. MONTELEONI: No, your Honor.

7 THE COURT: Because I would not be prepared. I would

8 have to have some preparation, and I don't have any preparation

9 now.

10 MR. MOSCOW: OK.

11 THE COURT: Anything else for this conference call?

12 MR. MONTELEONI: No. Thank you, your Honor.

13 THE COURT: Thank you both very much. All right, that

14 concludes this call. Thank you.

15 - - -

16

17

18

19

20

21

22

23

24

25

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1 UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x

3 UNITED STATES OF AMERICA, New York, N.Y.

4 v. 13 CV 6326(TPG)

5 PREVEZON, LTD, et al.,

6 Defendants.

7 ------------------------------x

8
October 1, 2015
9 3:19 p.m.

10
Before:
11
HON. THOMAS P. GRIESA,
12
District Judge
13

14 APPEARANCES (via telephone)

15 PREET BHARARA
United States Attorney for the
16 Southern District of New York
BY: PAUL MONTELEONI
17 MARGARET GRAHAM
CRISTINE PHILLIPS
18 Assistant United States Attorneys

19 JOHN MOSCOW
LOURA ALAVERDI
20 VERNON CASSIN
Attorneys for Defendant
21

22

23

24

25

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1 (Via telephone)

2 THE COURT: Hello?

3 MR. MOSCOW: Good afternoon, your Honor. John Moscow

4 here.

5 MS. PHILLIPS: Good afternoon, your Honor. Cristine

6 Phillips, Margaret Graham and Paul Monteleoni appearing on

7 behalf of the United States government.

8 THE COURT: And who is speaking now? Who is speaking

9 now?

10 MR. MOSCOW: I was just going to say, your Honor, John

11 Moscow here. And I'm with Vern Cassin for Baker Botts and

12 Loura Alaverdi for my firm.

13 THE COURT: For the government again, please?

14 MS. GRAHAM: Yes, your Honor. For the government,

15 Margaret Graham speaking currently, Cristine Philips and Paul

16 Monteleoni.

17 THE COURT: Now, who was going to speak mainly for the

18 government?

19 MR. MONTELEONI: Paul Monteleoni. That's me.

20 THE COURT: All right. Mr. Monteleoni. Here's what I

21 asked to have the call about, and to clear up any issues which

22 are presented by the letters of September 30, the first of

23 which, I believe, is the Baker Hostetler letter, and the second

24 I believe in sequence is the government's letter of the same

25 date.

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1 But I believe that the Baker Hostetler letter comes

2 first and the government's letter comes second. If I'm wrong,

3 correct me.

4 MR. MONTELEONI: That's right, your Honor.

5 THE DEPUTY CLERK: Mr. Monteleoni, please just state

6 your name before speaking. Thank you.

7 MR. MONTELEONI: Yes. My apologies.

8 THE COURT: Now, look, in the Baker Hostetler letter,

9 there is reference to the depositions that were noticed by the

10 government, depositions of Mr. Katsyv, C-A-T-S-Y-V, Mr. Litvak,

11 L-I-T-V-A-K, Mr. Krit, and what's referred to as the 30(b)(6)

12 deposition, and that will be a deposition also of Mr. Katsyv.

13 Now, the government noticed those depositions for

14 October 8th, and the Prevezon people -- just a minute. The

15 Prevezon people want to have an adjournment until October 12.

16 I don't see any reason not to have the adjournment. So unless

17 there are strenuous objections, I would grant the adjournment.

18 And the depositions will be adjourned in accordance with the

19 letter of Baker Hostetler.

20 MR. MONTELEONI: This is Paul Monteleoni on behalf of

21 the government. May I be heard briefly?

22 THE COURT: Of course you may.

23 MR. MONTELEONI: Thank you, your Honor.

24 Of course we will respect the Court's ruling, but we

25 want to explain that it's not every day that we object to an

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1 adjournment. And we really do have strong objections to an

2 adjournment in this case. As everyone knows, we have a trial

3 date on a very compressed schedule. We've been trying to fit

4 in a number of different things that have to happen after the

5 depositions are concluded; expert discovery, requests to admit,

6 summary judgment motions and ultimately trial preparation.

7 Now, these particular depositions, which we noticed to

8 start on October 5th -- so Monday, next week -- we intended to

9 take the week, which would be a very busy week, taking the

10 depositions of the principal defendant witnesses, the people

11 who are running the defendant companies. These are the most

12 important people to depose. They are the first people that the

13 government will depose. And pushing them back further to the

14 very end of the fact discovery period, which is what this

15 adjournment will do, is going to severely compress the

16 government's ability to intelligently prepare for trial.

17 And that's even leaving aside what else is scheduled

18 on the week of the 12th. On the 12th itself there are already

19 two depositions scheduled. On the 13th itself there are two

20 more depositions scheduled. On the 14th and the 15th, there is

21 one deposition on the 14th and potentially two more video

22 depositions the defendants just informed us about yesterday or

23 the day before. So that's without moving the four defense

24 depositions that they're seeking to adjourn into that week.

25 We're already double booking.

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1 But there's just a limit to how thin we can spread

2 ourselves. And our view is that these were depositions that

3 were noticed a month ago. The logistical issues are being

4 raised very much at the 11th hour. And they're not logistical

5 issues that couldn't be overcome. If the defendants had the

6 will to overcome them, they could. The defendants are very

7 capable of buying plane tickets within the space of a few days.

8 The defendants have now tried to add their own

9 favorite interpreter to the list, a name that they just

10 mentioned two days ago. That can't be done, but the US is

11 arranging for interpretation. And we really think that we have

12 given voluminous discovery. And we need our own discovery now.

13 And so we think that we would be severely prejudiced by further

14 pushing back the depositions of the defendants.

15 MR. MOSCOW: Your Honor, John Moscow here.

16 THE COURT: Right.

17 MR. MOSCOW: I am in the middle of deposing a witness

18 who has a great deal of trouble reading the documents with

19 which we were provided. They are in Russian. They are bad

20 copies. You've got 67,000 pages of that, and we are having

21 severe problems getting through it.

22 We are doing our very best. We are also double

23 booking depositions. We are moving this as fast as we can. We

24 made an application for a protective order in regard to our

25 clients being arrested by someone other than the Southern

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1 District. You ruled on that. I would ask now for assurances

2 that if something happens, that we will be able to come to you

3 for immediate relief, because I'd like to be able to tell them

4 something. They're people. They're human beings.

5 I understand that they have worries, and we are doing

6 our best to get this thing moving expeditiously. We're talking

7 about a relatively short adjournment. Rather than asking them

8 to travel when there's a hurricane coming to New York, I would

9 ask that we go forward. We can try with counsel professionally

10 to reschedule some of the depositions which are beginning to

11 appear less and less relevant as we get into the testimony of

12 other witnesses. And I think that we should be able to unblock

13 a couple of depositions, maybe a day or two of the ones that

14 Mr. Monteleoni referred to.

15 So I think that if we could go with that schedule, and

16 we would ask for the assurance that we can come to you if there

17 is a problem, we will be going forward. We will -- well, the

18 government says they would provide an interpreter for us to

19 talk to our clients. I read that as a statement that they are

20 not following what's going on. We need to be able to talk to

21 our clients. They aren't here. They have to travel into a

22 foreign country, in a foreign language. And we are really not

23 trying to create logistical problems. We are trying to get the

24 people whose interests are involved here to come here and give

25 truthful testimony so that we can, in fact, go forward with

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1 this case. But --

2 THE COURT: Now, look --

3 MR. MOSCOW: -- we're asking as a matter of human

4 courtesy to put this off. I appreciate the strain on opposing

5 counsel. We are all constrained. But if you would go forward

6 with this, we will do our very best to keep this thing going

7 forward, with this as a start, but going forward.

8 THE COURT: Let me interrupt and ask the question:

9 Right now what is the trial date?

10 MR. MOSCOW: December 7th, Pearl Harbor Day.

11 THE COURT: All right. Now, look, let me say this:

12 Is there any date set before that for the conclusion of

13 discovery? I don't have the calendar before me. Is there a

14 date set for the conclusion of discovery or something like

15 that?

16 MR. MONTELEONI: Paul Monteleoni. Yes. October 15th,

17 next Thursday, a week from today -- sorry, two weeks from

18 today, rather, is the conclusion of all discovery except for

19 expert discovery.

20 THE COURT: Now, say it again. Conclusion of --

21 MR. MONTELEONI: October 15.

22 THE COURT: Conclusion of fact discovery, October 15.

23 Now, is there a date for the conclusion of expert

24 discovery?

25 MR. MONTELEONI: There is a date for the submission of

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1 rebuttal expert reports. That's October 27th. We haven't

2 scheduled when the last expert deposition could be taken, but

3 we expect it would be promptly thereafter.

4 MR. MOSCOW: Mr. Monteleoni will correct me -- John

5 Moscow speaking -- he will correct me, but I think both sides

6 are working on this perhaps more hours a day than is good for

7 their comments and judgment.

8 THE COURT: Let me inject here. With a trial date of

9 December 7 -- just bear with me. I've got to look at this just

10 a little more. Just bear with me, please. I want to get back

11 to you, Mr. Monteleoni.

12 MR. MONTELEONI: Yes, your Honor.

13 THE COURT: Things went a little fast for me in the

14 conversation this afternoon. But what I do have in the Baker

15 Hostetler letter of September 30 is a request for an

16 adjournment of the noticed depositions from the week of -- I

17 guess it's October 7 to -- the week of October 5, I'm sorry.

18 The week of October 5 to the week of October 12.

19 Now, Mr. Monteleoni, is there any reason why there

20 cannot be that much of an adjournment that I've just spoken of?

21 You've probably answered the question, but it went a little

22 fast for me.

23 MR. MONTELEONI: Absolutely, your Honor. The problem

24 is the discovery deadline ends October 15th. And the week of

25 October 12th there are already two depositions on Monday, two

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1 depositions on Tuesday, one deposition and apparently a new

2 video deposition on Wednesday, one new video deposition on

3 Thursday. And that day, Thursday, is the end of fact

4 discovery.

5 Next week there are no other depositions scheduled

6 besides the ones that the defendants want to put off. So -- on

7 the 6th, 7th, 8th and 9th, sorry, on those particular dates.

8 So they would be taking those days off of the calendar and

9 making it very hard to do the depositions on the week of the

10 12th. It's very hard for me to see how this could possibly

11 happen without blowing the fact discovery deadline and pushing

12 more depositions further past the fact discovery deadline. And

13 the fact discovery deadline, as it is right now, is not that

14 long before trial.

15 So we believe that it is going to add extreme stress

16 to an already extremely compressed trial preparation period,

17 which we are working around the clock to comply with.

18 THE COURT: Let me just --

19 MR. MOSCOW: John Moscow speaking.

20 We can attempt with counsel to restructure the two

21 telephone depositions to get them earlier than they are

22 currently scheduled. And I believe that we can attempt to

23 reschedule a couple of the government witnesses as well. There

24 are at least three, and their depositions should be relatively

25 brief and relatively low pressure. So I believe we should be

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1 able to move those into the days that counsel is talking about,

2 7, 8 and 9.

3 MR. MONTELEONI: I think that that's unlikely, because

4 a number of these witnesses are coming from abroad. And we

5 can't change their travel plans on the drop of a hat to make

6 them come in sooner.

7 THE COURT: Who just spoke?

8 MR. MONTELEONI: Sorry. That was Paul Monteleoni.

9 We're happy to continue to discuss with defense

10 counsel at all times, but we -- on this issue, there really

11 isn't flexibility. It's going to be -- I don't see any way of

12 making it work without blowing the fact discovery deadline,

13 which would further compress an already very compressed trial

14 preparation period. And these are --

15 MR. MOSCOW: Paul, if I may.

16 MR. MONTELEONI: I just wanted to finish.

17 These were noticed over a month ago. And we think

18 that it's not going to be constructive to try to move them at

19 the 11th hour.

20 THE COURT: Who just spoke?

21 MR. MONTELEONI: Sorry. That was Paul Monteleoni. I

22 was just finishing up.

23 THE COURT: What are you speaking of when you say

24 "them"?

25 MR. MONTELEONI: The depositions that the defendants

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1 want to adjourn; the depositions for the week of October 5th;

2 the depositions for Litvak, Katsyv and Krit. Those depositions

3 were noticed over a month ago. Those depositions would cause

4 extreme disruption into our already compressed discovery and

5 trial period to move further.

6 THE COURT: All right. Let me just make a ruling.

7 The government noticed the depositions of Katsyv,

8 etc., for the week of October 5, Katsyv, Litvak and Krit. And

9 those notices were given a month or so ago, is that right?

10 MR. MONTELEONI: Yes, your Honor.

11 THE COURT: All right. The application to delay those

12 depositions is denied.

13 MR. MOSCOW: Your Honor, if I might.

14 THE COURT: Yes.

15 MR. MOSCOW: Two things. I would propose that the

16 deadline be extended to the 19th, because, look, we are talking

17 about people where the same passage letter was sent yesterday.

18 And Judge Griesa -- that is you -- said that you wouldn't have

19 your client come in on the basis of it. So we are trying to

20 persuade them to come in. We are doing our best. And we are

21 asking that we do this one step at a time, and that we be

22 permitted to get them in here and get them to testify, not on

23 Monday, but a week thereafter, so we have them here -- they're

24 going to be coming in without their interpreter. We're going

25 to try to be dealing with them. This is complicated stuff.

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1 When the government says that they will provide an interpreter,

2 that doesn't do it. We have to have one. It would be nice to

3 have one who knows the case. I understand that the government

4 is not willing to assist us in that.

5 But if this were extended until the 19th, which is

6 four days, we can get those depositions in within the schedule.

7 And we will not have the problems. I'm not talking about the

8 hurricane that's coming, in terms of a problem with air travel.

9 I'm simply mentioning that we are dealing with people far away.

10 And we would ask under all these circumstances that we be given

11 a week, and that we extend the deadline until the 19th. And we

12 will do our best to get everything done quickly.

13 THE COURT: Okay. Mr. Moscow --

14 MR. MOSCOW: We're doing that now.

15 THE COURT: Mr. Moscow, let me address you. You just

16 spoke, right?

17 MR. MOSCOW: Yep.

18 THE COURT: Now, the extension you're talking about is

19 the conclusion of discovery to be extended from October 15;

20 isn't that what you're talking about?

21 MR. MOSCOW: From the 15th to the 19th, the following

22 Monday, correct.

23 THE COURT: And then is there any objection to

24 extending that from the 15th to the 19th?

25 MR. MONTELEONI: Yes, your Honor. We would ask you to

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1 stick by your original ruling. We need to get fact discovery

2 done. And we certainly can't extend it to the extent of

3 pushing these extremely important depositions that close to

4 trial.

5 THE COURT: Well, look, the trial is -- we're talking

6 about a trial date of December 7. And can I just say, you all

7 know your problems. You know what you're dealing with with the

8 witnesses. You all know it in detail far more than I know it.

9 And I suppose that I have to make some decisions and some

10 rulings. But I don't have nearly as much information as you

11 do.

12 Now, we've got complications. Very important

13 witnesses need to come from abroad. And there has to be

14 depositions. There have to be depositions, and then there will

15 be a trial. And so it is a complicated picture.

16 At the same time, everything that has been voiced here

17 today indicates that Mr. Monteleoni is very reasonable and

18 Mr. Moscow is very reasonable. You're dealing with problems,

19 but I don't have lawyers here who are obstructive or presenting

20 unnecessary problems at all. And I think we have to establish

21 a schedule here on the phone. And I wish that you could agree

22 on a schedule.

23 Is there a possibility in this discussion that you

24 could, by talking back and forth? Could we agree on a

25 schedule?

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1 MR. MOSCOW: Your Honor, if we might call you back,

2 Mr. Monteleoni and AUSA Graham are here at Baker Hostetler in

3 the middle of a deposition. We can sit down and try to work

4 out a schedule involving reshuffling of, for example, the

5 telephone depositions from abroad and the like to maximize the

6 convenience and minimize the inconvenience to counsel and to

7 get this job done. I think we should be able to do that.

8 We'll try.

9 THE COURT: Who is speaking now?

10 MR. MOSCOW: That was John Moscow, your Honor.

11 THE COURT: Well, listen, I really think that you two

12 who are eminently reasonable, although you've got problems, I

13 think you can do a better job than I can do, to be perfectly

14 frank with you. And if in the course of the afternoon, or even

15 tomorrow, being Friday, if you can agree to something, it will

16 be a lot more informed than if I try to set down rulings, and

17 the next thing after I make a ruling, somebody comes back and

18 says, well, it won't work. And I don't blame you for saying it

19 won't work.

20 So I would very much welcome the idea that you try

21 today and tomorrow to work out an agreement for these items

22 that we're talking about. And I think I've had a proposal to

23 adjourn the matter with the Court and to try to work out an

24 agreement.

25 Is that agreeable to both of you?

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1 MR. MONTELEONI: Yes, your Honor. We will engage with

2 defense counsel, and we will submit you our positions, which we

3 hope to include in agreement. But we will submit our positions

4 one way or another by tomorrow.

5 THE COURT: Was that feasible, Mr. Moscow?

6 MR. MOSCOW: We will make it so, your Honor.

7 THE COURT: All right. Listen, this is the best way

8 to do it. And I think you can work together better than if I

9 try to supervise without too much knowledge. So let's adjourn

10 this but have a report by the end of the day tomorrow.

11 Thank you very much.

12 MR. MOSCOW: Thank you, your Honor.

13 MR. MONTELEONI: Thank you, your Honor.

14 (Adjourned)

15

16

17

18

19

20

21

22

23

24

25

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1 UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
2 --------------------------------x

3 UNITED STATES OF AMERICA,

4 Plaintiff,

5 v. 13-cv-6326 (TPG)

6 PREVEZON HOLDINGS, LTD., et al.,

7 Defendants.

8 --------------------------------x

9 New York, N.Y.

October 13, 2015
10 3:30 p.m.

11
Before:
12
HON. THOMAS P. GRIESA
13
District Judge
14

15 APPEARANCES
(via speakerphone)
16
PREET BHARARA
17 United States Attorney for the
Southern District of New York
18 BY: MARGARET S. GRAHAM, ESQ.
Assistant United States Attorney
19
BAKER & HOSTETLER, LLP
20 Attorneys for the Prevezon Defendants
BY: MARK A. CYMROT, ESQ.
21

22

23

24

25

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1 (In chambers)

2 THE COURT: Hello?

3 MS. GRAHAM: Hello, Judge.

4 MR. CYMROT: Hello, Judge. Mark Cymrot for the

5 defense.

6 MS. GRAHAM: Good afternoon, your Honor. Margaret

7 Graham on behalf of the government.

8 THE COURT: Now, look, I got a letter from Mr. Cymrot

9 dated October 12 and a letter from the government dated, I

10 guess it's today, the 13th.

11 Now, what I wanted to say is that I don't really agree

12 with the government that there has to be some -- I'm not sure

13 what you're arguing, but apparently you're arguing that

14 Mr. Cymrot should comply with some formality under Section

15 983(f). There's really no reason for that. Mr. Cymrot has

16 complied with 983(f) by making a request. And it seems to me

17 that it is inevitably some considerable burden to have to come

18 to New York for depositions from, I guess it's the United

19 Kingdom.

20 MR. CYMROT: It's Russia and Israel, Judge.

21 THE COURT: OK. Well, I stand corrected. In other

22 words, they would have to come from Russia and Israel. Is that

23 right?

24 MR. CYMROT: Yes. They're here. They're being

25 deposed this week, Judge, and they're here. But they came from

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1 Russia and from Israel.

2 THE COURT: I know they're here. But that doesn't

3 eliminate the issue of expense, right?

4 MR. CYMROT: Correct. I mean, it's been very

5 expensive.

6 THE COURT: I'm sure it has been. In any event,

7 things moved quickly, as they should have, and that is good.

8 But the expense of coming from Russia and Israel is obviously a

9 burden. And so I believe that there really is no need for a

10 lot of formality. It seems to me that Mr. Cymrot's letter is

11 quite an adequate request that, out of the $15 million which is

12 restrained, the expense of travel and so forth to New York to

13 take these depositions pursuant to the court order should be

14 taken out of the 15 million. I just believe that that's the

15 right way to do it.

16 MS. GRAHAM: Yes, your Honor. If I may be heard.

17 THE COURT: Yes.

18 MS. GRAHAM: Your Honor, we would strongly object to

19 the money being taken out of the 15 million based on what

20 Mr. Cymrot has stated. He has not stated that they cannot pay

21 the money. He has not set forth any basis for the hardship

22 that they are incurring in paying the money or demonstrated

23 that they do not have the resources to pay the money.

24 And releasing the funds without any explanation of the

25 actual travel costs that have been spent or any explanation of

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1 the need for such funds, in other words, their current

2 financial state, would be unprecedented. Once funds have been

3 seized, as they were here pursuant to the order that your Honor

4 issued, there is a process for having those funds be released

5 that the parties must follow, and they must show that -- they

6 must request the property from the appropriate official and

7 they must -- and I'm quoting from the statute that Congress has

8 passed to deal with this, 983(f) -- they must set forth the

9 basis for why continued possession by the government of the

10 funds will cause them substantial hardship, among other things.

11 And so we are not asking for a simple formality and we

12 are not trying to be difficult. We are simply reasonably

13 asking that the defendants follow the mandated procedure, which

14 makes a lot of sense in this case, which is, among other

15 things, to show why exactly they need the money. Without such

16 a showing, just releasing the funds upon a request would be

17 really unprecedented and we think would set a very bad

18 precedent.

19 THE COURT: I'm going to ask you --

20 MR. CYMROT: Your Honor, may I respond?

21 THE COURT: No. Just a minute.

22 $15 million is restrained, right?

23 MS. GRAHAM: Correct, your Honor.

24 THE COURT: OK. Now, what is the amount that the

25 government believes will be recovered pursuant to money

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1 laundering? It's not going to be $15 million. You know that.

2 How much do you expect to recover?

3 MS. GRAHAM: Yes, your Honor, we do expect to recover

4 the $15 million. That is the theory on which the money was

5 restrained.

6 THE COURT: What's the basis for saying $15 million?

7 How much money laundering -- how much laundered money came into

8 this country?

9 MS. GRAHAM: Your Honor --

10 THE COURT: I think it's a few hundred thousand

11 dollars.

12 MS. GRAHAM: Your Honor, it is approximately $2

13 million that we have traced to date in criminal proceeds, and

14 then of course the remainder, as set forth under the money

15 laundering statute, is seized on a money laundering theory

16 because the statute sets forth the basis to seize money that

17 was used to launder criminal proceeds.

18 MR. CYMROT: Your Honor, you're correct. It was $2

19 million that went to Holland and $540 million approximately

20 that came to the United States.

21 MS. GRAHAM: Your Honor, certainly this is not the

22 time to decide -- you know, there is a pending motion --

23 THE COURT: Is the time to --

24 MS. GRAHAM: -- pardon me -- protective order, and

25 that has been fully briefed. The issue put forth is really the

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1 facts that the defendants have to set forth the reason that

2 they need this money and the basis for their request. And they

3 have not done so. And that is all that the government is

4 asking.

5 THE COURT: I'd like you to answer my questions. And

6 I want to go back. What is the amount of the allegedly

7 laundered money that has come into the United States?

8 MS. GRAHAM: Yes, your Honor. I would have to look

9 back at the complaint for that. I can also have

10 Mr. Monteleoni, who is currently in a deposition and is more

11 familiar with that, leave the deposition and join us on the

12 conference call. However, approximately $2 million in criminal

13 proceeds have been traced to the defendants. I hope that that

14 answers your question, your Honor.

15 THE COURT: It does. And the point is that $15

16 million is restrained in order to cover a possible actual

17 recovery of laundered money of about $2 million. That is a

18 very important part of the picture. And therefore, to take a

19 small amount of $15 million to cover the burden of coming to

20 New York for depositions is a matter in my view of simple

21 justice. It is inevitably a burden to come from a foreign

22 country to be deposed in the United States. And unless

23 somebody has so much money that they don't care about it, well,

24 for most people, most human beings, coming from Russia and

25 Israel to the United States to be deposed is a burden, and it's

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1 in my view a matter of simple fairness and justice to relieve

2 that burden.

3 MS. GRAHAM: But --

4 THE COURT: And --

5 MS. GRAHAM: Yes, your Honor. I apologize.

6 THE COURT: May I finish?

7 MS. GRAHAM: Yes, your Honor. Please do.

8 THE COURT: And if an amount of money has been

9 restrained, namely $15 million, which is far in excess of what

10 the government will actually end up obtaining by forfeiture, it

11 is in my view fair and right to use some of that money to

12 relieve the burden of those people coming from Russia and

13 Israel to the United States to be deposed. And that is the way

14 we're going to do it. And I'll be glad to sign an order

15 effectuating what I have said.

16 MR. CYMROT: We'll submit an order tomorrow, your

17 Honor.

18 MS. GRAHAM: Your Honor, if I may be heard on one more

19 point, I just wanted to be clear that the government does

20 intend to obtain the full $15 million by forfeiture. As it is

21 entitled under the money laundering statute and as set forth in

22 the complaint and the protective order, we would again ask two

23 things: that the defendants set forth their actual need for

24 this money; and, second, we would ask that the defendants at

25 least present receipts for what they have spent, rather than

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1 this estimate of $100,000. But, your Honor, we would still ask

2 that the defendants set forth their actual financial need for

3 this money and their current financial situation.

4 THE COURT: I tell you what.

5 MR. CYMROT: Your Honor, we'll submit invoices.

6 THE COURT: What did you say?

7 MR. CYMROT: I said, we'll submit invoices for the

8 costs that we're claiming.

9 MS. GRAHAM: Yes, your Honor.

10 And then my remaining request is that the defendants

11 demonstrate their actual financial need for this money and set

12 forth their financial situation, as they are required to do.

13 THE COURT: When you say "as they are required to do,"

14 I know the statute you are speaking of, but the Court has some

15 discretion. And that is if certain people have been required

16 to travel from Russia and Israel to be deposed, then it is in

17 my view within the discretion of the Court to recognize that as

18 a burden, and I believe it is within the discretion of the

19 Court to relieve that burden. And that is what I intend to do.

20 And I'll be glad to sign an order effectuating what I have

21 ruled upon in this telephone call.

22 Thank you very much.

23 MS. GRAHAM: Yes, your Honor.

24 MR. CYMROT: Thank you, your Honor.

25 o0o

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1 UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x

3 UNITED STATES OF AMERICA, New York, N.Y.

4 v. 13 Civ. 6326(TPG)

5 PREVEZON HOLDINGS, Ltd., et

al.,
6
Defendants.
7
------------------------------x
8

9 November 6, 2015
2:51 p.m.
10

11 Before:

12 HON. THOMAS P. GRIESA,

13 District Judge

14
APPEARANCES
15
PREET BHARARA
16 United States Attorney for the
Southern District of New York
17 BY: PAUL M. MONTELEONI
KRISTY PHILLIPS
18 MARGARET GRAHAM
Assistant United States Attorneys
19
BAKER & HOSTETLER, LLP
20 Attorneys for Defendants
BY: MARK CYMROT
21 JOHN MOSCOW

22 - also present -

23 Laura Pacifici, government intern

24

25

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1 THE CLERK: Conference in the matter of the United

2 States of America versus Prevezon Holdings, Limited, et al.

3 All parties present, your Honor.

4 THE COURT: Sit down, everybody.

5 What do we need to cover today?

6 MR. CYMROT: Your Honor, we have several issues.

7 Do you mind if I stand here?

8 THE COURT: Of course. You are Mr.?

9 MR. CYMROT: Cymrot.

10 THE COURT: All right.

11 MR. CYMROT: There is the issue of the summary

12 judgment motion. The government has filed a supplemental

13 disclosure -- initial disclosure on October 22nd, and now they

14 rely upon that witness and a new theory of special crime, U.S.

15 crime, in their summary judgment motion, and we have not had

16 discovery. And we have a notice of deposition that I can hand

17 up and a disclosure I can hand up. They actually rely upon

18 principally two witnesses, both who were disclosed on

19 October 22nd and September 15th.

20 Now, there is a witness from HSB Swiss that was

21 disclosed on October 22nd in a supplemental initial disclosure

22 that changes the specified unlawful activity, and they now, ten

23 days later, file a summary judgment that relies upon that

24 specified unlawful activity --

25 THE COURT: Let me just interrupt you, please.

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1 MR. CYMROT: Yes.

2 THE COURT: Is there now a motion before the Court for

3 summary judgment?

4 MR. CYMROT: Partial summary judgment, correct. It

5 was filed on Tuesday.

6 THE COURT: Filed?

7 MR. CYMROT: By the government.

8 THE COURT: All right.

9 MR. CYMROT: And you had told them not to file but

10 then you endorsed an order with a schedule after they filed.

11 So there is a schedule for briefing. There is their

12 motion. You told them that it would be disputed. It is

13 disputed and most everything in their motion is disputed, but

14 the point of the matter is --

15 THE COURT: This is a case we're trying -- having a

16 trial on December 7, right?

17 MR. CYMROT: That's correct. And they've changed the

18 specified unlawful activity as a result of this disclosure. So

19 they had one theory of specified unlawful activity that was

20 fraud on the bank based upon the fact that certain corporations

21 were unlawfully reregistered. Now they have a theory, that's

22 included in their summary judgment motion, that says HSBC

23 Swiss, which is not mentioned anywhere in the amended

24 complaint, was defrauded because it invested in Mr. Browder's

25 funds. So that's all new and we haven't had discovery on that.

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1 So the government names this witness from HSBC Swiss

2 they are going to take his deposition. The deposition hasn't

3 happened yet. We are talking about a time for it to happen.

4 We delivered to the government a notice of deposition

5 with a request for documents that are relevant to this new

6 specified unlawful activity. They tell us that's not the

7 appropriate way to do it.

8 THE COURT: Wait a minute. Wait a minute. Wait a

9 minute.

10 MR. CYMROT: Sure.

11 THE COURT: Has the government noticed a deposition?

12 MR. CYMROT: Yes.

13 THE COURT: And in that notice, do they request

14 documents?

15 MR. CYMROT: They don't. We do. We cross noticed and

16 I have that. I can hand it up.

17 THE COURT: I don't need to have it handed up.

18 MR. CYMROT: OK. In our cross notice we request

19 documents.

20 THE COURT: So the government has noticed a

21 deposition.

22 MR. CYMROT: Yes.

23 THE COURT: You have cross noticed that deposition and

24 asked for documents.

25 MR. CYMROT: Correct.

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1 THE COURT: Now, whose deposition is being requested?

2 MR. CYMROT: It's a 30(b)(6) deposition of HSBC Swiss.

3 THE COURT: HSB?

4 MR. CYMROT: C Switzerland, basically. HSBC

5 Switzerland.

6 THE COURT: Is HSBC a party to the action?

7 MR. CYMROT: No. This witness is appearing

8 voluntarily for the government.

9 THE COURT: Look, you say it is a 30(b) deposition. I

10 thought that was for parties.

11 MR. CYMROT: No. 30(b)(6) is for a representative of

12 an entity. It is not 30(b)(1), it is 30(b)(6), which is for a

13 representative of an entity.

14 THE COURT: OK, a representative of an entity.

15 And is the entity's deposition noticed?

16 MR. CYMROT: It is, although we don't have an agreed

17 date yet. It's noticed.

18 THE COURT: But it is noticed --

19 MR. CYMROT: Correct.

20 THE COURT: -- the entity?

21 And the entity is not a party?

22 MR. CYMROT: Correct.

23 THE COURT: And the entity is?

24 MR. CYMROT: HSBC Switzerland.

25 THE COURT: And do you object to the taking of that

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1 deposition?

2 MR. CYMROT: Yes, your Honor. It is out of time and

3 it's after a summary judgment motion and --

4 THE COURT: What do you mean, after a summary judgment

5 motion?

6 MR. CYMROT: Well, it's a couple of weeks before trial

7 and after they filed the summary judgment motion relying upon

8 the testimony that is yet to be taken.

9 THE COURT: So, in other words, you are objecting to

10 the taking of the deposition of HSBC, is that right?

11 MR. CYMROT: Yes.

12 THE COURT: Is that one of the issues to be dealt with

13 this afternoon?

14 MR. CYMROT: Yes.

15 THE COURT: What does the government say about that?

16 MR. MONTELEONI: Paul Monteleoni for the government.

17 The government disagrees with defense counsel's

18 characterization of this. The Switzerland HSBC representative

19 is someone who the government expects to explain some

20 calculations that are readily apparent from certified HSBC

21 business records about the amount of legal fees that HSBC

22 incurred. That amount is very cut and dried. It is set forth

23 in the summary judgment papers. Those records have been

24 disclosed and --

25 THE COURT: Who is moving for summary judgment?

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1 MR. MONTELEONI: The government is just on the very

2 limited background issue that --

3 THE COURT: When did you file this motion?

4 MR. MONTELEONI: Tuesday, in accordance with the

5 schedule that the Court approved this week.

6 The point of the summary judgment motion is this Court

7 has said several times this case isn't principally about what

8 happened in Russia, it's principally about what the defendants

9 did. And in order to avoid having the trial sidetracked with a

10 lot of disputes over details of what happened in Russia that

11 can be avoided by simply clearing away some of the background

12 facts, the government filed a limited motion just on the issue

13 that a fraud occurred in Russia and that that fraud is a money

14 laundering predicate.

15 THE COURT: Wait a minute.

16 You want a summary judgment ruling to what effect?

17 MR. MONTELEONI: Just that a fraud occurred in Russia

18 and that that fraud is a money laundering predicate.

19 We have issued -- we have proposed an order, a

20 proposed order that has a few fact findings, and it just says

21 that (a) that the Court, if you agree, would grant partial

22 summary judgment just on the limited issue that a money

23 laundering predicate offense occurred in Russia and then a few

24 fact findings to show what offense we are talking about. That

25 is just background. That is stuff that happened before the

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1 money got to the defendants. It is just intended to clear the

2 way so that the trial will be about what happened with the

3 defendants.

4 Now, one aspect of showing that this is a summary

5 judgment -- sorry, showing this is a money laundering predicate

6 is just very straightforwardly looking at some HSBC bank

7 records about what were HSBC's legal fees, because those legal

8 fees were out-of-pocket harm to HSBC and that makes the offense

9 a money laundering predicate under the fraud on a foreign bank

10 theory that the Court sustained at the pleading stage. Now we

11 just want to introduce HSBC's bank records to prove it.

12 Now, the whole theory is totally apparent from the

13 bank records, but we have been able to get HSBC to agree to

14 make someone available as a representative to just sort of walk

15 through the calculations of the bank records.

16 THE COURT: What was the last thing you said?

17 MR. MONTELEONI: Sorry. So the actual proof that this

18 fraud harmed HSBC is totally apparent from the bank records.

19 But we, the government, have asked HSBC to voluntarily provide

20 a representative of its Swiss entity just to walk through what

21 the bank records say, to go through the calculations of how the

22 bank's records show that HSBC in Switzerland incurred a loss.

23 THE COURT: And that is the deposition which has been

24 noticed, is that right?

25 MR. MONTELEONI: That's right.

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1 The thing is the Swiss HSBC entity is providing

2 someone voluntarily. We can't subpoena them and we don't

3 control them. So they've agreed to the deposition and we have

4 given them notice about that.

5 THE COURT: And when is that deposition going to take

6 place?

7 MR. MONTELEONI: Well, we've noticed it for next week

8 on Tuesday, which would have given the defendants plenty of

9 time to --

10 THE COURT: What is next Tuesday, what is the date?

11 MR. MONTELEONI: Next Tuesday would be the 10th.

12 Now, the defendant said that didn't work for them.

13 They said they wanted to go to the backup dates which are much

14 later in the month, and that would have been fine except that

15 now they're saying that the whole summary judgment motion needs

16 to be held up because they need to talk to him before the

17 summary judgment motion gets fully briefed. So since we found

18 that out last night, we have been on the phone with HSBC trying

19 to see if they are available some other time next week so that

20 we can have this representative walk through the bank records

21 next week --

22 THE COURT: At a deposition?

23 MR. MONTELEONI: At a deposition and be done with it.

24 MR. CYMROT: Your Honor, that's totally disingenuous,

25 I'm sorry. It is just disingenuous.

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1 THE COURT: In what way is it disingenuous?

2 MR. CYMROT: Their motion replies upon a fraud upon

3 HSBC Switzerland trading in the Hermitage Fund, which is

4 Browder's fund, as the fraud, and that -- to say we're just

5 clearing out some minor stuff, they're trying to get a major

6 weakness in their case covered by this summary judgment motion

7 that there is no specified unlawful activity, there is no

8 predicate to money laundering. And they have now come up with

9 their seventh theory, and it is based upon an initial

10 disclosure that was made on October 22nd and a motion that was

11 filed on November 4th, and we have had no discovery on that.

12 And it is a new theory and it is not just walking

13 somebody through a few bank records. It is much more serious

14 than that. It is fundamental to their case that they have to

15 prove there was a U.S. crime, a predicate to money laundering,

16 and they are now on their seventh theory of predicate to crime,

17 money laundering, and this witness is central to the new theory

18 that is in their summary judgment motion.

19 THE COURT: Look, look, I'm not trying the case this

20 afternoon.

21 MR. CYMROT: I'm just saying this is all --

22 THE COURT: I'm not trying the case. I'm dealing with

23 pretrial matters. And what I'm told is that there has been

24 filed a motion for partial summary judgment. OK. If there's a

25 motion for partial summary judgment filed, it will be answered

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1 and decided. I'm also told that there is a deposition that has

2 been noticed. If there is a deposition that has been noticed,

3 unless there is an objection to that deposition, that

4 deposition will be taken.

5 MR. CYMROT: We objected. We've objected to that

6 deposition.

7 THE COURT: And on what grounds?

8 MR. CYMROT: On the grounds that this is much too late

9 to have a new theory with a witness who refuses to produce

10 documents, where the government won't even deliver the notice

11 to him requesting documents. This is a foreign witness who has

12 central documents to this new theory, and it's all too late.

13 You told them back in May -- you ordered them in May to

14 disclose their case. None of this was disclosed in May.

15 THE COURT: What is the new thing now?

16 MR. CYMROT: They have a theory, fraud on a foreign

17 bank, that this bank, HSBC Switzerland, was trading in the

18 Hermitage Fund, which is owned by Mr. Browder, and that when

19 that fund allegedly was defrauded, which is all in dispute,

20 that that bank lost money as a trader -- not as the bank

21 itself. All right? The fund is defrauded.

22 We can argue whether that constitutes an SUA, a

23 specified unlawful activity. I understand you don't want to

24 argue that today. But it's all new, that's the point. The

25 point is it's all new and we've had no discovery. And it's too

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1 late --

2 THE COURT: Again, you've said this but let me ask

3 you, what is it that is all new?

4 MR. CYMROT: OK. The theory that HSBC Switzerland is

5 the foreign bank that was defrauded is mentioned nowhere in the

6 second amended complaint --

7 THE COURT: What is the significance of the Swiss bank

8 being defrauded? What is the significance of that?

9 MR. CYMROT: You have to have a predicate -- what

10 Mr. Monteleoni calls a predicate to money laundering. You have

11 to have a U.S. crime. The fact that there was a --

12 THE COURT: In other words, a predicate act.

13 MR. CYMROT: You have to have a predicate to money

14 laundering. It is called a specified unlawful activity. One

15 of the specified unlawful ac --

16 THE COURT: A specified unlawful activity.

17 MR. CYMROT: One of the specified --

18 THE COURT: Just a minute.

19 MR. CYMROT: Yes. I'm sorry.

20 (Pause)

21 THE COURT: All right. So there has to be -- in other

22 words, to have a cause of action for money laundering, there

23 has to be a specified unlawful activity --

24 MR. CYMROT: Yes.

25 THE COURT: -- alleged, right?

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1 MR. CYMROT: Correct.

2 THE COURT: And have they alleged that?

3 MR. CYMROT: Not in the second amended complaint.

4 Not -- not this theory of specified unlawful activity. HSBC

5 Switzerland --

6 THE COURT: Have they alleged "a" specified unlawful

7 activity?

8 MR. CYMROT: Yes. HSBC Guernsey, a different bank, an

9 affiliate of this bank but not this bank, and it's a different

10 fraud.

11 MR. MONTELEONI: Your Honor, we disagree with that.

12 Ever since the original complaint in this case, the first

13 docket entry in this case, we've alleged fraud on a foreign

14 bank based on the harm to the fund, based on the harm to HSBC

15 Guernsey, which is a trustee of the fund, based on the fact

16 that HSBC and Hermitage lawyers showed up in court to contest

17 the fraud. This Court upheld in the summary -- in the motion

18 to dismiss opinion upheld the fraud on a foreign bank specified

19 unlawful activity, and it specifically noted -- pages 23 and 24

20 of docket item 310 -- the fact that HSBC and Hermitage lawyers

21 showed up to contest the fraud.

22 And the Court says, "Look, at a motion to dismiss

23 stage, I would sustain this. It's going to be up to the

24 government to prove that this amounted to fraud on a foreign

25 bank." And we've provided the bank records that prove that,

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1 which is that HSBC, yes, through a Swiss HSBC entity but still

2 HSBC, the group, on behalf of the Fund, incurred millions of

3 dollars of losses in legal fees.

4 So we are providing details -- new details as soon as

5 we are able to get those details from HSBC, but they're just

6 filling in the picture that this case has involved from the

7 very beginning. And we have in fact passed along the

8 defendants' request for documents. We have been trying to get

9 documents from HSBC. We've gotten documents which completely

10 show our theory, and we're trying to give them more documents

11 to accommodate the defense requests. As soon as we get them,

12 we'll turn them over. But this is filling in the details on

13 the tight schedule that we are all working under in order to

14 litigate this case in an expedited manner of a specified

15 unlawful activity that's been in the very first filing.

16 MR. CYMROT: Judge, it is just not true. I have the

17 second amended complaint. Can I hand it up, please?

18 THE COURT: All right.

19 (Pause)

20 I have it opened to paragraph 15.

21 15 refers to HSBC Guernsey, a different bank. And the

22 theory in the summary judgment motion is not that HSBC Guernsey

23 was defrauded. That's the second theory. The first theory is

24 HSBC Switzerland was defrauded by investing in the Hermitage

25 Fund. That is a different theory --

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1 THE COURT: Is that in the complaint?

2 MR. CYMROT: No. Nowhere in that complaint will you

3 find HSBC Switzerland or any allegation that HSBC --

4 THE COURT: How does HSBC Switzerland come into the

5 picture this afternoon?

6 MR. CYMROT: Because it is in the summary judgment

7 motion and was in the initial disclosures filed --

8 THE COURT: Who filed the summary judgment motion?

9 MR. CYMROT: The government.

10 MR. MONTELEONI: Can I explain?

11 HSBC Switzerland comes in the picture because it's an

12 investor in the Hermitage Fund. The complaint has always

13 alleged that the Hermitage Fund was defrauded. That is

14 absolutely an allegation in the complaint.

15 We now have records showing that the investor -- that

16 an investor in the fund suffered a pecuniary loss, making it a

17 money laundering predicate. In their previous motion papers,

18 defendants essentially conceded that the Fund was defrauded,

19 that the complaint alleged the Fund was defrauded --

20 THE COURT: What fund?

21 MR. MONTELEONI: The Hermitage Fund. This is the

22 investment fund that owned the companies that were taken over

23 by fraudsters who committed this fraud. This fund is a central

24 victim of this fraud scheme. That has always been alleged by

25 the complaint.

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1 We're filling in the details about one of the

2 investors in the fund that very straightforwardly makes this a

3 money laundering predicate, and there are many other ways in

4 which it is a money laundering predicate but this is just the

5 most straightforward one because it is right there in the bank

6 records.

7 MR. CYMROT: I challenge Mr. Monteleoni to take that

8 complaint and show me where HSB Switzerland had invested in the

9 Hermitage Fund and was defrauded. I challenge him to do it.

10 Go pick it up and find it. It's not in there.

11 MR. MONTELEONI: Well, since this conference was not

12 scheduled on this issue, I don't have a copy of the complaint

13 with me. Do you have a copy for me?

14 MR. CYMROT: I'm sure the Judge will pass it to you.

15 It is not in there anywhere.

16 (Pause)

17 THE COURT: Now, look, what has gone on this afternoon

18 is largely unintelligible to me. I'm sorry to say that but it

19 is. You are talking about things all of a sudden that I don't

20 in my own mind have the background. So it is not going to do

21 anybody a lot of good to continue in this vein -- not at all.

22 If there is a motion for partial summary judgment,

23 that can be briefed and I will have the briefs, the papers, and

24 decide that motion.

25 MR. CYMROT: Well, then we'll ask --

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1 THE COURT: Just a minute.

2 MR. CYMROT: Yes. Sorry.

3 THE COURT: If there is a notice of a deposition and

4 there is an objection to that deposition, which I gather there

5 is, I need to rule on that objection, but I am not getting any

6 clarity on that at all. And, therefore, I know time is short

7 but I'll have to have some papers on that. I do not understand

8 what is being discussed. And if you want me to understand it

9 and if there is a motion against the deposition, you will have

10 to file some papers so I can read them. And that's it.

11 But let's not continue this afternoon having lawyers

12 talk in a way that the Court doesn't comprehend. I'm perfectly

13 capable of comprehending when things are presented to me in a

14 form that can be comprehended. That is not going on this

15 afternoon and I'm not going to continue this.

16 So I recommend that you -- if there are other issues

17 to be discussed, you can pose them. But as far as what has

18 gone on thus far, you'll need to file some papers. That's it.

19 MR. CYMROT: All right. Understood. Very sorry that

20 we are not being clear.

21 There are other issues, your Honor.

22 THE COURT: What are the other issues?

23 MR. CYMROT: There are letters, motions in the form of

24 letters to compel certain categories of documents. The

25 government, as you know, has --

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1 THE COURT: Well, there are letters that constitute

2 document demands under the Federal Rules of Civil Procedure, is

3 that right?

4 MR. CYMROT: No. We had document demands. We sent

5 you letters over the last week or so raising a number of issues

6 under your local rule that we should file letters before filing

7 motions. So let me tell you the categories of documents that

8 we have the government has claimed privilege to.

9 THE COURT: So do we now have before the Court an

10 issue about privilege?

11 MR. CYMROT: Yes. We have several issues about

12 privilege in several letters, different categories of

13 documents.

14 THE COURT: Well, let's pose -- who is raising a

15 privilege?

16 MR. CYMROT: The government is raising the privilege

17 and we are objecting.

18 THE COURT: All right.

19 MR. CYMROT: So can I lay out the first category?

20 THE COURT: Please do.

21 MR. CYMROT: All right. The government has taken

22 discovery, as we've discussed many times here, through MLATs,

23 treaties with foreign governments. They are claiming privilege

24 as to the requests they made to the foreign governments and as

25 to the foreign governments' response. So, for instance, the

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1 tracing of money allegedly into the defendant's account, one of

2 the central documents -- series of documents comes from

3 Moldova. It is not an MLAT. It is just a request from the

4 United States government. It is not a treaty request. It is

5 just a request to the Moldova government.

6 THE COURT: From the Department of Justice?

7 MR. CYMROT: Yes.

8 THE COURT: All right.

9 MR. CYMROT: All right. And it requests -- and what

10 came back was something like a spreadsheet. It wasn't bank

11 documents. It was a spreadsheet. We don't know what was

12 requested. We don't know what the Moldovan government said in

13 response. So we had this spreadsheet that is relied upon as

14 the central document in this case --

15 THE COURT: Well, where is it relied on?

16 MR. CYMROT: By the government's expert saying that

17 the money went through Moldova -- the money from the Russian

18 treasury went through Moldova --

19 THE COURT: The government's expert testifying when

20 and where?

21 MR. CYMROT: He will be testifying at trial. His

22 deposition is next Friday. We want --

23 THE COURT: Take the deposition.

24 MR. CYMROT: No. But we need know what the government

25 asked for from the Moldova government to see what they got

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1 back. It's not -- these are not bank records. There is a

2 certificate from a prosecutor who says this is an official

3 document. That is not. We need to know what was said.

4 For instance, there's another example, your Honor.

5 THE COURT: I don't need another example. Let's talk

6 about the first one.

7 MR. CYMROT: OK.

8 THE COURT: Mr. Monteleoni, what about that?

9 MR. MONTELEONI: Yes, your Honor.

10 The documents that we have received in response to our

11 requests, we have turned over. Those are documents --

12 THE COURT: Say what the request was.

13 MR. MONTELEONI: Well, the request certainly was for

14 bank records. Those were bank records.

15 THE COURT: What form did the request take? A written

16 request or what?

17 MR. MONTELEONI: Yes. It was a confidential written

18 government-to-government --

19 THE COURT: Why was it confidential?

20 MR. MONTELEONI: This is -- the uniform practice of

21 the Office of International Affairs is that

22 government-to-government correspondence in conducting

23 investigations of this type are treated as confidential, and

24 these requests involve the attorneys explaining the

25 significance of documents to their case. They are not evidence

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1 themselves, they are work product.

2 If the question is did the U.S. government request the

3 bank records, yes, the U.S. government requested bank records.

4 The officials who were handing us these bank records said that

5 they were bank records. The defendants could have asked the

6 agent who physically received the bank records if he had any

7 questions about what was said, but as far as the documents that

8 we got back, they have those documents. So there is really

9 nothing at issue here.

10 THE COURT: Are they bank records?

11 MR. MONTELEONI: They are. They are kept in a

12 somewhat unusual form, I guess, because it is Moldova. That is

13 how they keep their bank records. But there are charts of the

14 inflows and outflows into accounts and then there are a bunch

15 of payment orders, and those have all been turned over. They

16 are the bank records. They are certified by the investigators

17 as the content of the investigative file. And those are the

18 physical documents that we got back. And knowing that we asked

19 for bank records, it's pretty trivial but I can certainly say

20 we asked for bank records. They don't need to go into the

21 details of what we said in these government-to-government

22 communications.

23 THE COURT: All right. What the government is saying,

24 they requested bank records and the bank records were produced.

25 MR. CYMROT: No, your Honor. They said -- they made a

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1 lot of representations about this case. We know that they have

2 misrepresented to foreign governments things. We know they

3 have said things that would be exculpatory to our case because

4 their case has changed, and we do not know what scope they

5 asked for and we do not know what the Moldova government sent

6 back and said what it was; we don't know that. He has been

7 making representations --

8 THE COURT: Haven't you got what the Moldovan

9 government sent?

10 MR. CYMROT: No. What they sent. But what is it? It

11 is a big spreadsheet that is illegible. All right? It is a

12 big spreadsheet. It does not look like bank records. We all

13 know what bank records look like. This does not look like bank

14 records.

15 MR. MONTELEONI: Bank records take many forms. It

16 actually looks like a number of other bank records that have

17 been produced at other points in the case. But in any case,

18 that has nothing to do with the content of the government's

19 requests to the Moldovans. The government absolutely requested

20 the records for the accounts that these are the records of.

21 They just look funny to a US eye.

22 MR. CYMROT: We don't know that. What accounts did

23 they leave out? And what accounts did they ask for that they

24 didn't get records for that may be relevant to the case? We

25 don't know any of that. And this does not look like bank

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1 records and it's not -- so he's saying things we don't know.

2 We're entitled to that correspondence.

3 MR. MONTELEONI: This is, I really think, a total

4 tangent from the case. The actual evidence --

5 MR. CYMROT: It is central to the evidence.

6 MR. MONTELEONI: The actual evidence is what we have

7 produced. That is what we got. We might like the Moldovans to

8 format it in a way that is more conventional for New York

9 standards but they don't because they are a different country

10 and they keep their bank records the way they keep them.

11 This whole question of the back and forth about the

12 letters that we're sending to other governments is just really

13 not productive when we're trying to get ready for trial.

14 MR. CYMROT: Your Honor, to be clear, we're talking

15 about if this record is inadmissible or if this record is not

16 accurate, then there is no case. This is the central record to

17 tracing money to our client's account. We're entitled to know

18 what was asked for and we're entitled to know what we got other

19 than a representation from the government lawyer.

20 MR. MONTELEONI: Well, you had plenty of opportunity

21 to ask the case agent what oral representations were made by

22 the Moldovan government. And this document is not central to

23 the case --

24 THE COURT: They had plenty of opportunity to do what?

25 MR. MONTELEONI: They could have asked about this in

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1 the various depositions that they took. Regardless --

2 MR. CYMROT: Who? Name somebody.

3 MR. MONTELEONI: Special Agent Todd Hyman. We

4 specifically identified this document range as a set of

5 documents that might be introduced into evidence for them but

6 at your request, which we didn't have to do but we did it to

7 give you notice of this. You didn't ask about this. This now

8 comes up as some basis to get into government-to-government

9 correspondence that really doesn't even bear on it.

10 MR. CYMROT: Your Honor, this is the central

11 document -- one of the central documents in the case. We're

12 entitled to know what was the scope of the request, what they

13 got, what they didn't get, what they didn't ask for. We know

14 there are other situations they didn't ask for exculpatory --

15 THE COURT: Was money sent from Moldova to America?

16 MR. CYMROT: Was what?

17 THE COURT: Was money.

18 MR. MONTELEONI: Yes.

19 MR. CYMROT: We say no. They say yes. They say this

20 money went from Moldova to Switzerland. They say. We don't

21 agree.

22 MR. MONTELEONI: Well, OK. Citibank records and UBS

23 records all confirm it.

24 THE COURT: Excuse me.

25 MR. MONTELEONI: Sorry.

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1 THE COURT: I have some memory that the money which

2 the government claims was laundered went to Moldova.

3 MR. CYMROT: Right.

4 THE COURT: And that there was money forwarded in some

5 form from Moldova to the United States.

6 MR. CYMROT: No. It went to Holland and then --

7 THE COURT: All right. But it went ultimately to the

8 United States and that's why we're sitting here.

9 MR. CYMROT: That's contested, but, anyway, that is

10 the case.

11 THE COURT: It didn't come to the United States?

12 MR. CYMROT: Correct. We have been saying that since

13 day one.

14 THE COURT: Yes, I think you have. All right.

15 But, anyway, the government contends that the money

16 from Moldova ended up in the United States, right?

17 MR. MONTELEONI: Yes, your Honor.

18 THE COURT: OK. Now, that will be obviously an issue

19 for trial. But I don't understand what we're talking about

20 right now.

21 MR. CYMROT: We're asking for -- this is the

22 government's investigation. They went to Moldova. They got --

23 they asked for something -- we don't know what -- and they got

24 something back and we don't know what, but it's in the

25 correspondence between the governments and they don't want to

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1 give it to us.

2 THE COURT: You mean, you don't know what they got

3 back?

4 MR. CYMROT: We have the document they got back. We

5 don't know what it represents, no.

6 MR. MONTELEONI: Yes, you do.

7 MR. CYMROT: No, we don't.

8 MR. MONTELEONI: These are bank records from the

9 account.

10 MR. CYMROT: You say. We don't --

11 MR. MOSCOW: There is no witness.

12 MR. MONTELEONI: That's not correct. Special Agent

13 Todd Hyman was present when it was handed to him. He is a

14 witness. He didn't choose to ask him about it because you had

15 other questions to ask him about.

16 Regardless, this has nothing to do with what's in our

17 letter to Moldova. There is no dispute that we asked for those

18 records to Moldova. You know we asked for those records. This

19 is what we got back.

20 THE COURT: If the government says they asked for

21 these records, well, I have no reason to doubt their

22 credibility that they asked because something was ultimately

23 produced.

24 MR. CYMROT: What did they ask for, Judge? What did

25 they ask for? What did they get? What did they ask for? We

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1 know in other situations that they have made misrepresentations

2 to governments in these correspondence, and we also know,

3 because we went to court in Russia, that they got back

4 responses they didn't like that had exculpatory statements in

5 them. We had to go to the Russian courts to get that exchange.

6 All right?

7 So these correspondence have representations to the

8 government from this government about this case and then

9 responses from the Moldovan government about this case that is

10 very relevant, and we're entitled to know what they said,

11 because they keep changing their story.

12 MR. MONTELEONI: That's not the case, and they have

13 the responses from the other governments. That's what we've

14 turned over.

15 THE COURT: They have the responses from --

16 MR. MONTELEONI: From the other governments. If they

17 think --

18 THE COURT: Answer my question.

19 MR. MONTELEONI: Sorry.

20 THE COURT: Did they have the response from Moldova?

21 MR. MONTELEONI: Yes.

22 MR. CYMROT: We have this document. We don't know

23 whether the Moldovan government said anything about it other

24 than they certified it.

25 THE COURT: I haven't seen the document, but it has

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1 occurred before in litigation that documents appear, are

2 produced, and there are questions about such documents. And

3 there are ways to ask questions about a document. There are a

4 lot of documents that are not entirely as clear as the

5 telephone book, and what happens is there are ways to get the

6 clarification that is needed.

7 If you need clarification, is there a way to do that?

8 MR. CYMROT: No, your Honor. That's the point. We

9 cannot cross-examine the Moldovan prosecutor who put this

10 together for a U.S. prosecutor. We don't know what he was

11 asked and we don't know what he responded, but we can't

12 cross-examine him.

13 THE COURT: Just a minute.

14 MR. CYMROT: Yes.

15 THE COURT: Is there a Moldovan bank that these come

16 from?

17 MR. MONTELEONI: Yes. They come from Banca de

18 Economii in Moldova.

19 THE COURT: All right. So it is not a matter of the

20 prosecutor, it's the bank.

21 Now, are there questions about the meaning of the

22 document? I haven't seen the document. Sometimes documents

23 are self-explanatory, sometimes they're not.

24 I'll ask the government, is this document

25 self-explanatory or is it something that would normally require

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1 questions by some custodian? I ask the government this.

2 MR. MONTELEONI: Yes, your Honor. Paul Monteleoni for

3 the government.

4 It is self-explanatory to people who are accustomed to

5 reading bank records. It is a rather poor quality Xerox, but

6 you can make out what the words are. That's the form that we

7 got it from the Moldovans. But it is entirely

8 self-explanatory. And in any case, it's meaning is not going

9 to be elucidated by the documents that defense counsel is

10 asking for.

11 THE COURT: I suspect that you are right. And I

12 suspect that if there are questions about the document, it will

13 be something that the bankers will have to answer, I hope.

14 MR. CYMROT: But they're not producing the documents

15 from Moldova --

16 THE COURT: Excuse me. I hope that the document is

17 self-explanatory and that we don't have to have some process to

18 question bankers in Moldova. But that is not -- that is where

19 we go, if anywhere, and I am not going to ask the government to

20 disclose what the government request was. I'm not going to do

21 it.

22 So the application for that is denied. If there is a

23 need to have some testimony to elucidate the bank document,

24 I'll entertain such an application.

25 That ends this subject. Next subject.

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1 MR. CYMROT: All right. Can we just be clear that we

2 are talking not just about Moldova but all of the government

3 correspondence government-to-government?

4 THE COURT: I don't know what that question even

5 means.

6 MR. CYMROT: OK. So we've asked for the

7 correspondence -- the application that the United States made

8 to the government of the Netherlands that resulted in the

9 government of Netherlands going to court --

10 THE COURT: Let me interrupt you.

11 MR. CYMROT: Yes.

12 THE COURT: I am not going to require the government

13 to provide information about its requests, period.

14 Next point.

15 MR. CYMROT: OK. All I was asking is it covers all

16 governments?

17 THE COURT: Yes, it does.

18 MR. CYMROT: OK. Thank you.

19 OK. On the government's privilege list are extensive

20 entries of information they received from William Browder and

21 his associates. And we are entitled -- as you will recall,

22 Mr. Browder is the one who brought this case to the government,

23 produced whatever evidence he produced, produced whatever

24 analyses he produced. This doesn't fall in the category of

25 work product because he came to them --

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1 THE COURT: What are you asking for?

2 MR. CYMROT: I'm asking you order them to produce all

3 the documents on their witness list for Mr. Browder and his

4 associates.

5 THE COURT: What does that request even mean?

6 MR. CYMROT: I will show you, your Honor. I'll show

7 you. I'm handing up the privilege log. This is the

8 government's privilege log.

9 THE COURT: All right. A privilege log. All right.

10 MR. CYMROT: OK.

11 THE COURT: I have been given a document. What do you

12 want me do with the document?

13 MR. CYMROT: If you go to the second page, the

14 next-to-the-last entry -- and there is a series of them right

15 after that but we'll start with that one.

16 THE COURT: All right.

17 MR. CYMROT: That is --

18 THE COURT: I've opened to the second page.

19 MR. CYMROT: It is emails during the period of

20 January 2013 to July 2015, email communications between USAO

21 and William Browder regarding information provided to USAO, it

22 says, at the USAO's request. But Mr. Hyman says Mr. Browder

23 brought the information to them.

24 THE COURT: Who is Mr. Hyman?

25 MR. CYMROT: He is the government agent.

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1 THE COURT: His name isn't here.

2 MR. CYMROT: I understand. So we want these

3 communications.

4 THE COURT: All right. What does the government say?

5 MR. MONTELEONI: Well, the information that already

6 existed that got turned over not at the government's request,

7 we've already produced. The only thing that is at issue is

8 when we asked them for information and they created information

9 for us by writing an email in response or by --

10 THE COURT: Who is "they"?

11 MR. MONTELEONI: Sorry. There's several people.

12 Mr. Browder and then other people at Hermitage Capital

13 Management Limited, none of whom the government intends to call

14 as witnesses in its case in chief. These were people who are

15 victims of the crime who they provided us leads, you know,

16 about the crime and information, but we're not bringing the

17 case in reliance on them. We're not planning on calling them

18 as a witness unless there is something that they want to

19 introduce from a deposition that we need to rebut, but they are

20 not our witnesses.

21 We asked them some questions. They gave us answers.

22 Those answers were classic work product because they were

23 statements that were made in response to our questions.

24 If you go back to Hickman v. Taylor --

25 THE COURT: What did they do? Send you letters? Or

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1 what did they do?

2 MR. MONTELEONI: It was mostly emails. We submitted a

3 few for in camera review if the Court wants to take a look.

4 But we would -- we sent some questions to them by email. They

5 would send us some emails in response. Sometimes those emails

6 included preexisting documents as attachments. Those

7 preexisting ones we've turned over. The ones that weren't

8 prepared at our request we've already turned over. This is the

9 ones that were because we asked for something.

10 MR. CYMROT: Your Honor, Mr. Browder is on their

11 witness list.

12 MR. MONTELEONI: Not for our case in chief.

13 THE COURT: I don't understand. I think we ought to

14 have this marked for identification. What is this document?

15 MR. CYMROT: The government's privilege log, your

16 Honor.

17 THE COURT: Let's call it Court's Exhibit X, for

18 identification.

19 This is the government's privilege log, right?

20 MR. CYMROT: It says, "Updated September 24, 2015."

21 It says, "Documents withheld from production," and it's three

22 pages.

23 THE COURT: All right. I have it here.

24 And, now, I have been taken and directed to the second

25 page. For what reason? What is it as the request of a ruling

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1 from me?

2 MR. CYMROT: That you order these documents produced.

3 THE COURT: What documents?

4 MR. CYMROT: The next-to-last entry, July -- I'm

5 sorry, January 2013 to July 2015. That's a two-year-nine-month

6 period, emails to and from Mr. Browder, who is on the

7 government's witness list.

8 THE COURT: All right. Just a minute. Let me read

9 this.

10 MR. CYMROT: I note, your Honor, that this is emails

11 over a two-year and nine-month period. There must be many

12 emails. They are not listed individually.

13 THE COURT: I don't know why these things should not

14 be produced.

15 MR. MONTELEONI: Well, so, your Honor, when a lawyer

16 is corresponding with someone in preparation for a case --

17 THE COURT: Say that again. Start it again.

18 MR. MONTELEONI: So when a lawyer is sending emails to

19 someone in preparation for a case, that's work product. That's

20 protected under Rule 26.

21 And in a situation where someone -- where there's --

22 in a situation where the email itself is something that a claim

23 and defense relies on, then maybe it can be overcome. But when

24 it is just a lawyer talking to someone who is not a witness

25 about preparing for a case, that is classic work product.

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1 Where there are primary source documents, where it is not just

2 something between a lawyer and some nonwitness, then those have

3 been produced. But when a lawyer is asking someone for

4 information that's going to help that person in preparing a

5 case and when that person responds, that's part of a lawyer's

6 work product. That's squarely protected, and we don't believe

7 that it is appropriate to produce it.

8 THE COURT: Let me read what is the description here:

9 "Email communications between the U.S. Attorney's Office and

10 William Browder regarding information provided to the U.S.

11 Attorney's Office at that office's request."

12 MR. CYMROT: Mr. Browder is listed as a witness in the

13 government case.

14 THE COURT: Just a minute.

15 (Pause)

16 I'm going to amend what I said a moment ago. It seems

17 to me that the government has a right to have communications

18 with potential witnesses and that those communications, if they

19 are designed to help get prepared for trial or investigate the

20 case, those communications I would think would be privileged.

21 Now, the facts of the case, of course, that's known to

22 Mr. Browder can be explored by defendants in deposing him.

23 Obviously, you have a right to get in your way, through your

24 facilities -- and I'm addressing the defense lawyer -- you have

25 a right to get information from Browder, but it seems to me you

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1 don't get it secondhand by going through the investigation made

2 by the government. And that is my ruling.

3 Next point.

4 MR. CYMROT: Yes, your Honor.

5 The next point is the next entry, which is

6 Mr. Browder's associates. And I want to be clear, your Honor,

7 that even --

8 THE COURT: What are you talking about now?

9 MR. CYMROT: The one at the bottom of the page that

10 goes over to the next page.

11 THE COURT: What does it say?

12 MR. CYMROT: "Email communications between U.S.

13 Attorney's Office and Vadim Kleiner or other Hermitage

14 employees or agents regarding information provided to the U.S.

15 Attorney at the U.S. Attorney's request," it says.

16 So to be clear, your Honor, this is not the attorney's

17 communication, this is information provided by Browder,

18 Hermitage and his associates and his associates.

19 THE COURT: To whom?

20 MR. CYMROT: To the U.S. Attorney's Office.

21 THE COURT: That is the answer to the question, and

22 the objection is sustained.

23 MR. CYMROT: All right. To be clear, there is -- just

24 so the record is clear, your Honor, if there is a privilege, it

25 can be overcome by need.

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1 THE COURT: By what?

2 MR. CYMROT: By need. And these are central people.

3 Mr. Browder you know brought this case, and this is information

4 he is providing. It is not the attorney's communication. It

5 is information the witness is providing.

6 THE COURT: I'm looking at the very bottom entry. It

7 says: "Email communications between USAO and" --

8 MR. CYMROT: Vadim Kleiner.

9 THE COURT: "Kleiner or others."

10 MR. CYMROT: And it goes over to the next page.

11 THE COURT: All right. Let me go to the next page,

12 please.

13 (Pause)

14 Hermitage -- let's see if this is intelligible. Wait.

15 I'll start with the previous page.

16 "Email communications between the U.S. Attorney's

17 Office and Kleiner or other Hermitage employees or agents

18 regarding information provided to the U.S. Attorney's Office at

19 the U.S. Attorney's Office request."

20 Let me just think about that. Just a second.

21 (Pause)

22 It seems to me this would be a classic case of

23 investigation. In other words, the government is investigating

24 by talking to Kleiner and other Hermitage employees or agents.

25 MR. CYMROT: This isn't the communications of the

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1 government. This is information provided by a witness.

2 THE COURT: Well, look, of course it is. That is

3 exactly what I just said. In other words, the government is

4 investigating and they're talking to people. What else would

5 they do? And it seems to me that you can't get those

6 interviews and so forth --

7 MR. CYMROT: This isn't interviews yet. We are not

8 asking interviews. This is information provided by a

9 witness --

10 THE COURT: "Information" is a big term.

11 MR. CYMROT: Well, they -- it certainly is. In two

12 years and nine months of emails in one entry, or information in

13 one entry, is not an adequate privilege log. It should be

14 produced on that grounds alone.

15 But this is information, that's what they've said,

16 provided by the witness. We're entitled to information

17 provided by the witness. It doesn't disclose the attorney's

18 thought process. This is classic relevant information from

19 central witnesses. We should be entitled to that.

20 THE COURT: Well, it seems to me that you should lay a

21 groundwork for this. And you certainly have a right to ask,

22 and maybe this will be objected to, but -- let me go back a

23 step.

24 (Pause)

25 The previous item refers specifically to William

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1 Browder.

2 MR. CYMROT: Right.

3 THE COURT: Here, the reference is to Kleiner or other

4 Hermitage employees.

5 Now, there surely is a sensible way, without expanding

6 the work and so forth unreasonably, there must be a way to find

7 out what Hermitage employees or agents would be likely

8 witnesses or likely sources of information that the defendants

9 are entitled to get. But I don't think that is the same as

10 saying that you get the communications in which the government

11 was making the investigation. It seems to me you are entitled

12 to know sources of evidence that you would want to explore

13 through depositions or trial subpoenas, or whatever, but not

14 this device.

15 So the objection is sustained as to getting what is

16 referred to here. If there is some other request you make,

17 then you can forward that request to the government and they

18 can respond, and if there is an issue, the Court can rule. But

19 the objection to producing this particular item is sustained.

20 Next point.

21 MR. CYMROT: The next item.

22 "January 31, 2013, typewritten report of

23 investigation, memorandum of interviews with William Browder

24 and Vadim Kleiner from January 28, 2013, prepared by Special

25 Agent Todd Hyman."

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1 THE COURT: Is there an objection?

2 MR. CYMROT: Yes.

3 THE COURT: Sustained.

4 MR. CYMROT: Typewritten -- 17 typewritten reports of

5 investigation discussing investigative --

6 THE COURT: Where are you reading from now?

7 MR. CYMROT: Next item. I'm sorry, your Honor.

8 THE COURT: All right.

9 MR. CYMROT: It is dated February 26, 2013 - April 16,

10 2015. So it is quite a long time period. "17 typewritten

11 reports of investigation discussing investigative steps taken."

12 THE COURT: Is there an objection?

13 MR. CYMROT: Yes.

14 THE COURT: Is there an objection?

15 MR. MONTELEONI: Yes. The government objects to all

16 of these.

17 THE COURT: Sustained. Sustained.

18 Next point.

19 MR. CYMROT: This is a different type of document,

20 your Honor, now. This is --

21 THE COURT: It may be a different type of document but

22 the objection is sustained.

23 MR. CYMROT: No. No. I'm moving on to the next

24 entry.

25 THE COURT: OK.

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1 MR. CYMROT: The next entry, where it says "Word

2 documents PDFs January 2013 to September 2015, summaries and

3 analyses prepared by Vadim Kleiner and other Hermitage

4 employees at U.S. Attorney's request concerning Hermitage

5 information provided to the U.S. Attorney."

6 Now, what this refers to, your Honor, I believe is the

7 tracing of money into the defendant's bank account and analyses

8 done not by the government but by a third party. Highly

9 relevant information that they are claiming privilege to.

10 We're not asking for what the government asked on this

11 occasion, which is true in the other entries as well; we're

12 asking for what a third party did, the summaries and analyses,

13 what a third party did allegedly to put money from the Russian

14 treasury into our client's bank account.

15 MR. MONTELEONI: May I respond to that, your Honor?

16 THE COURT: Yes.

17 MR. MONTELEONI: The initial tracing analysis, that

18 was prepared not at the government's request, was already

19 turned over. After that the government asked for various types

20 of analysis, not just that but other questions about the case.

21 And whether they came in Word documents, in PDFs, I think there

22 should be Excel files there, there were a few things that the

23 people who we asked questions of pulled together for us at our

24 request. And it's the exact same principle as their emails.

25 Whether it is an email or an attachment, if they were making it

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1 for our request for our investigation, it is the same principle

2 so we have the same objection.

3 MR. CYMROT: Your Honor, we never got the initial

4 analysis.

5 MR. MONTELEONI: The December -- it is the

6 December 2012 District Attorney's office submission. It was

7 Browder Exhibit 1, I think, at his deposition.

8 MR. CYMROT: That is the letter. That is not --

9 MR. MONTELEONI: With attachments.

10 THE COURT: The thing is we're really -- we're getting

11 repetitious here. The principle I'm working on is that

12 anything prepared by the U.S. Attorney's Office or anything

13 prepared at the request of the U.S. Attorney's Office I will

14 sustain an objection to.

15 Now, that, as I've said many times this afternoon,

16 that does not deprive the defense of getting the facts but

17 you've got to get it in your own way. You notice depositions.

18 You make document requests. But you don't have the government

19 doing your work for you. Not that you really want that, and I

20 don't mean that snidely, I really don't. But that's the

21 principle I'm working on.

22 And so if we're on the January 2013 to September 2015,

23 the objection is sustained.

24 MR. CYMROT: All right. The next one is a different

25 category of documents, your Honor.

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1 THE COURT: All right.

2 MR. CYMROT: It is the next one down.

3 "Email -- October 2013 to July 2015, email

4 communications between the U.S. Attorney's Office and Andrey

5 Stolbunov, investigations of Denis Katsyv." Mr. Katsyv owns

6 the defendants. "And Petr Katsyv," that's his father,

7 "conducted by his organization," Mr. Stolbunov's organization,

8 "related matters."

9 We have not been given this investigation.

10 THE COURT: Let me read this.

11 MR. CYMROT: And this doesn't say --

12 THE COURT: Give me just a little leisure to read

13 this, please.

14 (Pause)

15 This is a little ungrammatical.

16 MR. MONTELEONI: Yes, your Honor. I apologize. I

17 wrote that. Can I explain?

18 THE COURT: You don't have to apologize. Just give me

19 an explanation. You know what I'm talking about.

20 MR. MONTELEONI: Sure. It should have said "regarding

21 investigations," and it also should have said "provided at the

22 U.S. Attorney's Office request." The documents that are -- and

23 we're happy to provide an amended privilege log that includes

24 those words. That was a grammatical oversight by me as I was

25 writing this in haste.

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1 But, again, we produced --

2 THE COURT: Wait a minute. Wait a minute. Let me get

3 a pen.

4 What are the changes we are making?

5 MR. MONTELEONI: I would -- after the word

6 "Stolbunov," you can insert the word "regarding."

7 THE COURT: I've done that.

8 MR. MONTELEONI: And after the word "matters," you can

9 insert "provided to the USAO at the USAO's request."

10 THE COURT: Say that again.

11 MR. MONTELEONI: "Provided to the USAO at the USAO's

12 request."

13 THE COURT: If it is mechanically convenient, I think

14 I would provide an amendment with that wording. That clarifies

15 that passage.

16 MR. MONTELEONI: Yes, your Honor. We will do that.

17 THE COURT: Let me read it now as amended.

18 (Pause)

19 Well, let's think about this one.

20 MR. CYMROT: Can I explain what it refers to, your

21 Honor? Who Mr. Stolbunov is?

22 THE COURT: Yes. Go ahead.

23 MR. CYMROT: Mr. Stolbunov is associated with the man

24 who has been convicted in Russia of extorting Mr. Katsyv and

25 other people. And whatever investigation he claims he did, he

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1 did not do at the request of the U.S. Attorney's Office.

2 Mr. Stolbunov has been trying to get information about

3 Mr. Katsyv for many years to use as part of an extortion

4 scheme.

5 And so we're talking about information that

6 Mr. Stolbunov did not collect at the request of the U.S.

7 Attorney's Office but delivered on the request to the U.S.

8 Attorney's Office about information that he collected

9 independently.

10 Mr. Stolbunov is Russian. This is a civil case where

11 Rule 45 is supposed to apply but doesn't seem to because the

12 government takes discovery abroad pursuant to criminal process,

13 and we are entitled to information in the hands of the United

14 States --

15 THE COURT: I agree with the defense. The objection

16 is overruled.

17 MR. MONTELEONI: Your Honor --

18 THE COURT: Next point. Next point.

19 MR. MONTELEONI: If I may be heard briefly on this

20 because I haven't been heard on this yet?

21 This is the exact same principle as the previous ones

22 except it's someone who we've told the defendants we do not

23 intend to call as a witness. So this is -- we've already given

24 the preexisting materials. The materials that he's talking

25 about that were the focus of his oral remarks, those have been

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1 disclosed. It's the emails where we ask for it and where he

2 gives it to us that haven't been disclosed, and that's because

3 it's the exact same principle. We're investigating.

4 THE COURT: Look here -- look here. The previous item

5 talks about summaries and analyses prepared by such and such at

6 the U.S. Attorney's Office request -- prepared at the U.S.

7 Attorney's Office request. Now, in my view, that was

8 important. That is not the case with the next item, which

9 talks about email communications -- wait a minute. I am going

10 to interrupt myself. Just a minute.

11 (Pause)

12 MR. CYMROT: The prior item --

13 THE COURT: Just a minute.

14 (Pause)

15 The foundational language in the next one is

16 "communications between the U.S. Attorney's Office and

17 Stolbunov," or whatever his name is. That is the pivotal

18 language, and I'll just -- if it is necessary for me to amend

19 what I already said, the objection is sustained.

20 Next item.

21 MR. CYMROT: The next item refers to "HSI New York."

22 I'm not sure what that refers to, your Honor.

23 MR. MONTELEONI: That is the New York field Office of

24 Homeland Security Investigations.

25 MR. CYMROT: Let's skip that one.

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1 The next one you've ruled on, your Honor, which is the

2 foreign government request.

3 THE COURT: All right. All right.

4 MR. CYMROT: And the final one is "Suspicious activity

5 reports."

6 THE COURT: Now, where are we now? Where are we?

7 MR. CYMROT: The last item.

8 THE COURT: Oh, yes.

9 OK. I'll sustain an objection to that.

10 Now, look, do we need to do anything else this

11 afternoon?

12 MR. MONTELEONI: No, your Honor.

13 MR. CYMROT: One second, your Honor.

14 (Pause)

15 We have one other item.

16 THE COURT: All right, please.

17 MR. CYMROT: Your Honor, you ordered the government to

18 produce relevant documents from other agencies -- Treasury,

19 State and other agencies of the government -- relating to this

20 case. This case --

21 THE COURT: Start again. Start again. I wasn't

22 following.

23 MR. CYMROT: I'm sorry. You had previously ordered

24 the government to produce documents relevant to the allegations

25 in this lawsuit from eight other agencies, like the Treasury

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1 Department, the State Department and other agencies, the FBI.

2 They came back and said there are no such documents because

3 they define what they ask for too narrowly.

4 They make allegations in the complaint about the

5 Magnitsky law. The Magnitsky law is implemented by the

6 Treasury Department and the State Department. They have a

7 process where if there were credible evidence that our clients

8 received money from the Russian treasury related to

9 Mr. Magnitsky, that they would be on an OFAC list.

10 THE COURT: They would be on a what?

11 MR. CYMROT: An OFAC, the Office of Foreign Asset

12 Control list, where all their assets would be seized and we

13 wouldn't have to be here because their assets would already be

14 seized. And they haven't been. Meaning those departments have

15 investigations into the same allegations and not found credible

16 evidence that our clients received the money that the U.S.

17 Attorney's Office says they received. We're entitled to those

18 files.

19 You have ordered it. The government is not producing

20 it.

21 MR. MONTELEONI: That is not true.

22 MR. CYMROT: Because they say those agencies didn't

23 work on this particular case. We're talking about the

24 Magnitsky law, which is alleged in the complaint.

25 MR. MONTELEONI: Your Honor, I need to correct what

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1 counsel said.

2 About a month ago, defense counsel asked for documents

3 from all manner of other agencies, and we responded that we

4 produced the records that we have and that the people who were

5 conducting our investigation have and that we don't know what

6 these other agencies have or don't have but we didn't rely on

7 them, they weren't part of the investigation.

8 And then the Court ruled. And what you ruled was that

9 if an agency participated in or conducted the investigation,

10 then it has to produce the documents. That is the -- that is

11 the scope of the Court's ruling, and it is a sensible scope of

12 the ruling because whatever the Treasury Department or the

13 National Security Agency the defense is now asking for did or

14 didn't do, we don't know, we don't have those documents, we

15 weren't relying on those documents, and they are not a part of

16 this case.

17 We do mention that a law exists as background, but

18 this is just a total fishing expedition. And it is a fishing

19 expedition that you've already said is not appropriate because

20 we need to focus on the trial of this case, not of whatever the

21 National Security Agency is doing or not doing.

22 MR. CYMROT: Can I quote, your Honor, from

23 September 24th?

24 THE COURT: OK.

25 MR. CYMROT: You said that they should produce "any

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1 branch of the government who participated in the

2 investigation."

3 MR. MONTELEONI: Start two sentences back.

4 MR. CYMROT: I have our letter. Do you have the

5 order? Oh, it is your letter. I'm quoting your letter, OK.

6 So I'll quote the whole sentence. This is the

7 government's letter. "On September 24, 2015, the Court ruled

8 that because this case arose from an investigation, 'Any branch

9 of the government that participated in the investigation or did

10 its investigation must produce documents.' That's the ruling.

11 No more. No less."

12 That's the government's -- quote from the government's

13 letter of October 26, 2015, docket number 383.

14 These other agencies did their investigations of the

15 same facts. The government has -- the U.S. Attorney's Office

16 has not asked them. These agencies have relevant information

17 to this lawsuit. The government has to produce it. The United

18 States is the party here, not the U.S. Attorney in Manhattan.

19 MR. MONTELEONI: That is the, quote, monolithic view

20 of government, end quote, that in a criminal discovery context,

21 where a defendant's liberty is on the line, the Second Circuit

22 and courts in the Second Circuit completely reject, and,

23 really, it's just not part of this case. And there's no way

24 that we can litigate this trial on December 7th if we have to

25 go on a fishing expedition into the National Security Agency.

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1 It's just a total tangent that has nothing to do with this

2 case.

3 MR. CYMROT: I am talking about relevant information

4 relating to our clients.

5 THE COURT: Look. Look. Look. Look. Look. Would

6 somebody again read my ruling?

7 MR. CYMROT: Yes, your Honor. I'll read it again.

8 This is from the government's letter. "On

9 September 24, 2015, the Court ruled that because this case

10 arose from an investigation, any branch of the government that

11 participated in the investigation, or did its investigation,

12 must produce documents."

13 THE COURT: All right. Now, has the government

14 checked out whether there is any information in the government

15 in response to that request?

16 MR. MONTELEONI: We have not contacted agencies that

17 did not participate in our investigation. We don't know

18 whether they did an investigation or not. We need -- some of

19 this information is classified. Getting access to it, if it

20 exists, would be an extremely time-consuming endeavor. And the

21 investigation that the Court said we had to check about is the

22 investigation that led to this case. Whatever they did or

23 didn't do, which we just don't know, it was not relied on and

24 is not at issue here.

25 THE COURT: Well, what the government has said is

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1 really the sensible interpretation of my ruling. I wanted to

2 know if there was, in connection with this matter --

3 MR. CYMROT: If we are talking about this matter --

4 THE COURT: Excuse me.

5 MR. CYMROT: They haven't asked. He just said they

6 haven't asked.

7 MR. MONTELEONI: We know that they didn't provide

8 documents to us.

9 MR. CYMROT: That doesn't mean they didn't investigate

10 this matter.

11 MR. MONTELEONI: They are not involved in this

12 investigation. The Court was just explaining its own ruling,

13 counsel.

14 (Pause)

15 THE COURT: Let me ask the government attorney, have

16 you checked out my request?

17 MR. MONTELEONI: Yes, your Honor.

18 THE COURT: And is there anything to be produced in

19 response to my request?

20 MR. MONTELEONI: No, your Honor. We have made our

21 production. We always continue to review if there are new

22 documents, but there is --

23 THE COURT: That's the answer.

24 I am not going to expand indefinitely this case, and

25 the government has responded to my request.

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1 And that concludes the day. Thank you.

2 THE CLERK: Thank you all. We will stand adjourned.

4 - - -

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1 UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x

3 UNITED STATES OF AMERICA,

4 v. 13 CV 6326 (TPG)

5 PREVEZON HOLDINGS, LTD, ET

AL.,
6
Defendants.
7
------------------------------x
8
New York, N.Y.
9 NOVEMBER 2, 2015
4:00 p.m.
10

11 Before:

12 HON. THOMAS P. GRIESA,

13 District Judge

14
APPEARANCES
15
PREET BHARARA
16 United States Attorney for the
Southern District of New York
17 PAUL M. MONTELEONI
MARGARET GRAHAM
18 Assistant United States Attorney

19 BAKER & HOSTETLER, LLP

Attorneys for Defendant Prevezon
20 MARK CYMROT JOHN MOSCOW

21

22

23

24

25

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1 (Telephone conference; in chambers)

2 MR. MOSCOW: John Moscow, for the defendants.

3 MR. MONTELEONI: Good afternoon, your Honor.

4 Paul Monteleoni and Margaret Graham, for the

5 government.

6 THE COURT: Mr. Moscow, is that right?

7 MR. MOSCOW: Yes, your Honor. I'm here with Mark

8 Cymrot.

9 THE COURT: It's not entirely clear to me what we're

10 supposed to accomplish this afternoon but I think the lawyers

11 can state what you would like to, what you believe the issues

12 are that need to be dealt with.

13 MR. MOSCOW: Your Honor, we have been asking for a

14 conference to discuss the government's withholding of documents

15 on what we believe to be an unbased, precisely unbased claim of

16 privilege. They claim that there is a joint interest, common

17 interest privilege, which is not so. They claim that there's a

18 law enforcement privilege which they have not established at

19 all. And they claim that there's work product but the work

20 product covers documents which they have received from

21 Hermitage and which they have sent to Hermitage which suggests

22 that Hermitage is working for them or they're working for

23 Hermitage. We're entitled to know -- when Hermitage brought

24 this case we were entitled to know what documents it has

25 produced and what it has withheld, just as we're entitled to

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1 know what documents the government has asked for and what it

2 has not asked for. So we are asking for the production of

3 documents which we have been from the very beginning and the

4 government has been asserting privilege. Now we need the

5 documents.

6 THE COURT: What are these documents? Can you just

7 describe them in a way that I can understand? What are the

8 documents?

9 MR. MOSCOW: Well, the government produced a privilege

10 log claiming that all their communications with Hermitage are

11 covered but -- not all their communications, a large number of

12 their communications are covered by privilege without

13 articulating further the basis.

14 THE COURT: Before we get into privilege, what are the

15 documents that you are talking about?

16 MR. MOSCOW: We're seeking, your Honor, to get

17 whatever Hermitage has sent to the government that the

18 government has not produced. And we are seeking the

19 communications between Hermitage and the government about who

20 the witnesses are, what the witnesses should be told to say.

21 These two groups of people (inaudible extremely closely and

22 we're entitled to know what the communications are.

23 THE COURT: I'm sorry to tell you that you are going

24 too fast for me. I don't have the background you have and I

25 don't understand what you are speaking of. My question is,

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1 what are the documents in question? What are they? Can you

2 describe them?

3 MR. MOSCOW: In large part we're seeking memoranda and

4 correspondence between Hermitage and Southern District. But I

5 cannot tell you with precision what they say because the

6 privilege log does not give us a date or anything about the

7 contents or any reason why it is privileged.

8 THE COURT: You are getting now --

9 MR. MOSCOW: Except that we know that they have been

10 communicating and we are seeking the written records of those

11 communications as part of our defense.

12 THE COURT: Now, look --

13 MR. MOSCOW: May I give an example? There are

14 spreadsheets that have been given to the government. I would

15 like to know who generated those spreadsheets but I have to

16 have them. I don't. There are synopses and analyses of

17 documents. We don't have those. And we are entitled to have

18 them. The router people at Hermitage have done a lot of work

19 and they have given stuff that is not based as on our analysis

20 shows on bank records to the Southern District and we are

21 looking to see what analysis has been given. We -- maybe we

22 will be able to prove as we can with some things that these are

23 exculpatory, absolutely truly exculpatory but we need the

24 spreadsheets. We need the work papers. We need the analyses

25 that Hermitage has given and that the government has received.

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1 THE COURT: I don't find the telephone conference very

2 enlightening. And it seems to me that what we need to do is to

3 have a conference in court where at least examples of the

4 documents are brought to Court because I don't really know what

5 you are talking about.

6 MR. MOSCOW: OK. Then what is convenient for the

7 Court? We will be there other than November 10 when we are

8 committed.

9 THE COURT: Just a minute. Just a minute.

10 COURTROOM DEPUTY: Counsel, would you want to meet

11 later this week or what is your schedule?

12 MR. MOSCOW: We're free this week. I believe Mark is

13 that convenient.

14 MR. CYMROT: Wednesday would be the best day for me.

15 MR. MONTELEONI: Wednesday is not good for the

16 government but later this week.

17 COURTROOM DEPUTY: Friday, gentlemen?

18 MR. MONTELEONI: Yes, we could meet on Friday, for the

19 government.

20 MR. CYMROT: It would have to be in the afternoon.

21 COURTROOM DEPUTY: 2:30 in the afternoon this Friday,

22 November 6?

23 MR. MOSCOW: OK.

24 MR. CYMROT: OK.

25 THE COURT: All right. We'll have a meeting then and

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1 bring down what you are talking about.

2 MR. MOSCOW: Yes, your Honor. We'll bring samples of

3 documents for in-camera review.

4 THE COURT: All right. Very good. So we're on for

5 2:30 Friday, November 6.

6 Very good. Thank you very much.

7 (Adjourned)

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1 UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x

3 UNITED STATES OF AMERICA,

4 v. 13 Civ. 6326 (TPG)

5 PREVEZON HOLDINGS, LTD., et

al.,
6
Defendants.
7
------------------------------x
8
New York, N.Y.
9 October 20, 2015
4:10 p.m.
10

11 Before:

12 HON. THOMAS P. GRIESA,

13 District Judge

14
APPEARANCES
15
PREET BHARARA
16 United States Attorney for the
Southern District of New York
17 MARGARET GRAHAM
PAUL MONTELEONI
18 CRISTY PHILLIPS
Assistant United States Attorneys
19
BAKER & HOSTETLER, LLP
20 Attorneys for "The Prevezon Defendants"
BY: JOHN W. MOSKOW
21 LOURA ALAVERDI
NICK ROSE
22

23

24

25

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1 (Case called)

2 THE DEPUTY CLERK: All parties present, your Honor.

3 This is a status conference.

4 THE COURT: Sit down, please. I don't think there is

5 anything terribly difficult to cover but there are some things

6 that have to be covered.

7 There was a deposition taken of a certain person and

8 it is my understanding that the government wants to use that

9 deposition at the trial. Now, at the time of the deposition

10 the defendants served this person with a subpoena to testify

11 and produce documents at the trial. The government has moved,

12 and I think this has been done through letters and that's

13 okay -- the government has moved to quash that subpoena. Now,

14 correct me if I am wrong but it is my understanding that this

15 person resides abroad.

16 MR. MONTELEONI: That's correct, your Honor.

17 THE COURT: And does not reside in the United States.

18 MR. MONTELEONI: That's correct, your Honor. He's

19 staying here for a few weeks with his family as a safety

20 measure but he does not reside here in any way.

21 THE COURT: Again, subject to correction, it would be

22 my view that he has a right to return home, that he really is

23 not subject to being subpoenaed and compelled to testify at the

24 trial because he lives abroad and, therefore -- let me

25 interrupt myself. Is it correct he intends, shortly, to return

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1 to his home?

2 MR. MONTELEONI: That's correct, your Honor.

3 THE COURT: Okay. Abroad?

4 MR. MONTELEONI: Yes.

5 THE COURT: Well, what that means, I believe, and

6 Mr. Moscow I want to hear from you, obviously, but subject to

7 your comments it seems to me that he cannot be compelled to be

8 here for the trial and that the subpoena served on him must be

9 quashed and that at the trial, since he is an absent person

10 living abroad, his deposition can be read.

11 MR. MOSKOW: Might I be heard on that?

12 THE COURT: Oh, please do. Please. Keep seated

13 because I will hear you through the microphone a lot better.

14 MR. MOSKOW: First, the witness whose name I do not

15 use the government says is assertedly at risk and, quite

16 frankly, we are --

17 THE COURT: Just a little slower.

18 MR. MOSKOW: Okay.

19 The government asserts that he is at risk.

20 THE COURT: Right.

21 MR. MOSKOW: He came to the United States, his family

22 has been here for months. They have been paid for by the

23 government. They have been protected by the government. They

24 have been provided money for food, rent, telephones and other

25 services by government agents.

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1 Now, I don't believe that there is any merit to a

2 claim of risk. I am addressing this, your Honor, because it

3 goes very much to the interest.

4 THE COURT: I just want to hear you. You don't

5 believe there is any merit to what did you say?

6 MR. MOSKOW: The claim that he is at risk.

7 I believe that this witness is giving evidence against

8 people who, after the depositions, have been shown to be

9 businessmen and an academic against companies that are defunct

10 where the economic transactions that are asserted have nothing

11 to do with risk. So, I think this is theatrics. I think the

12 government is gilding the lily here. But, the point I would

13 like to make --

14 THE COURT: Mr. Moscow, look. I did not say in my

15 statement anything about risk.

16 MR. MOSKOW: I know that. I thank you. If I may?

17 THE COURT: Go ahead.

18 MR. MOSKOW: The error here is that his deposition was

19 in fact thwarted --

20 THE COURT: Was what?

21 MR. MOSKOW: Stopped. He would not answer questions

22 going to his interest and his bias and his dealings with the

23 government. He asserted privilege, he asserted all sorts of

24 things. So, when I asked him who met him at the airport he

25 said that's privileged. Well, actually it isn't. It isn't

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1 privileged under U.S. law, it isn't privileged under New York

2 Law. It isn't privileged under Russian law.

3 THE COURT: When was the deposition?

4 MR. MOSKOW: October 1 and October 2.

5 I would like the opportunity to get answers to the

6 questions about who is paying him, how many of Browder's

7 associates does he represent, how much has he gotten from

8 Browder, when did he send these documents to Browder's

9 associates, how did he hook up with the United States.

10 The government says that he is unaware of what this

11 case is about but that's not his testimony.

12 THE COURT: I'm going to interrupt you.

13 MR. MOSKOW: Sure.

14 THE COURT: You had a right to do two things. If he

15 or a lawyer made objections at the deposition and refused to

16 answer certain questions, you had a right to come to the Court

17 to get a remedy and require him to answer the questions.

18 Second, I had something in mind and it slipped my mind

19 a minute but my point is -- oh, I think what I wanted to say,

20 and I hope it is relevant, is that if you believe that his

21 deposition should be continued and that there should be further

22 questions on depositions, you have a right to request the Court

23 to assist in having that done if that cannot be done by

24 agreement.

25 MR. MOSKOW: I would endorse that and I would ask that

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1 that be done for this week.

2 Mr. Monteleoni, I understand that we are all extremely

3 busy but I would ask that we attempt to complete the deposition

4 with answers to the questions Thursday or Friday of this week

5 unless you want Wednesday.

6 THE COURT: What about that?

7 MR. MONTELEONI: Well, your Honor, this witness has

8 already been deposed for seven and a half hours and he has made

9 very clear that his privilege assertions are based on the

10 statutory law of the Russian Federation and his own ethics code

11 which could expose him to professional discipline. And let me

12 give an example as to why this is collateral. The witness --

13 THE COURT: What is collateral?

14 MR. MONTELEONI: These questions that Mr. Moscow

15 wishes to ask this witness about, other clients that he had and

16 legal representation he provided in Russia.

17 The witness took pictures of documents, pictures like

18 this. We don't have to go through them right now but they're

19 pictures of documents and we are asking him to testify, yes, I

20 took those pictures and to explain the circumstance of his

21 taking those pictures. That's what his testimony is about, he

22 is not someone who has a very deep connection to the case, he

23 is someone who is in a position to take pictures like this of

24 documents that turn out to be of importance to the case. The

25 defendants have had those documents for three months, they've

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1 had them months before they deposed him. They asked him

2 numerous questions about taking the pictures and there is

3 really no need to subject this person who has gone to extreme

4 inconvenience to more questioning.

5 THE COURT: Well, wait a minute. Wait a minute. I

6 assume that the government brought him to the United States to

7 be deposed, right?

8 MR. MONTELEONI: That's correct. And he was.

9 THE COURT: All right.

10 MR. MOSKOW: He was not, that's the problem.

11 THE COURT: Wait a minute.

12 MR. MOSKOW: Sure.

13 THE COURT: I haven't read the deposition but you

14 probably summarize it but go into it again. What did he

15 testify to?

16 MR. MONTELEONI: He is going to testify that he was

17 granted access to a court file and in accordance with the

18 procedure by which --

19 THE COURT: Is this what he did testify about?

20 MR. MONTELEONI: Yes, absolutely. Sorry. That is

21 what he testified about.

22 THE COURT: Okay, start again. Start again.

23 MR. MONTELEONI: Sorry.

24 So, he testified that he is an attorney, he was

25 granted access to a court file in connection with his work, he

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1 went to the court that houses the court file, he spent several

2 days taking photographs of the pages of the court file which is

3 the way that attorneys copy legal documents in Russia. He is

4 going to testify he allowed copies to be made of those

5 documents onto a hard drive and that he spot-checked the hard

6 drive and found that in fact the pictures on the hard drive are

7 the pictures that he took, that --

8 THE COURT: Wait a minute.

9 MR. MONTELEONI: Sure.

10 THE COURT: And what has the government gotten from

11 him?

12 MR. MONTELEONI: A hard drive containing a number of

13 pictures that he took.

14 THE COURT: Now look. What's the relevance of the

15 pictures?

16 MR. MONTELEONI: Well, the pictures are from a Court

17 file that actually has extremely important information for the

18 case because it involves the fraud in Russia and it involves

19 the bank statements that show that the money ultimately went to

20 the defendants. So, the court file pictures that he took,

21 they're pictures of very important documents but he doesn't

22 know what's important and what's not important, he just knows

23 the pictures on the hard drive are the pictures that I took.

24 THE COURT: How did the government find out about that

25 he did it?

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1 MR. MONTELEONI: He directly contacted the government

2 and also members of Hermitage were aware that he had gotten

3 access to the file. Hermitage, as you recall, is one of the

4 victims of this fraud. And, they also notified us.

5 THE COURT: Just a minute. Just a minute before we go

6 further.

7 Is it correct that he did not participate in whatever

8 transactions are at issue here? You know what I'm talking

9 about?

10 MR. MONTELEONI: Absolutely. His only connection to

11 the case is photographing this file.

12 THE COURT: And the government brought him here to

13 have him deposed about what you have just been speaking of?

14 MR. MONTELEONI: Exactly.

15 THE COURT: In order to authenticate the relevant

16 documents.

17 MR. MONTELEONI: Exactly; and he was deposed over two

18 days for seven and a half hours of defense deposition and two

19 hours of government deposition, approximately. He testified

20 extensively about authenticating these documents.

21 THE COURT: I don't know why it would take so long but

22 that's past. Well, what is there left to do with him?

23 MR. MONTELEONI: We believe there is nothing that's

24 left to do.

25 THE COURT: Mr. Moscow?

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1 MR. MOSKOW: It is hard to know where to begin.

2 This is a man who has represented a number of

3 Hermitage persons, people associated with Browder, people

4 involved in events described in the complaint. He is not

5 personally alleged to have done anything, he is alleged to have

6 represented them. We believe he has represented them.

7 However, he wouldn't identify his clients other than one and he

8 said he had her permission, in writing, to give the documents

9 to the government and what was missing was any reference in the

10 writing to the government.

11 But, his credibility is important because he got the

12 documents from the Russian Court, I believe we can demonstrate,

13 by misrepresenting, by fraud, as to what he was going to do.

14 He used a camera. He took pictures of compact disks, pictures

15 of compact disks containing financial data and produced the

16 pictures but not the data. He does not affirm nor does he deny

17 that he downloaded the CDs. He does not -- he asserts that he

18 does not recall. He sent this material to his clients in March

19 or April of 2014.

20 THE COURT: Who was his client?

21 MR. MOSKOW: He won't say. He won't say how much he

22 is being paid. He won't say how much Browder is paying him to

23 be this ignorant volunteer who only knows that he is helping

24 chase people that stole money. That's what he knows. He is

25 getting well paid for it, we believe, but he won't answer

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1 questions like who are your clients. I am not asking what did

2 you say them. Who are your clients? he asserts to be

3 privileged. Who is paying you? he asserts to be privileged.

4 How much were you paid? if he recalls he asserts to be

5 privileged. The total amount that he received he does not

6 recall.

7 This is not a witness whose testimony is complete.

8 THE COURT: Look, can I say this? It does not mean a

9 lot to have this kind of discussion. What does mean a lot is

10 what I said earlier. If you asked him questions and he refused

11 to answer or you felt the answers should be subject to some

12 Court order, you have a right to come in with the transcript of

13 the deposition and get a ruling of the Court. Now, that's not

14 being done this afternoon. I don't see that we are spending

15 time on anything that is relevant to what needs to be done.

16 MR. MOSKOW: What needs to be done, if I may, your

17 Honor, is to complete the deposition. If you want we will

18 submit you a copy of the transcript, I can give it to you now.

19 We can get you page cites where the answers were evasive or

20 contumacious, otherwise simply not informative, but we are --

21 THE COURT: You don't give me a transcript. The way

22 to do it is to have a hearing at which you make an application,

23 either an application to have him answer a question he refused

24 to answer but make an application. There is no reason for a

25 conference. There is a reason for a proper application.

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1 MR. MOSKOW: With the Court's permission we will make

2 a letter motion to compel, we will outline questions.

3 THE COURT: I don't need a letter motion.

4 MR. MOSKOW: Okay.

5 THE COURT: I need a simply a motion on the record

6 with a court reporter and you, obviously, can furnish me the

7 transcript and you apply for what you want to apply for.

8 Now, when do you want to do that?

9 MR. MOSKOW: I think perhaps we should be able to do

10 that by tomorrow afternoon, Thursday morning at the latest.

11 THE COURT: All right.

12 MR. MOSKOW: I don't want to keep this man here any

13 longer than he needs to be but I did want answers to the

14 questions.

15 THE COURT: If there is a proper application you have

16 a right to make the application.

17 What have we got tomorrow, Ken?

18 THE DEPUTY CLERK: Judge, one minute, please. Just a

19 4:00 p.m. civil conference.

20 THE COURT: Tomorrow? Can we have it earlier?

21 THE DEPUTY CLERK: 3:00?

22 THE COURT: 3:00.

23 Now, I want to say this, that I don't expect the

24 question to be so complicated that we have to get involved in

25 issues of choice of law but since this is a deposition taken in

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1 the United States, taken for use in a United States trial, I

2 will make rulings of the kind that I would make under our law.

3 The things that come up in connection with depositions, they

4 generally have no particular complications, they don't get

5 involved in choice of law and I don't expect that to be done

6 here. I think that I am sure the issues will be clear and I

7 will make rulings and that will be that and we will have a

8 hearing on the record at 3:00 tomorrow.

9 Thank you.

10 MR. MONTELEONI: Your Honor, may I be heard briefly on

11 this?

12 THE COURT: Yes.

13 MR. MONTELEONI: Unfortunately, we don't want it to be

14 a choice of law issue but the Second Circuit has a clear

15 standard for when these privilege issues come up. They do come

16 up in depositions and the types of questions that defendants

17 have been asking are about a Russian attorney's representation

18 of clients under Russian law and under the Second Circuit's

19 Touch base Test it is actually quite clear that it does require

20 a choice of law analysis. So, though in many cases domestic

21 law applies, this is not one of those cases and that really

22 matters because this attorney would be subject to professional

23 discipline in Russia if he violated Russian law. So, it is

24 important to --

25 THE COURT: Why don't you give me some guidance?

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1 MR. MONTELEONI: Absolutely we will. I just wanted to

2 preview for you the issue that this is going to be complex

3 because it will involve the choice of law even though normally

4 it doesn't.

5 MR. MOSKOW: Following up on that --

6 THE COURT: There is no way that I am going to get

7 involved in some long-range, time-consuming exercise that will

8 keep this man in this country so be prepared for quick

9 resolution of any issues you bring up because that is

10 important, to get him finished so he can go home. And if you

11 think you are going to extend this by elaborate exercises in

12 choice of law we are not going to have that.

13 MR. MONTELEONI: Absolutely, your Honor.

14 THE COURT: Okay. That's it.

15 o0o

16

17

18

19

20

21

22

23

24

25

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1 UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x

3 UNITED STATES OF AMERICA,

4 v. 13 CV 6326 (TPG)

5 PREVEZON HOLDINGS, LTD., ET

AL.,
6
Defendants.
7
------------------------------x
8
New York, N.Y.
9 November 19, 2015
1:41 p.m.
10

11 Before:

12 HON. THOMAS P. GRIESA

13 District Judge

14
APPEARANCES
15
PREET BHARARA
16 United States Attorney for the
Southern District of New York
17 PAUL M. MONTELEONI
MARGARET GRAHAM
18 KRISTY PHILLIPS
Assistant United States Attorneys
19
BAKER & HOSTETLER, LLP
20 Attorneys for Defendants
MARK CYMROT
21 JOHN W. MOSCOW

22

23

24

25

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1 (In open court; case called)

2 THE COURT: We've got to do some planning. Now, the

3 trial is now set -- let me start again.

4 We have now scheduled the trial to commence

5 December 7. Now, in order to advance things somewhat, my

6 office -- and I assume you were informed of this -- we have the

7 idea now of having jury selection Wednesday, the 2nd. Now, we

8 could have openings and so forth start the 3rd. I have been

9 informed of estimates of two weeks for the trial but obviously

10 the purpose of this meeting is to refine the information so

11 that we're dealing in more precise terms than such estimates.

12 There is a motion for partial summary judgment which

13 has not been fully briefed. And how that will come out and how

14 it will affect the trial, I don't know.

15 What I'm going to say now may be academic because

16 maybe -- you all have much more precise ideas of trial time

17 than I'm talking about. But, I am concerned about the

18 possibility of the trial going into Christmas week if we have

19 it starting when we're talking about. So what I would like to

20 do is to ask the lawyers -- and you speak in whatever order you

21 want to -- to tell me your best calculations or estimates or

22 whatever you can do in the most accurate way possible of the

23 timing of this trial.

24 It is very important to deal with this question in a

25 sensible way because this is a jury case and prospective jurors

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1 are obviously going to be concerned if there's a possibility

2 that this goes into Christmas week and certainly concerned if

3 it goes to Christmas Eve and thereabouts. So we have a little

4 more obligation to plan than we usually do.

5 Let me hear from the government lawyer. What is your

6 best projection as far as the timing of the trial?

7 MR. MONTELEONI: Thank you, your Honor.

8 Paul Monteleoni for the government.

9 As the court said, there is always going to be some

10 uncertainty in this. Our view is that if the motion for

11 partial summary judgment is granted, we would anticipate that

12 the government's case would conclude in probably less than two

13 weeks, which would make a two-week overall time feasible but

14 certainly not guaranteed.

15 THE COURT: Wait a minute. Let's slow down a bit for

16 me. Right now obviously the motion for partial summary

17 judgment has not been acted upon and I hate to ask this because

18 you really shouldn't be planning with this kind of thing in

19 view, but I will ask anyway. If the motion for partial summary

20 judgment is granted, does that reduce the trial time?

21 MR. MONTELEONI: Yes, your Honor, we believe it does.

22 The two-week estimate is if the motion is granted. We think

23 that there would be a longer estimate which would be more than

24 two weeks if the motion is denied. It's not a science so we

25 can't say with certainty but if the motion is denied, it seems

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1 very unlikely that the case would be done in two weeks. So it

2 would then have to go into Christmas week. And it seems

3 possible it might not get done before Christmas Eve. So, there

4 is a risk. We can't say with certainty, but we do think that

5 it could shorten the trial.

6 THE COURT: Go back. Go back.

7 MR. MONTELEONI: Sure.

8 THE COURT: The motion for partial summary judgment,

9 just summarize what it is. What is the motion for partial

10 summary judgment?

11 MR. MONTELEONI: Absolutely, your Honor.

12 We've asked the Court to grant partial summary

13 judgment on the limited issue of whether a crime occurred that

14 is a predicate offense for money laundering. If that is

15 granted and the jury is advised that that's no longer at issue,

16 there will be much less need to present evidence about what

17 happened in Russia. Not zero but substantially less. So that

18 will take out a substantial amount of disputed facts.

19 When the Court reads the papers, I think that it will

20 be quite clear that there are a lot of factual disputes about

21 what happened in Russia. We don't think they're material to

22 our motion, but we do think that at a trial there would be a

23 lot of litigation about how the fraud happened in Russia, who

24 was involved, what type of fraud it was.

25 We think that that can all be avoided if the motion is

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1 granted. But, of course, that's going to be for the Court to

2 decide.

3 THE COURT: What is your motion? I'm not going to

4 rule on it today.

5 MR. MONTELEONI: Of course.

6 THE COURT: But what is the motion, just what is it?

7 MR. MONTELEONI: So, money laundering requires the

8 proceeds of a predicate offense, which is a certain type of

9 crime; then it requires a transaction with those proceeds, and

10 it requires the requisite intent. So the predicate offense is

11 one of the three elements. It's sort of the first of the three

12 elements. There's predicate offense, transaction, intent.

13 Now, we are asking the Court to find that the fraud

14 scheme in Russia that generated a substantial amount of money

15 was a predicate offense.

16 THE COURT: In other words, you want partial summary

17 judgment finding that, right?

18 MR. MONTELEONI: Yes. Finding that the fraud occurred

19 in Russia and that that fraud amounts to a predicate offense

20 under the money laundering law. So that would effectively take

21 away the need for the jury to deliberate over one of the three

22 main elements of money laundering and, thus, substantially

23 reduce the amount of evidence that has to be presented about

24 that.

25 THE COURT: Let me just make a note.

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1 So you're asking for the court to find summarily that

2 there was a predicate offense.

3 MR. MONTELEONI: That's correct, your Honor.

4 THE COURT: Occurring in Russia?

5 MR. MONTELEONI: Yes.

6 THE COURT: Let's suppose that were granted. Your

7 motion is granted. What is left to be tried?

8 MR. MONTELEONI: What would be left to be tried then

9 is whether proceeds traceable to that offense were received by

10 the defendants and thus whether they did a transaction, the

11 second element; and then also we think perhaps the bulk of the

12 remaining trial would be the defendants' intent, whether they

13 knew or were willfully blind to the fact that they were

14 engaging in transactions with criminally derived proceeds.

15 THE COURT: In other words, even if you won your

16 motion for summary judgment there would still need to be a

17 trial on certain issues as to whether there was money

18 laundering.

19 MR. MONTELEONI: By the defendants, yes.

20 THE COURT: Well, of course.

21 MR. MONTELEONI: Yes. Exactly.

22 THE COURT: Now, I'm going to tell you right -- maybe

23 I've said this already -- but we're now at November 19. Today

24 is the 19th, right?

25 MR. MONTELEONI: Yes.

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1 THE COURT: Now, Mr. Monteleoni, is it possible to

2 give me an estimate of trial time if the summary judgment

3 motion is granted and if it is not granted? If that is a

4 question that involves too much uncertainty, you can tell me.

5 MR. MONTELEONI: Sure. I can do my best.

6 THE COURT: If you can answer it, I would appreciate

7 it.

8 MR. MONTELEONI: Sure. So my best guess is that two

9 weeks would be likely if it's granted; about three weeks would

10 be likely if it's not granted. Could be a little more or a

11 little less.

12 THE COURT: Repeat that because I'm trying to make a

13 note. I have the summary judgment partial granted, what?

14 MR. MONTELEONI: We think that around two weeks would

15 be a reasonable estimate; and if it is not granted, we think

16 around three weeks would be a reasonable estimate. Of course,

17 one part of the uncertainty is we don't know how much of a case

18 the defendants would be intending to put forward and how much

19 their case would overlap with the government's case, but we

20 think that the government's case would conclude in somewhat

21 less than those timeframes.

22 THE COURT: Let me turn to Mr. Moscow.

23 MR. CYMROT: Mr. Cymrot, your Honor.

24 MR. MOSCOW: Mr. Cymrot is going to speak, your Honor.

25 THE COURT: What's your feeling about the timing

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1 issues we're talking about?

2 MR. CYMROT: Your Honor, it's our understanding that

3 you want to charge the jury on December 18. And I think

4 there's more than enough time. And what we're going to suggest

5 is that you divide the time between the parties and keep them

6 to that schedule and there's more than enough time to put on

7 both cases.

8 THE COURT: Go back to the start of what you said. Go

9 back to the start.

10 MR. CYMROT: We understand from your office that you

11 wanted to charge the jury on December 18. Is that correct?

12 THE COURT: Well, no. The advantage of having these

13 conferences is we're altogether.

14 MR. CYMROT: Right.

15 THE COURT: And so we can clear up anything. But what

16 I have thought, and I've talked to my office about this, is if

17 we have the trial starting the 7th or maybe a day or two

18 before, how do we handle it in the best way possible

19 considering that the 21st is Monday of Christmas week. And

20 so my office and I have thought of the possibility of having

21 jury deliberations start let's say midday the 17th and at the

22 very latest start the first thing on the 18th.

23 Now that really is not a very good schedule because

24 the more I see of the case I think there are going to be a

25 number of specific questions addressed to the jury. And the

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1 idea that they could deliberate and answer those questions in a

2 day or even a day-and-a-half may be quite unrealistic.

3 Here's what I'm really getting at -- before I say

4 that.

5 What do you from the defense side believe you're going

6 to need in the way of time?

7 MR. CYMROT: Our estimate that we gave your office is

8 that between cross-examination of the government's witnesses

9 and presentation of our witnesses we're talking approximately

10 25 hours.

11 THE COURT: I don't know what -- I never think in

12 terms of hours. I don't even know what that means.

13 MR. CYMROT: Five days.

14 THE COURT: Start again and give me the days.

15 MR. CYMROT: Five days. That would include

16 cross-examining the government's witnesses and presenting our

17 own case. So we would say that, given what you would like, we

18 should start the trial on the 3rd and that you ought to divide

19 the time between the two parties and let them present their

20 case within that time.

21 THE COURT: I want to go back to the government.

22 You said this but repeat it. What do you think the

23 government needs? You've said it, but repeat it.

24 MR. MONTELEONI: Absolutely. We would, at the very

25 least, need ten days even if the motion is granted. And we

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1 think that some artificial cutoff of how many days either side

2 can take to prepare their case is going to be completely unfair

3 to the party that bears the burden of proof.

4 THE COURT: I have never done it and never will.

5 MR. MONTELEONI: Thank you, your Honor.

6 MR. CYMROT: Your Honor, on the other hand, we think

7 these estimates by the government are designed to convince your

8 Honor that you should grant the continuance which I'm sure

9 they're going to ask for --

10 MR. MONTELEONI: We are not asking for a continuance.

11 MR. CYMROT: -- before we leave.

12 MR. MONTELEONI: We are not asking for a continuance.

13 We do not want one.

14 THE COURT: Well, I'm going to tell you my feeling

15 right now. I don't think the case can be tried in December.

16 MR. CYMROT: Well, your Honor, that's exactly the

17 point I think the government was going for. They want a

18 continuance. They want to hold on to --

19 THE COURT: It isn't what the government wants. I'm

20 telling you what the judge estimates.

21 I'm the judge and I have to be concerned about the

22 schedule.

23 MR. CYMROT: Your Honor, you've repeatedly stated that

24 it's unfair for the defendants' property to be tied up for more

25 than two years. And you've said this is the trial date. And

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1 everybody has known that for quite a long time. And this is

2 the second trial date. The first one was a year-and-a-half

3 ago. So we would strongly object to a continuance, your Honor.

4 They have $15 million of the defendants' property and there is

5 absolutely no justification for it. Absolutely none.

6 THE COURT: I'm talking about dealing with very finite

7 periods of time. And you talk about a continuance. I'm not

8 talking about a continuance. I'm talking about the judge

9 setting the time and what needs to be done.

10 Let's just start. Let's suppose, as will happen, that

11 the jury is selected on Wednesday, December 2. Jury selection

12 in a federal court doesn't take very long. The jury will be

13 selected.

14 Now, let's suppose that we advance the trial from the

15 7th to the 3rd in connection with -- so that openings will

16 start on the 3rd. Now, if we have the trial start the 3rd,

17 we've got the 3rd, the 4th, and five working days the following

18 week. So that is seven working days. Now that takes us

19 through the week of the 7th. Seven working days. If we add

20 to that five working days the week of the 14th. That's

21 twelve working days.

22 I haven't yet included in the working days anything

23 from the week of the 21st because there might be a little

24 more problem getting a jury picked if we are going to run into

25 Christmas week, but it's not impossible. So, certainly we

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1 could include in our working days let's say Monday and Tuesday,

2 the 21st and 22nd. Let's do that. So that gives us I

3 think 14 working days. Let me count.

4 14 working days.

5 The government says that they need -- correct me if

6 I'm wrong --

7 MR. CYMROT: Your Honor, can I interrupt with a

8 suggestion?

9 THE COURT: Of course.

10 MR. CYMROT: I just consulted with Ms. Veselnitskaya

11 who is the Russian lawyer for the defendants. And if you can

12 start early in January, they would agree to that. In other

13 words, if we're going to change the date and change it into

14 February or March, that would be quite upsetting. But if you

15 could do it early in January then we could do it, start early

16 in January.

17 THE COURT: Well that's a very helpful comment of

18 yours.

19 Let me go back to where I was and I'll keep that in

20 mind. But let me go back to where I was.

21 MR. CYMROT: All right.

22 THE COURT: Let's not go back to where I was. Let's

23 take your suggestion.

24 The first working day in January is the 4th.

25 MR. CYMROT: What day of the week is that, your Honor?

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1 THE DEPUTY CLERK: Monday.

2 THE COURT: Monday, the 4th is the first working day

3 in January. Now, if we started the trial on the 4th, it would

4 relieve a number of time pressures.

5 MR. CYMROT: Can I add one more thing, your Honor?

6 THE COURT: Yes.

7 MR. CYMROT: My daughter is getting married on that

8 last week of December. If we would start on the 6th and pick

9 the jury on the 6th, on the Wednesday, like we were planning

10 to do, that would save me from being in big trouble with my

11 family.

12 THE COURT: So what are you proposing now?

13 MR. CYMROT: Start on the 6th. Pick the jury on the

14 6th.

15 THE COURT: Pick the jury on the 6th and just go

16 right through with the trial?

17 MR. CYMROT: Correct.

18 THE COURT: Well I would like to do that. What does

19 the government say?

20 MR. MONTELEONI: May I have a moment to confer with

21 cocounsel?

22 (Pause)

23 We would consent to that but we do need a pretrial

24 motion and disclosure schedule set by the court.

25 THE COURT: Look, that suggestion is very helpful

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1 indeed because to try to work around dates in December -- there

2 are just problems, problems, problems.

3 Now the thing is that we have to -- I'm asking my

4 deputy clerk about the situation of interpreters in January.

5 So let me talk to him.

6 (Pause)

7 Now, look. The thing I can do is to say that the

8 Court is scheduling the trial to start on the 6th of January.

9 Now, there are -- what my deputy clerk has talked to me about

10 is the situation of getting interpreters. So it seems to me

11 that we can't cover every last point this afternoon. But, we

12 can head towards a trial starting on the 6th of January. And

13 if there's a little slippage because of an interpreter

14 situation that just comes with the breaks of the game. What I

15 would like to do --

16 MR. CYMROT: Your Honor, we just took care of the

17 interpreter situation. We have an interpreter right here who

18 will be interpreting at the trial for the client, and I'm

19 confident we can get official interpreters, but he's available

20 starting on the 6th.

21 THE COURT: Well that's very helpful.

22 I think the way we're going to leave it this afternoon

23 is that the trial is now scheduled to start January 6th,

24 2016. I have a motion for partial summary judgment which is

25 still needing the completion of briefing. So that has to be

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1 dealt with.

2 MR. CYMROT: You've scheduled a hearing -- an argument

3 on that motion on November 30. Are we keeping to that?

4 MR. MONTELEONI: The government supports keeping that

5 date.

6 THE COURT: Yes. The answer is yes.

7 MR. CYMROT: Thank you.

8 THE COURT: And I don't see anything else we have to

9 do this afternoon.

10 MR. MONTELEONI: Your Honor, there's just one thing,

11 if I may.

12 THE COURT: Oh, please.

13 MR. MONTELEONI: In advance of trial there's a number

14 of pretrial disclosures the parties have to make to each other

15 and filings like motions in limine. We've been trying to work

16 out a schedule with the defendants and that hasn't ended up

17 working. We will go back and talk to them as soon as the

18 conference is done. But we will be submitting a proposed

19 schedule, hopefully on consent, in the next day or two and we

20 would just ask for the Court's quick ruling on a schedule

21 because as the Court knows the adjournment isn't that long and

22 there's a lot of things in between. So we just would like some

23 clarity set but we'll first talk to defense.

24 THE COURT: What I understand -- I was distracted a

25 little bit looking at something. But what you're saying is

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1 there is a need to work out a pretrial schedule.

2 MR. MONTELEONI: Yes, your Honor and that we would

3 need that to be set soon. So we would --

4 THE COURT: The thing is I'm sure you'll get

5 cooperation from the other side. And then if there are any

6 disputes obviously I'm available. But what will be the result

7 is there will be some formal scheduling order dealing with

8 pretrial matters that you're going to work on with the two

9 sides.

10 MR. MONTELEONI: Yes, your Honor. Exactly.

11 MR. CYMROT: May I raise one other matter, your Honor?

12 THE COURT: Please.

13 MR. CYMROT: The second amended complaint was served

14 on October 23. I'm not sure an answer at this point makes a

15 lot of sense since I think we know what the trial is going to

16 be. Can we deem a general denial sufficient for this purpose?

17 MR. MONTELEONI: Your Honor, we would ask that they

18 file an answer. It's what the rules require. And now they

19 have ample time to do it.

20 MR. CYMROT: Okay, your Honor. We'll file an answer.

21 THE COURT: Okay. I would say that this has been an

22 afternoon of more progress than I've experienced in a long

23 time. This has been a wonderful afternoon. Thank you.

24 MR. MONTELEONI: Thank you, your Honor.

25 MR. CYMROT: Thank you, your Honor. (Adjourned)

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1 UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x

3 UNITED STATES OF AMERICA,

4 Plaintiff,

5 v. 13 CV 6326 (TPG)

6 PREVEZON HOLDINGS, LTD., ET

AL.,
7
Defendants.
8
------------------------------x
9 New York, N.Y.
November 13, 2015
10 3:30 p.m.

11 Before:

12 HON. THOMAS P. GRIESA,

13 District Judge

14 APPEARANCES VIA TELEPHONE

15 U.S. ATTORNEY'S OFFICE

Attorneys for Plaintiff
16 BY: PAUL M. MONTELEONI, AUSA

17
BAKER & HOSTETLER LLP
18 Attorneys for the Prevezon Defendants
BY: JOHN M. MOSCOW
19

20 SULLIVAN & CROMWELL LLP

Attorneys for Non-Party HSBC Private Bank (Suisse) S.A.
21 BY: ALEXANDER JOHN WILLSCHER

22

23

24

25

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1 (In chambers; Telephone conference)

2 THE COURT: This is Judge Griesa. I have a reporter

3 here; so if you could identify yourselves at least the first

4 time you speak. And I think that I was told that this call was

5 unnecessary, but I still want to go over a few things with you.

6 Now, is it correct that there will be a deposition tomorrow?

7 MR. WILLSCHER: Your Honor, this is Alex Willscher

8 calling from Sullivan and Cromwell. I represent the HSBC

9 entity here. I spoke to you at about 1:30 today to say that we

10 had reached an agreement with the defense and a conference

11 wasn't necessary. After you and I spoke, Mr. Moscow called

12 back at about 1:45 and said that the defense was no longer

13 interested in the deal. There is no deal. We're back to

14 square one; so --

15 MR. MOSCOW: That's not quite right, but I was told at

16 that point that the witness was already --

17 THE DEPUTY CLERK: Counsel, please identify yourself

18 for the record.

19 MR. MOSCOW: This is John Moscow for the defendants.

20 I was told at that point that the witness was already in

21 London, which changes things because we're not seeking to make

22 life difficult for any human beings in this matter. So we

23 had -- we have a problem, Judge. We are being pulled in too

24 many different directions, and the summary judgment motion is,

25 in fact, killing us.

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1 What I would ask for, if we could do it, is to put off

2 our filing on that until two weeks from the 17th, which would

3 be December 1, and then we go forward tomorrow with the

4 deposition as I had previously agreed with Alex.

5 THE COURT: Now, wait a minute. Who is speaking now?

6 MR. MOSCOW: That was John Moscow.

7 MR. MONTELEONI: This is Paul Monteleoni from the

8 government, if I could be heard on that. We strongly oppose a

9 two-week adjournment to the schedule for summary judgment that

10 the Court entered on a contested set of briefing just because

11 there is a single deposition of a single witness on really

12 several dozen pages of records. That doesn't justify any

13 adjournment. This goes to trial, and it certainly doesn't

14 justify a two-week adjournment. If you need a day or two, that

15 would be fine.

16 MR. MOSCOW: Look, we have number -- there are four

17 more depositions. I have one, two -- I have four more

18 depositions. The defense has more than that between now and

19 Thanksgiving. We have the summary -- we have the other motions

20 to deal with. We have motions in limine. We have proposed

21 instructions.

22 We are doing our very, very best to get this done on

23 time, but this particular thing, it is a new set of issues. It

24 is taking a lot more time than it should, and I don't want to

25 inconvenience the witness. Even though he is not fully

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1 prepared to answer our questions, we're willing to make a

2 sacrifice, but it is, in fact, an evidentiary sacrifice that is

3 due to the very late nature of our being told about it.

4 We weren't told in June. We weren't told at all.

5 We're really getting whipsawed here. We're getting

6 productions, which is nice, but then we have to read them, and

7 that's in lieu of dealing with the other legal issues that are

8 arising.

9 THE COURT: Now, look --

10 MR. MOSCOW: I'm sorry. I'm you asking for two weeks

11 so we can try and get it done.

12 THE COURT: Look, phone conferences are a problem, but

13 I imagine that you're really not in a position to come to court

14 this afternoon; so we'll do the best we can on the phone. But

15 you've been talking in a way that I simply lost comprehension.

16 Now, let me start and ask some questions.

17 MR. MOSCOW: Yes, your Honor.

18 THE COURT: Will there be a deposition tomorrow?

19 MR. MOSCOW: We are prepared to go forward, if we can

20 get time to respond to the motion. Look, yes, there will be a

21 deposition tomorrow, but I'm desperately begging for two weeks

22 to respond to the motion.

23 THE COURT: Wait a minute. Who is now speaking?

24 MR. MOSCOW: John Moscow for the defendants.

25 The witness is in England. He has traveled. I will

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1 be at Sullivan tomorrow at 8:00 a.m. on a Saturday to

2 accommodate his schedule, but I'm asking the Court's mercy in

3 granting us the time to deal with this with a level of

4 professionalism that the motion for summary judgement requires.

5 THE COURT: Now, wait a minute. You're going too fast

6 for me.

7 MR. MOSCOW: I apologize. Let me slow down. Yes,

8 your Honor, I am prepared to depose the witness tomorrow, even

9 though he has not had the opportunity to be fully prepared

10 himself. Obviously, I would prefer a later date.

11 I understand that he has traveled. I understand

12 Mr. Willscher's frustration. I am doing what I can, but I need

13 the additional time after the deposition so I can do the other

14 depositions and motions and go forward.

15 THE COURT: I would ask people to stick with my

16 questions.

17 MR. MOSCOW: Sure.

18 THE COURT: You went way beyond what I could

19 comprehend in what you just said. I want to go back, and I'll

20 ask -- I know this has been answered a lot, but I'm going to

21 ask it again because I want to get started and take things step

22 by step.

23 Is there a deposition tomorrow?

24 MR. MOSCOW: Yes.

25 THE COURT: All right. Whose deposition is it?

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1 MR. MOSCOW: A witness from HSBC Switzerland.

2 THE COURT: All right. Where he be located when he is

3 questioned?

4 MR. MOSCOW: London.

5 THE COURT: London. Now, are the attorneys who are

6 going to question him going to be in London, or are they going

7 to do it on the telephone?

8 MR. MOSCOW: We are going the office of Sullivan and

9 Cromwell. I don't know the electronic setup, but we will be in

10 New York.

11 THE COURT: All right. So the people doing the

12 questioning will be in New York, and in some way they will

13 question the witness, who will be located in London; is that

14 correct?

15 MR. MOSCOW: Yes.

16 THE COURT: All right. Now, I would like to tell you

17 that in the event that some problem comes up in the deposition

18 that you need a ruling on, I will be available. My cell phone

19 number is . My regular home telephone number,

20 which is listed, is . My law clerk's cell phone

21 number is . Therefore, if some issue comes up

22 during the deposition, the Court can be reached.

23 Now, let me go on to something else. In the record

24 before me there is now a motion by the government for partial

25 summary judgement; is that right?

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1 MR. MONTELEONI: Yes, that's correct, your Honor, on a

2 limited issue.

3 THE COURT: Has that been fully briefed or is the

4 briefing still to be finished?

5 MR. MOSCOW: It is that motion that we are seeking

6 additional time to respond to.

7 THE COURT: I just asked the question --

8 MR. MOSCOW: It has not been fully briefed.

9 THE COURT: All right. Now, have you agreed on a time

10 for the completion of the briefing?

11 MR. MONTELEONI: You issued an order. We did not.

12 MR. MOSCOW: We did not agree, and we are asking for

13 additional time.

14 THE DEPUTY CLERK: Counsel, one at a time.

15 MR. MOSCOW: The answer is, we did not agree, and we

16 are imploring the Court for two additional weeks because we are

17 buried.

18 THE COURT: Wait a minute. Wait a minute. Let's just

19 try to have as little rhetoric as possible. Is it correct that

20 the time for briefing of this motion for partial summary

21 judgment is still something that needs to be put in final form?

22 Is that correct?

23 MR. MONTELEONI: Your Honor issued an order after

24 contested briefing on the issue. That was final until defense

25 counsel just now is asking you to reconsider. There is an

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1 order. Per your order, defendants are due to respond on

2 Tuesday. We will reply the week after. They now want to

3 change that, but there is an order in place.

4 THE COURT: Could somebody repeat that, please?

5 MR. MONTELEONI: Yes. I apologize. Paul Monteleoni

6 for the government. Your Honor, you issued an order under

7 which defendants response is due on Tuesday, November 17th.

8 The government's reply is due the following Tuesday,

9 November 24th. That is the order that is currently in force.

10 THE COURT: All right. Now, can I ask a question. Is

11 there a request to amend that schedule?

12 MR. MOSCOW: Yes.

13 THE COURT: Who is making the request?

14 MR. MOSCOW: Defendants, your Honor, by John Moscow.

15 THE COURT: And what is your request?

16 MR. MOSCOW: My request is that our time to reply be

17 put off for two weeks so that we can deal with all of the

18 pending motions and professionally deal with that one.

19 THE COURT: Say that again.

20 MR. MOSCOW: My request is to be put off for two

21 weeks.

22 THE COURT: And who is making that request?

23 MR. MOSCOW: The defendants.

24 THE COURT: And please repeat the request.

25 MR. MOSCOW: I would ask that this motion, our dates

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1 to reply, be put off for two weeks so that we can deal with the

2 multiple depositions, motions in limine, proposed charges and

3 other legal instruments that we have to get filed. We are

4 buried.

5 THE COURT: Well --

6 MR. MONTELEONI: Your Honor, may I tell you what those

7 dates would be that defense counsel is not telling you? Under

8 those dates --

9 THE COURT: Who is speaking?

10 MR. MONTELEONI: Sorry. This is Paul Monteleoni for

11 the government. Defense counsel is requesting that he be

12 allowed to respond on December 1st, the day before jury

13 selection commences. That would make our reply due on

14 December 8th, during trial. That won't work.

15 THE COURT: Well, look, I don't have any fixed views

16 on the various scheduling issues that are, obviously, of

17 necessity being dealt with.

18 What is the motion that is involved in the response of

19 November 17 and reply November 24 as now scheduled? What is

20 that motion?

21 MR. MOSCOW: That is a motion for partial summary

22 judgment based, in part, on the testimony of the man we try to

23 depose tomorrow, and it changes the theory. It is a serious

24 motion, and we intend to address it seriously.

25 THE COURT: Now, look here, I just asked a little

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1 question, and you give me a volume of a reply.

2 MR. MOSCOW: It is a motion for partial summary

3 judgement on facts that are contested.

4 THE COURT: By the government, right?

5 MR. MOSCOW: A motion by the government.

6 THE COURT: All right. Just a minute. So you've got

7 a motion for partial summary judgement by the government, and

8 right now the response by those opposing the motion is due

9 November 17th, and then the government's reply is due

10 November 24. Is that now the schedule?

11 MR. MONTELEONI: Yes.

12 MR. MOSCOW: Yes.

13 THE COURT: Okay. Now, and the trial -- again, we've

14 said this a million times -- is December 7, right?

15 MR. MONTELEONI: Yes.

16 THE COURT: Okay. It is. Now, what I have is an

17 application made in this phone conversation by the defendants

18 to adjourn the November 17 date for two weeks; do I understand

19 that correctly?

20 MR. MOSCOW: You do, but I have an idea, if I may.

21 THE COURT: Can you just answer my question?

22 MR. MOSCOW: You have it correctly.

23 THE COURT: All right. Now, is this Mr. Moscow

24 speaking?

25 MR. MOSCOW: Yes, your Honor.

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1 THE COURT: What do you want to propose now?

2 MR. MOSCOW: If we were to file on November 30 and the

3 government to reply on December 4, that would be prior to the

4 trial.

5 MR. MONTELEONI: Your Honor, Paul Monteleoni for the

6 government. May I be heard on that?

7 THE COURT: Of course.

8 MR. MONTELEONI: Our reply would be due after jury

9 selection began. Jury selection is December 2nd. Our motion

10 is on a limited issue of removing certain disputes from the

11 trial. In order for that to serve its purpose of narrowing and

12 focusing the issues for trial, it would have to be decided

13 before trial.

14 A schedule where it is only briefed the Friday before

15 a Monday trial would not give the Court time to decide it, and

16 it would be running out the clock on the motion. The

17 defendants have already had a schedule that gives them two

18 weeks to file their response. If they want another day or two

19 next week, we could agree to an adjournment to November 19th

20 and for our reply to be due November 25th, so we get less of an

21 extension than they get, so that it's still before the Court in

22 time for the Court to make a decision on it before trial so

23 that the parties know what the issues to be tried that are

24 genuinely in dispute are going to be.

25 MR. MOSCOW: May I be heard?

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1 THE COURT: Who is speaking now?

2 MR. MOSCOW: John Moscow.

3 THE COURT: Okay.

4 MR. MOSCOW: Respectfully, the motion for partial

5 summary judgement of what Mr. Monteleoni says is uncontested,

6 is based on the testimony of a man we will be talking to

7 tomorrow. So we have not had an opportunity to examine him at

8 all, and to the extent that the absence of testimony means that

9 it's not contested, that is unfair.

10 We are entitled to depose him, and then I would like

11 to be able to respond after that, and I don't believe that this

12 is an undue request. I'm asking to put it off until

13 November 30th, instead of December 1st; so they can respond by

14 the 4th.

15 If this is such a small witness, it won't change their

16 trial strategy much. I think that it involves, in fact, a new

17 theory, a new witness who has never before been mentioned,

18 despite Mr. Monteleoni -- he's never before been mentioned, and

19 we need to brief this adequately and professionally, and we are

20 buried. I'm sorry for speaking so long.

21 THE COURT: Now, look, refresh my memory. The motion

22 for partial summary judgement seeks to have a ruling of the

23 Court to what effect? I know I've been over this many times,

24 but sitting right here now, somebody just refresh my memory.

25 MR. MONTELEONI: Sure. Since we filed the motion, I

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1 can explain that. Paul Monteleoni for the government.

2 This case is about money laundering. Money laundering

3 requires a predicate offense. Here, the predicate offense is a

4 fraud that occurred in Russia, and this summary judgement

5 motion, this motion seeks a ruling that a fraud occurred in

6 Russia that constitutes a money laundering predicate offense,

7 which if that motion is granted, will drastically simplify the

8 trial so that it won't be a trial about what happened in Russia

9 so much as a trial about what the defendants did.

10 We have very carefully limited the motion so that it

11 speaks only to that narrow issue. Defendants believe that

12 there are disputes, that it shouldn't be granted. Obviously,

13 it's their right to say so in their papers, but let's be clear.

14 This is a motion that is very short and that requires a ruling

15 on a very small number of facts, but could take off the table

16 disputes that would be extremely time consuming and burdensome

17 to try at a trial.

18 The defendants have already had two weeks to prepare

19 their response, and there is a witness who is going to testify

20 about the interpretation of several dozen pages of documents

21 tomorrow, and because that is relevant to the summary judgement

22 motion, we would agree that they could have a few more days.

23 But the schedule has got to be consistent with the Court's

24 deciding the motion because if the Court grants the motion, it

25 could drastically simplify and focus the trial, and the Court

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1 should have an opportunity to make that ruling.

2 So we would propose that the defendants, if they get

3 an extension, could get an extension where they would respond

4 this coming week. If they responded next Thursday, as I

5 propose, they will have already had the two weeks that it's

6 gone on until now, and then several other days after the

7 deposition. That's a fair schedule.

8 We're all working on a compressed schedule, but it

9 balances the need of everyone to juggle several different tasks

10 and the need for the Court to have an opportunity to rule on

11 matters that will affect, in a major way, the scope of the

12 trial.

13 MR. MOSCOW: If I may be heard?

14 THE COURT: Right.

15 MR. MOSCOW: Your Honor, the charge of money

16 laundering requires a predicate. Fraud on HSBC Switzerland,

17 which is what's alleged, was not alleged in the first or the

18 second or the third complaint. To enter partial summary

19 judgement on that would be error. We are entitled to know not

20 that there was, quote, fraud in Russia, but what the specified

21 unlawful activity is.

22 In this case, if they say it is fraud on a bank, a

23 foreign bank, we are entitled to examine that. They have been

24 pleading, and the complaint says it is fraud on HSBC Guernsey,

25 a different institution. They're ditching that and going with

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1 a new bank without --

2 MR. MONTELEONI: That's not correct.

3 MR. MOSCOW: -- that much notice to us.

4 MR. MONTELEONI: That's not correct.

5 MR. MOSCOW: Okay. We got it in the motion for

6 summary judgement. Now, when Mr. Monteleoni says that it's not

7 correct, he is in error, but let's move on.

8 Our perception is that they do not have proof of a

9 specified, unlawful activity. They want to have you decide

10 that they have proved one without saying what it is, other than

11 fraud on HSBC Switzerland, and that way, they will shorten the

12 trial and they don't have to worry about proving a missing

13 element, but they do. So we would like to address this in

14 writing professionally after the only witness on the subject

15 has testified. That doesn't seem unfair.

16 MR. MONTELEONI: And that's what the schedule that I

17 proposed will do.

18 MR. MOSCOW: I disagree completely with the idea that

19 this is a minor motion or a simple motion. This is an effort

20 to take off the table one of the things the government could

21 never prove.

22 After you ruled that wire fraud was not appropriate

23 following Mars and Nabisco. The government has been scrambling

24 to find an SUA, and this is their seventh attempt, and we have

25 to deal with it seriously because it is a very important

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1 motion. But I'm asking that we be allowed to deal with it

2 professionally, in time and with an understanding that we think

3 this is an important motion, not a frivolous one.

4 I'm not trying to create trouble or create work.

5 There's plenty. I'm trying to address this issue seriously,

6 and when I have a new SUA come in after the filing of the

7 second amended complaint, I am nonplussed, I am bewildered, but

8 we will address it. We will point out why it lacks merit. It

9 is not in any way or shape or form uncontested, and we just

10 need to be able to put that into context and spell it out.

11 THE COURT: Now, look, I'm going to ask all of you to

12 simply stay on the phone, but I want to talk to my law clerk,

13 and I just want to go aside for a moment or so. So stay on the

14 phone. The reporter will still be here, but my law clerk wants

15 to give me what she has in mind, and I would like to hear her

16 but we're on the phone. So I just have to leave you on the

17 phone for just a minute. So stick around, and I will be back.

18 Okay?

19 MR. MONTELEONI: Thank you.

20 THE DEPUTY CLERK: We'll put you on hold now, counsel.

21 MR. MONTELEONI: Thank you.

22 (Off the record)

23 THE LAW CLERK: Counsel, we're back on.

24 THE COURT: Okay. This is the Judge again. The

25 schedule right now with respect to this motion for partial

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1 summary judgement is that the response is due November 17, the

2 reply is due November 24. I am going to stick to that because

3 the trial date is coming up very fast.

4 Now, having said that, there are ways to give

5 Mr. Moscow or anybody else the opportunity to present his

6 arguments, whatever you want to present. There are ways to do

7 it, but we don't want to run into the trial date, and here's

8 what I have in mind. Briefing will be according to the

9 existing schedule. I will not grant a two-week adjournment or

10 any adjournment of that, but we can have oral argument on the

11 motion, and that can be held at a time which we can agree on.

12 I won't try to do that this afternoon.

13 At that oral argument, there will be an opportunity to

14 present the arguments in the form you want to do at an oral

15 argument, but that's the way I want to leave it. We're going

16 to stick to the trial date. We'll stick to the schedule, that

17 briefing schedule, and we won't vary from that. Otherwise,

18 we're going to run right into the trial, and we can't do that.

19 MR. MONTELEONI: Thank you, your Honor.

20 MR. MOSCOW: Your Honor, thank you for your

21 consideration. We are being asked to brief this, I hope to get

22 a transcript of what is said before the brief is due, but it

23 will be difficult to write the brief before the transcript is

24 received.

25 THE COURT: The thing is --

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1 MR. MOSCOW: Again, I thank you for your courtesy, but

2 I respectfully accept from this ruling it is, in fact,

3 depriving us of an opportunity to deal very seriously with what

4 we perceive to be a very important issue. What are the SUAs,

5 if any, if any, in this case. And I don't think that it --

6 Well, anyhow, I've said my peace. I thank you.

7 THE COURT: Well, the thing I want to respond to you

8 is I don't claim to have a complete command of every issue in

9 my mind at the moment, but I have certainly worked on this

10 case, and I've gone over the circumstances and the issues that

11 we've addressed in a rather summary way this afternoon.

12 So I am very devoted to the idea of hearing the

13 arguments and making the rulings that I have to make, but that

14 has to all be done with a view that we are having jury

15 selection in early December for a December 7 trial. So all I

16 can say to you is that there are ways to accomplish what

17 Mr. Moscow wants to accomplish, to have him argue what he wants

18 to argue before the Court, but it seems to me, the way that it

19 has to be done is to do it in preparation of a trial on

20 December 7, and an idea of a two-week adjournment of briefing

21 does not fit into that schedule at all.

22 Now, what will fit into the schedule is to stick to

23 the briefing of the November 17 and November 24 and have an

24 oral argument on the motion. The argument will be a very good

25 opportunity for any party, Mr. Moscow or any lawyer, to present

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1 what you want to present to the Court.

2 So we've got some opportunities to accommodate the

3 lawyers, have the Court informed of your arguments, but we

4 cannot have it run into the trial; so we won't do that. I

5 think that's all we can say this afternoon. Thank you very

6 much.

7 MR. WILLSCHER: Your Honor, your Honor, may I be

8 heard? This is Alex Willscher for HSBC.

9 THE COURT: Who is this?

10 MR. WILLSCHER: This is Alex Willscher for HSBC.

11 THE COURT: Right.

12 MR. WILLSCHER: Just returning back to the topic of

13 the deposition tomorrow. I have heard Mr. Moscow say on this

14 call that he's prepared to proceed with the deposition

15 tomorrow, and I would just like him to confirm, in advance of

16 that, that he now agrees to limit the scope of tomorrow's

17 deposition in the way that he and I had agreed upon this

18 morning.

19 THE COURT: Well, we've got a court reporter here.

20 It's probably a good idea to confirm that. What about that,

21 Mr. Moscow?

22 MR. MOSCOW: I am not in that position. I am in a

23 position to confirm that we have agreed on document production,

24 and I'm not going to be asking the HSBC Swiss to get up early

25 Saturday morning and send us documents. That's silly. I am

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1 prepared to ask questions of the witness.

2 I fear that he is going to say that he is not

3 prepared. When he says he is not prepared, as the 30(b)(6)

4 witness, we will be deprived of an answer to those questions,

5 and at that point, we may have to call you. That's what I will

6 tell you.

7 THE COURT: Well, look, somebody noticed or scheduled

8 a deposition for tomorrow. I have to assume that that

9 scheduling took into account the need to have the witness ready

10 to testify. Now, if it didn't, that is just incompetent. So

11 we've got a deposition tomorrow. Presumably the parties have

12 done their job as lawyers and the witness is ready to testify.

13 That's the way depositions occur.

14 Now, if that is the case, then the deposition can take

15 place and the witness will be prepared, as he should be, and he

16 will answer the questions. If there are issues that come up,

17 I've given you my phone number and my cell phone number, and I

18 will be in New York City tomorrow, subject to playing some

19 tennis, and I can be reached and my law clerk can be reached.

20 I've given you the numbers, and that's the way we have to leave

21 it.

22 I assume that if somebody noticed a deposition, they

23 figured out a way to get the witness prepared. So I'll assume

24 that, and I think we'll leave this conversation at that. If

25 there are problems tomorrow, you've got my phone number and my

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1 cell phone number and you've got my law clerk's number, and I

2 think we'll leave it at that. Thank you all very much.

3 MR. MONTELEONI: Thank you, your Honor.

4 MR. MOSCOW: Thank you, your Honor.

5 MR. WILLSCHER: Thank you, your Honor.

6 THE DEPUTY CLERK: Thank you, all.

7 (Adjourned)

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1 UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x

3 UNITED STATES OF AMERICA,

4 Plaintiff,

5 v. 13 CV 6326 (TPG)

6 PREVEZON HOLDINGS LTD. et al,

7 Defendant.

8 ------------------------------x
New York, N.Y.
9 November 9, 2015
2:00 p.m.
10
Before:
11
HON. THOMAS P. GRIESA,
12
District Judge
13
APPEARANCES
14
BAKER & HOSTETLER LLP
15 Attorneys for Defendant Prevezon
BY: MARK A. CYMROT
16
KOBRE & KIM LLP
17 Attorneys for Non-Party William Browder
BY: MICHAEL S. KIM
18 LINDSEY WEISS HARRIS

19

20

21

22

23

24

25

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1 (In chambers; all counsel appearing via speakerphone)

2 THE DEPUTY CLERK: Good afternoon, counsel.

3 THE COURT: This is Judge Griesa. Who is on?

4 MR. CYMROT: Good afternoon, your Honor. Mark Cymrot

5 for the defendant.

6 MR. KIM: Good afternoon, your Honor. Michael Kim and

7 Lindsay Weiss for non-party William Browder.

8 THE COURT: What do we need to take care of today?

9 MR. CYMROT: Your Honor, this is Mark Cymrot. This is

10 the defense's motion to take additional testimony from

11 Mr. Browder, and also we ask for additional documents.

12 With respect to the documents, Mr. Kim has made a

13 production today, and in a conversation before this call, we

14 agreed we would review the production and see if there is still

15 an outstanding issue on documents.

16 With respect to testimony, that's outstanding. So I'd

17 like to put it in context for a minute

18 THE COURT: Please do.

19 MR. CYMROT: All right. Mr. Browder is the owner of

20 the Hermitage Fund. The Hermitage Fund is mentioned throughout

21 the complaint because there were false tax returns for refunds

22 that were filed that led to the $230 million theft the

23 government is claiming. And that allegedly out of that theft,

24 the defendants received $1.9 million in a Swiss bank account.

25 So, the Hermitage Fund is quite central to the

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1 allegations, and the government just last week made a new

2 theory for what we were discussing on Friday as a predicate act

3 to money laundering. In other words, they have to prove that

4 there was a specified unlawful activity, or to put it another

5 way, a U.S. criminal act, that occurred as part of the theft in

6 order to then have alleged money laundering.

7 So Hermitage is central to everything, and the case

8 has changed, so there is additional information we need.

9 But in any case, where we are today is that we moved

10 to compel for additional documents and testimony from

11 Mr. Browder, and your Honor said go try to get it from the

12 government first. And so we went and tried to get the

13 information from the government, and we couldn't. And now

14 Mr. Kim has given us some new documents, but we want to take

15 testimony with respect to those documents that we didn't have

16 at the time that we took Mr. Browder's deposition. And we may

17 need, based upon the government's new position last week, some

18 additional documents which would also lead to additional

19 testimony. That's our application.

20 THE COURT: Mr. Browder lives in England, does he not?

21 MR. CYMROT: Yes, he does, your Honor. But he's

22 subpoenaed in New York, he was served in New York. And you'll

23 recall, your Honor, that he's the one who brought the case to

24 the U.S. attorneys, so he is frequently in the United States,

25 in New York, and he is also the moving force behind this

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1 lawsuit.

2 THE COURT: Well, what do his attorneys say?

3 MR. KIM: Good afternoon, Judge. This is Michael Kim

4 for William Browder.

5 I think the Court should deny what is now the second

6 application for a second deposition. So I know the Court is

7 familiar with the long and tortured history of non-party

8 Browder and the litigation surrounding him that consumed an

9 incredible amount of everyone's time, including the Court's,

10 ultimately, I'm not sure with that much help to the rest of the

11 case.

12 I think the simple facts are that, as the Court knows,

13 to justify a second deposition of a witness requires an

14 extraordinary and specific showing which really has not been

15 made here today.

16 Fact number one is that Mr. Browder had already been

17 deposed. The defendants deposed him for approximately seven

18 hours, the full allotted time, back in the spring. Following

19 that deposition, the timing of which the defendants had

20 chosen -- in other words, when the defendants noticed the

21 deposition, Browder offered to adjust the timing of the

22 deposition to whatever the defendants wished. In other words,

23 if the defendants wanted to take the deposition when they got

24 more documents or at a different time in the case. The

25 defendants chose to take it then, as was their right, and they

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1 took it, and they took all seven hours and asked him numerous

2 questions. That deposition ended.

3 Several week later, in May of this year, the

4 defendants made a motion for a second day of deposition of

5 William Browder. We all came before your Honor and had

6 detailed argumentation as to whether a second deposition of

7 William Browder would be permitted. Then, as now, the

8 defendants then theoried that they had other questions to ask

9 Mr. Browder, that they had other documents they wanted to ask

10 him about, despite having taken the full allotted time under

11 the Federal Rules of Civil Procedure. Your Honor rejected

12 their application, and that was that.

13 We're now here, it is only a few weeks from trial, and

14 essentially the same application that your Honor has already

15 denied is being made again. And again I would submit, your

16 Honor, just as back in May, defendants have not made the

17 requisite showing of extraordinary need for a witness to be

18 deposed yet a second time.

19 So, I think absent some specific showing, your Honor,

20 which has not been made, I would submit that the Court should

21 deny this application now for the second time.

22 THE COURT: Let me --

23 MR. CYMROT: Your Honor, if I may respond?

24 THE COURT: Let me ask this. Let's talk about

25 documents. What do Mr. Browder's attorneys say about the

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1 document requests?

2 MR. KIM: Your Honor, this is Michael Kim again for

3 William Browder. There is a one-page summary sheet that we

4 have supplied the Court's clerk, and I think that would be

5 helpful for the Court to have in front of it when I give my

6 very short explanation in a minute. So I'll just wait until I

7 can confirm the Court has that.

8 THE COURT: I have that now.

9 MR. KIM: So that chart, your Honor, summarizes the

10 requests that the defendants have made recently of William

11 Browder. What we have done is, when we got those requests, we

12 checked as to how many of those documents were already being

13 produced by the government, and it turned out to be a

14 substantial overlap.

15 After that process was complete, a few days ago, we

16 learned of some particular documents that, despite the

17 government's production, the defendants felt they did not have

18 or did not have good copies of, etc. We then went through and

19 basically looked at what Mr. Browder was able to locate that

20 fit that criteria and produced it. The result of which, your

21 Honor, as you heard at the beginning of this call, is that it

22 appears there is no live controversy with respect to documents,

23 because as your Honor can see from the chart, everything has

24 either been produced, or withheld on the basis of privilege

25 that has not been produced.

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1 So, as far as the latest request for documents goes,

2 Judge, there is no controversy between the defendants and

3 Mr. Browder.

4 THE COURT: All right.

5 MR. CYMROT: Let me just respond to that, your Honor.

6 THE COURT: All right. Go ahead.

7 MR. CYMROT: First of all, I don't agree with what

8 Mr. Kim said about what happened. What happened was your Honor

9 did not deny our motion. You said go try to get it from the

10 government first. And we did. And we couldn't get many of the

11 documents.

12 What this chart shows is things Mr. Browder says he's

13 produced. He produced literally today, and we have not been

14 able to determine whether this is accurate or not.

15 So I'm willing to put the issue of documents aside

16 until we do review it and see whether it is accurate. But your

17 Honor did not say that we couldn't get documents or have

18 testimony from Mr. Browder. You retained jurisdiction, and you

19 said go to the government first, and we went and was

20 unsuccessful.

21 I want to remind you, on Friday, your Honor, you

22 denied a lot of our requests for documents from the government,

23 over which Mr. Browder gave things to the government and the

24 government claimed privilege. And you told us also this time

25 go conduct your own investigation, go to the witness. The

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1 witness in most of those items is Mr. Browder.

2 So you denied us the information from the government,

3 and you said go and get it from Mr. Browder. That's one of the

4 reasons we're here. We didn't get it from the government. All

5 right.

6 So, then there is the issue, we have an outstanding

7 subpoena, and the government is coming up with new theories

8 that didn't even exist at the time we took Mr. Browder's

9 deposition. The new theories, again, implicate Hermitage. And

10 there may be additional things that we need as a result of

11 those additional theories.

12 And there was no way we would know this. The

13 government only filed its summary judgment motion last Tuesday

14 and came up with the new theories last Tuesday. The new

15 theories aren't even in the second amended complaint that you

16 authorized filing on October 23. If we're going to respond to

17 that summary judgment motion, and have any due process at

18 trial, Mr. Browder is the person we have to get the information

19 from.

20 MR. KIM: Your Honor, Michael Kim for Mr. Browder. I

21 don't want to ping pong this back and forth because I want to

22 be helpful to the Court. I have a lot to respond to, but I

23 think rather than my arguing back and forth, I want to point

24 out one I think misstatement that Mr. Cymrot made, maybe

25 inadvertently, about what the Court has ruled.

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1 In fact in May, the defendants did move for a second

2 deposition of Mr. Browder, and the Court did deny that

3 application at the time. That is I think objectively

4 verifiable.

5 So other than just correcting that one factual

6 statement, which I think is relevant for the Court's decision,

7 I would be happy to respond to any of the rest of what

8 Mr. Cymrot said, but I will await what the Court would find

9 helpful before I start talking again.

10 MR. CYMROT: Your Honor, Mr. Kim is right. You denied

11 it, but you did retain jurisdiction over Mr. Browder to

12 reconsider after we had gone to the government. So I'm sorry I

13 misspoke, but he's correct about that.

14 THE COURT: As I understand from the lawyers, nothing

15 is requested today from the Court with regard to documents.

16 Let me repeat. Nothing is being requested from the Court today

17 about documents. Maybe something will be requested a future

18 time, but not anything today. Am I right?

19 MR. CYMROT: Yes, your Honor.

20 THE COURT: All right. Now, the issue then today

21 relates to, I take it, whether there should be a further

22 deposition or further deposition testimony from Mr. Browder.

23 Am I right on that?

24 MR. CYMROT: That's correct, your Honor.

25 THE COURT: All right. I would like to hear, maybe

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1 you said it, but I'd like to hear again from Mr. Cymrot, you

2 want a further deposition of Mr. Browder, right?

3 MR. CYMROT: Yes, your Honor.

4 THE COURT: Why?

5 MR. CYMROT: Okay. So, the government's claim, one of

6 the government's claim, is that there was fraud on the foreign

7 bank, HSBC Guernsey, that was the trustee of the Hermitage Fund

8 which is a trust. And that that fraud occurred because

9 Hermitage Fund lost control over certain corporations that were

10 then used to submit false refund statements. That resulted in

11 a theft.

12 We want testimony about whether in fact the transfer

13 of those corporations was authorized, because the provider, the

14 corporate service provider who signed the documents authorizing

15 the transfer, has said that the signatures on the authorities,

16 power of attorneys, were accurate, and that the affidavits that

17 said that they were not accurate, those affidavits were false.

18 Well, we want to know whether Mr. Browder ordered the

19 transfer of those companies, and ordered the corporate service

20 provider to authorize those transfers.

21 THE COURT: All right.

22 MR. CYMROT: Yes.

23 THE COURT: Look, I don't understand what you are

24 telling me.

25 MR. CYMROT: Okay.

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1 THE COURT: However, let me approach it this way. Do

2 the attorneys for Mr. Browder object to further deposition

3 testimony taken of Mr. Browder? I take it you do object.

4 MR. KIM: This is Michael Kim. Yes, I do object. And

5 I would also add, your Honor, that the very topics that

6 Mr. Cymrot just identified were in fact the topics for

7 extensive questioning in the first deposition of Mr. Browder,

8 and I have the transcripts to prove it.

9 MR. CYMROT: I don't believe we had the documents at

10 the time to do that examination, and that's one of the issues.

11 You said there were documents that were withheld. The trust

12 document is one we just -- you're telling me we got the trust

13 document today. That has a big impact on the obligations of

14 HSBC Guernsey, and whether it was defrauded in this situation.

15 And that is one of the predicate acts to money laundering.

16 That's a big issue in this case, your Honor.

17 THE COURT: Look, if a party to a case wishes to take

18 deposition testimony, including wishing to take testimony in

19 addition to what has already been taken, and comes forward with

20 some reasonable basis for wishing that, this is something the

21 Court would normally allow.

22 I trust the good faith of the lawyers who are seeking

23 the testimony. I do not believe that any lawyer here is simply

24 seeking to take testimony for purposes of harassment or

25 something illegitimate.

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1 I don't claim to know the ins and outs of all the

2 reasons why testimony is sought. I don't claim to know that.

3 But I don't need to know it. The good faith of the lawyer

4 seeking to take the testimony is the main thing that I rely on,

5 and here, I have no doubt about the good faith of the lawyer

6 seeking this testimony.

7 Now, that means that I am inclined to allow some

8 reasonable amount of additional testimony. Of course,

9 Mr. Browder lives in England.

10 I ask Mr. Kim, I ask the lawyers for Mr. Browder, is

11 Mr. Browder planning to be in the United States soon?

12 MR. KIM: This is Michael Kim. The answer is no, your

13 Honor.

14 THE COURT: Now, we have a trial coming up December 7.

15 Is he going to be a witness at the trial?

16 MR. KIM: This is Michael Kim again. To our

17 knowledge, he is not going to be a witness at this trial.

18 MR. CYMROT: Your Honor, he's still on the

19 government's witness list, so, that's what I know.

20 MR. KIM: I don't believe that's true.

21 MR. CYMROT: Well, they haven't withdrawn him, Mike.

22 THE COURT: When was he last in the United States?

23 MR. KIM: This is Michael Kim. I don't know the

24 answer to that question. It was probably around the time of

25 the deposition is my guess, to be frank.

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1 THE COURT: When was the deposition?

2 MR. KIM: I believe that was in April of this year.

3 THE COURT: Look, is there any reason why further

4 testimony of Mr. Browder cannot be taken on the telephone? The

5 reason is --

6 MR. CYMROT: Your Honor, I would prefer --

7 THE COURT: The reason is --

8 MR. CYMROT: I think -- yeah.

9 THE COURT: I'm sort of interrupting you, you're

10 interrupting me. Let me just finish.

11 MR. CYMROT: Sorry.

12 THE COURT: If Mr. Browder lives in England, and he

13 has been deposed once in the United States, I don't know

14 whether I have the authority to direct him to come back to the

15 United States. I assume that I would for a continuing of the

16 deposition. I'll assume I would.

17 But, as a matter of discretion, maybe he is a rich man

18 and the travel costs don't mean anything to him. But for most

19 people, the cost of traveling to a foreign country and staying

20 in a foreign country means something. And so, I don't want to

21 impose that burden on him, even if I had the authority to.

22 Therefore, I am going to ask you to arrange to have a

23 further deposition, further testimony by Mr. Browder, and you

24 have it in England and have it on the telephone, unless you all

25 want to travel to England yourselves as attorneys. So that's

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1 the way --

2 MR. CYMROT: We would prefer to have it in England,

3 and if you're giving us that option, we would do that. We

4 don't believe a video conference would be as effective, or a

5 telephone conference would be even less effective. If you're

6 giving that option, we'll go over there.

7 MR. KIM: This is Michael Kim. I would, for

8 Mr. Browder, I would really object to that. I think for

9 Mr. Browder it would also be the expense of having his lawyers

10 come to England, which would be even greater than even himself

11 traveling to a foreign country, which your Honor has already

12 determined is more burden than your Honor would want to impose.

13 So I would suggest, your Honor, that the deposition

14 be, number one, by telephone. Number two, limited to one hour

15 or less, given the few topics that Mr. Cymrot just articulated.

16 And number three, limited to the topics that Mr. Cymrot just

17 articulated as the reason for needing an additional deposition.

18 MR. CYMROT: Your Honor, I didn't articulate

19 everything that's in our letter, and certainly an hour would

20 not nearly be enough, and there is no reason why we can't go

21 over there and take his deposition over there.

22 MR. KIM: Your Honor, this is Michael Kim for

23 Mr. Browder again. Mr. Cymrot's good faith is not in question.

24 But the fact is that to impose on Mr. Browder all of the burden

25 that has to do with a second deposition, which is

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1 extraordinary, given all of the work that remains to be done by

2 the Court and by parties in this case, getting this case ready

3 for trial, I would submit now having a second deposition, which

4 is already extraordinary, and then having anything that really

5 even remotely resembles the first deposition, which took, if

6 your Honor recalls, months of litigation and weeks of

7 preparation, and seven hours of questioning, would be really

8 just a completely unjustified situation to impose on a

9 non-party.

10 So, your Honor, I repeat my request that this be by

11 telephone so Mr. Browder does not have to have lawyers travel

12 to England. I'm based in New York. Number two, that it be

13 limited to one hour. And number three, it be limited to the

14 topics that Mr. Cymrot just articulated.

15 THE COURT: Let's just come to a conclusion on this.

16 I'll allow further questioning on Mr. Browder. It will take

17 place in England. He does not have to travel to the United

18 States. It can be done on the telephone or video or whatever

19 such mechanism all of you choose.

20 Now, as far as preparation, I can't get into that.

21 Obviously there has to be a little preparation. I would not

22 imagine it would have to be very much, but that is up to the

23 lawyers.

24 And certainly, Mr. Browder's lawyer, it seems to me,

25 there is a way for him to do his duty without going to England,

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1 but he's certainly privileged to go to England if he wants to

2 do it.

3 But we'll have the further testimony. I'm not going

4 to limit it to an hour. But, I will be here, and if the

5 testimony is getting beyond the necessities, I will be here to

6 make a ruling and to cut it off. And that's the way I want to

7 leave it.

8 MR. CYMROT: Your Honor, just to be clear, you're

9 saying that we don't have the option of taking it in person in

10 England, but a video conference deposition is permissible. Is

11 that right?

12 THE COURT: Who is speaking?

13 MR. CYMROT: I'm sorry. It is Mark Cymrot for the

14 defendant. Are you saying we don't have the option of going to

15 England and taking the deposition in England?

16 THE COURT: If you want to go to England, you can go

17 to England, of course you can. That's up to you and your

18 client. If your client wants to pay you to go to England, of

19 course you can.

20 MR. CYMROT: Okay.

21 THE COURT: But I was just thinking that maybe

22 everybody would want to save expense. But if you want to go to

23 England and your clients want to pay you to go to England,

24 well, go to England, of course. That's up to you and your

25 clients.

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1 MR. CYMROT: Thank you, your Honor.

2 THE COURT: I think that's all we need to do today.

3 MR. KIM: Your Honor, yes, your Honor, this is Michael

4 Kim for Mr. Browder. I think on that last point, two points.

5 Two requests.

6 First, your Honor, I think it's unfair to have a

7 situation where the defendant's traveling to England and

8 Mr. Browder is forced to pay me to go to England. If they're

9 there in person and I am only there by telephone, your Honor

10 knows it is extremely difficult to represent and advise the

11 client in that situation. I would request that the Court order

12 that the lawyers all be on the telephone or all on video

13 conference.

14 Number two, the defendants had agreed to reimburse

15 Mr. Browder $10,000 for the last deposition, all of the

16 expenses, and has not done so. We would request that your

17 Honor condition the second deposition on the payment of the

18 obligations from the first deposition before second deposition

19 can occur.

20 THE COURT: Let's cover the last point.

21 MR. CYMROT: Your Honor.

22 THE COURT: Any objection to the last point?

23 MR. CYMROT: Your Honor, I would say if we haven't

24 paid the $10,000, it is our fault, and we should pay it, and we

25 will promptly pay it, and I'm sorry about that. I don't think

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1 I was informed about that. I'm sure I was told at one point,

2 but I dropped the ball on it, and I will pay the $10,000.

3 But paying for his lawyers to go to England, I can

4 understand travel expenses, if that's what we're talking about.

5 We have no objection to travel expenses for his lawyers to go.

6 THE COURT: I think that's very helpful. So the

7 deposition will be in England, and Mr. Browder's attorneys'

8 travel expenses will be paid by the other attorneys. And all

9 of that sounds like it's in good order.

10 Have we concluded what we need to do?

11 MR. KIM: Yes, your Honor.

12 MR. CYMROT: Thank you.

13 THE COURT: Thank you.

14 THE DEPUTY CLERK: Thank you, counsel.

15 o0o

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25

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1 UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
2 ---------------------------------------------x

3 UNITED STATES OF AMERICA,

4 Plaintiff,

5 v. 13-cv-6326 (TPG)

6 PREVEZON HOLDINGS, LTD., et al.,

7 Defendants,

8 -and-

9 ALL RIGHT, TITLE, AND INTEREST IN THE REAL

PROPERTY AND APPURTENANCES KNOWN AS THE 20
10 PINE STREET CONDOMINIUM, 20 PINE STREET,
NEW YORK, NEW YORK 10005, UNIT 1816, et al.,
11
Defendants in Rem.
12
--------------------------------------------x
13
New York, N.Y.
14 November 30, 2015
3:20 p.m.
15
Before:
16
HON. THOMAS P. GRIESA
17
District Judge
18
APPEARANCES
19
PREET BHARARA
20 United States Attorney for the
Southern District of New York
21 BY: PAUL M. MONTELEONI, ESQ.
MARGARET S. GRAHAM, ESQ.
22 CRISTINE I. PHILLIPS, ESQ.
JAIMIE L. NAWADAY, ESQ.
23 Assistant United States Attorneys

24 BAKER & HOSTETLER, LLP

Attorneys for the Prevezon Defendants/Movants
25 BY: MARK A. CYMROT, ESQ.
JOHN W. MOSCOW, ESQ.

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1 (In open court)

2 THE CLERK: Motion hearing in the matter of the United

3 States of America v. Prevezon Holdings Ltd., et al. All

4 parties present, your Honor.

5 THE COURT: We have a motion. Who wants to argue for

6 the motion?

7 MR. MONTELEONI: Good afternoon, your Honor. Paul

8 Monteleoni for the government. As the Court knows, we are

9 going to trial on January 6, and at that trial, a number of

10 things will be in dispute. One thing that is not in dispute is

11 one particular element of our case, and that is what we're

12 seeking partial summary judgment on, to narrow and focus the

13 trial.

14 So as background, this case alleges that the

15 defendants engaged in money laundering. The three elements of

16 each of the government's claims in general terms are, first,

17 that a criminal offense occurred that is of a specific kind of

18 crime constituting what's known as specified unlawful activity,

19 a statutory term that means that the offense is a money

20 laundering predicate. The second element is that the

21 defendants engaged in transactions involving the proceeds of

22 that predicate offense. And the third is that the defendants

23 had criminal intent. So, expressed in general terms, those are

24 the elements.

25 THE COURT: Again, what's the second?

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1 MR. MONTELEONI: The second is that the defendants

2 engaged in transactions, financial transactions of some sort,

3 that involved the proceeds of the predicate offense. So you

4 have to prove that there was an underlying crime that's of the

5 type of crime that counts. You have to prove that the

6 defendants did something with the proceeds of that crime. And

7 you have to prove that the defendant has intent. So now our

8 motion is seeking a partial summary judgment just as to the

9 issue of whether that underlying predicate crime existed. So

10 we're seeking partial summary judgment that there was a fraud

11 in Russia and that this fraud constituted a money laundering

12 predicate offense.

13 It is literately undisputed that there was a fraud in

14 Russia. Defendants explicitly admit that. The question for

15 you to decide is whether this amounts to a money laundering

16 predicate offense. And there are both some factual issues

17 raised by the papers regarding that and some legal issues.

18 Neither of those issues that defendants raise are correct. But

19 I want to talk about the factual ones first.

20 Factually, there is no dispute at all that the -- that

21 a fraud occurred in Russia. That fraud resulted in large tax

22 refunds payments to three specific bank accounts in late 2007.

23 This is admitted on page 2 of the defendants' memorandum of

24 law.

25 The defendants do object to some of the factual

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1 details, not the way that this fraud was committed, but they

2 agree that these refund payments were paid because of fraud,

3 not because someone had legitimately overpaid their taxes and

4 were getting the overpayment back.

5 Part of the reason that the defendants admit that is

6 they have to admit it, because everyone who has looked into

7 these refunds agrees they were paid as a result of fraud. The

8 Russian government has looked into these refunds and concluded

9 that. The Council of Europe, an intergovernmental

10 organization, has conducted an investigation and concluded

11 that. And two of the fraudsters have admitted that, as they

12 pled guilty to Russian fraud offenses for this. So all of

13 these materials are admissible evidence for the limited points

14 that they're being offered for in these motions, and the

15 defendants don't have any evidence that contradicts these

16 points because there is no evidence that contradicts the very

17 basic limited set of facts setting forth the most simple

18 mechanics of the fraud, and the most refined statement of those

19 facts is in the proposed orders that we've submitted with our

20 reply papers.

21 Attachment 1 is the proposed order that sets forth a

22 statement of facts that has actually been modified to

23 accommodate some of the concerns that the defendants raised in

24 their opposition papers. We don't think that there is really

25 merit to them, but we think we can take a lot of them off of

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1 the table by modifying them. So if you look at that statement

2 of facts, all of those facts are really just true.

3 The factual issues that the defendants are raising are

4 a very lengthy, elaborate story that they believe that they

5 want to present where they're claiming that certain people were

6 in on the fraud. We think that that's a red herring. We think

7 it is certainly not true. If there's a trial we'll prove that

8 is not true. The defendants have suggested in their papers

9 that we agree with their story. We don't agree with it. But

10 we think it's a red herring because it's not necessary to this

11 motion. Whether or not the defendants' story about who was in

12 on the fraud was accurate, the partial summary judgment would

13 still be appropriate; it would still be a money laundering

14 predicate.

15 So if you went through these statements of facts, the

16 only things that are being objected to by the defendants

17 factually are things that aren't even in the statements of

18 facts. They're objecting saying, well, this is accurate but we

19 also think that some other facts should be said.

20 THE COURT: I'm not following you very well. The

21 government is moving for partial summary judgment. Right?

22 MR. MONTELEONI: That's correct, your Honor.

23 THE COURT: Now, what does the government want to have

24 partially judged?

25 MR. MONTELEONI: The government would like this Court

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1 to enter an order granting partial summary judgment that a

2 fraud occurred in Russia that constitutes specified unlawful

3 activity under the money laundering statute.

4 THE COURT: Stay specific.

5 MR. MONTELEONI: Sure. So, specifically, the

6 government is asking you to enter the proposed order, which is

7 attached to our reply papers but I could hand up a copy if you

8 would like right now.

9 THE COURT: I don't need to have any more papers. Now

10 I'm asking you to answer questions. What is it you want me to

11 partially find?

12 MR. MONTELEONI: That a tax refund fraud was committed

13 in Russia and that that fraud was a fraud not just against the

14 Russian treasury but also against HSBC, which is a foreign

15 bank.

16 THE COURT: All right. Am I correct that the

17 government contends that -- let me back up. The government

18 must show a specified unlawful act. Right?

19 MR. MONTELEONI: Yes.

20 THE COURT: And the specified unlawful act that the

21 government is contending is fraud on a foreign bank, right?

22 MR. MONTELEONI: In this motion, yes.

23 THE COURT: In the motion.

24 MR. MONTELEONI: Exactly.

25 THE COURT: And so you want the Court to find, in your

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1 motion, that there was fraud on a foreign bank. Right?

2 MR. MONTELEONI: That's correct.

3 THE COURT: The foreign bank you're talking about is

4 HSBC, right?

5 MR. MONTELEONI: Yes, specifically three HSBC

6 entities, each of which counts as a foreign bank under the

7 statute.

8 THE COURT: Just a minute. Let me check something.

9 Now, are the three companies you're talking about

10 these companies that have, at least part of their names,

11 Rilend, R-i-l-e-n-d?

12 MR. MONTELEONI: No, your Honor. Those are companies

13 that are held by the Hermitage fund. The three HSBC entities

14 have different roles in the Hermitage.

15 THE COURT: Wait a minute. What are the companies

16 that you're referring to now?

17 MR. MONTELEONI: All right. So the HSBC entities that

18 are each foreign banks are HSBC Guernsey, the trustee of --

19 THE COURT: Just a minute. All right. HSBC Guernsey.

20 MR. MONTELEONI: -- HSBC Management, and HSBC Suisse.

21 THE COURT: And you said it a moment ago, but what

22 role did they play in your argument?

23 MR. MONTELEONI: Yes. So HSBC Guernsey is the trustee

24 of an entity called the Hermitage fund, an investment fund.

25 THE COURT: And I know you said this a moment ago but

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1 say it again: what is the significance of that, please?

2 MR. MONTELEONI: Well, the fund was defrauded in

3 several ways by a complex fraud scheme, and that affected HSBC

4 Guernsey in its role as trustee.

5 THE COURT: Oh, so, in other words, you're now talking

6 about fraud on a foreign bank. Is that right?

7 MR. MONTELEONI: Yes. HSBC Guernsey, HSBC Management,

8 and HSBC Suisse are each foreign banks that were victims of the

9 fraud scheme.

10 THE COURT: Just a minute, please.

11 And the money laundering scheme, I know you said this

12 but say it again, what is the significance of that?

13 MR. MONTELEONI: So fraud on a foreign bank is a

14 predicate offense for money laundering under Section 1956(c)(7)

15 (B)(iii).

16 THE COURT: Without the statute citation say it again.

17 It is a predicate offense --

18 MR. MONTELEONI: A predicate offense for money

19 laundering, the first of the three elements of money

20 laundering.

21 THE COURT: In other words, that there has to be --

22 would you mind going back over the three elements, please.

23 MR. MONTELEONI: Yes. So the first is that there is

24 some predicate offense, a crime that's of a certain sort.

25 Fraud on a foreign bank is one of those sorts of crime. This

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1 is known as a specified unlawful activity under the statute.

2 THE COURT: Just a minute. OK. Go ahead.

3 MR. MONTELEONI: The second is that the defendants

4 engaged in transactions involving the proceeds of the specified

5 unlawful activity.

6 THE COURT: Let me make a note. The defendant engaged

7 in what?

8 MR. MONTELEONI: Transactions.

9 THE COURT: Go ahead.

10 MR. MONTELEONI: And those transactions involved the

11 proceeds of the specified unlawful activity.

12 THE COURT: OK. And then go ahead.

13 MR. MONTELEONI: And the third is that the defendants

14 had the appropriate type of criminal intent.

15 THE COURT: Now, I think we were in our discussion or

16 your discussion with me you were focusing on the first element,

17 right?

18 MR. MONTELEONI: Yes, your Honor.

19 THE COURT: And the government's contention is that

20 the specified unlawful activity, or at least a specified

21 unlawful activity, was fraud on a foreign bank. Right?

22 MR. MONTELEONI: That's correct.

23 THE COURT: And you contend that the fraud on a

24 foreign bank was committed against HSBC Guernsey; is that

25 right?

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1 MR. MONTELEONI: That's one, yes. And two others.

2 THE COURT: And the other --

3 MR. MONTELEONI: The second one is HSBC Management.

4 THE COURT: Just a minute. And the third is?

5 MR. MONTELEONI: HSBC Suisse.

6 THE COURT: Now, what is it that is now shown by the

7 facts beyond any need for a trial?

8 MR. MONTELEONI: So, first, that a fraud was committed

9 that caused the Russian treasury to pay 5.4 billion rubles to

10 accounts in the name of three companies in December of 2007.

11 THE COURT: Now, that's not what you call a fraud on a

12 foreign bank, right? Or is it?

13 MR. MONTELEONI: Well, it is because the stat -- I

14 was, for all of these elements I'm just using condensed

15 versions of it. The technical statutory language is an offense

16 against a foreign nation involving fraud or a scheme or attempt

17 to defraud by or against a foreign bank. So here the fraud

18 scheme included fraud on a foreign bank.

19 THE COURT: Well, what was the fraud on the foreign

20 bank, the fraud on HSBC Guernsey or what?

21 MR. MONTELEONI: Yes. HSBC Guernsey and HSBC

22 Management were defrauded because they were the trustee and

23 manager of an investment fund, the Hermitage fund, and

24 fraudsters gained control of three companies that were held by

25 the investment fund. Those companies are Rilend, the one you

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1 mentioned, Parfenion, and Makhaon.

2 THE COURT: Just a minute. Rilend, R-i-l-e-n-d?

3 MR. MONTELEONI: Yes.

4 THE COURT: And then how do you pronounce the second?

5 MR. MONTELEONI: Parfenion.

6 THE COURT: Parfenion.

7 MR. MONTELEONI: P-a-r-f-e-n-i-o-n.

8 THE COURT: And then there's a third.

9 MR. MONTELEONI: Yes. Makhaon is, I think, how you

10 pronounce it. It's spelled M-a-k-h-a-o-n.

11 THE COURT: Now, what role did they play?

12 MR. MONTELEONI: Those were assets of the fund that

13 the foreign banks were manager and trustee of. So they were

14 fund assets. And when fraudsters gained control of those

15 companies, the fraudsters fabricated fake liabilities against

16 those companies. So the fraudsters, through forged documents

17 and court judgments based on forged documents, caused hundreds

18 of millions of dollars of liabilities against these fund

19 assets. And that interfered with HSBC Management and HSBC

20 Guernsey in their duties to protect the fund assets and to

21 prevent fraud, because all of a sudden --

22 THE COURT: Wait. Say that, the latter thing you just

23 said, repeat that.

24 MR. MONTELEONI: So fraudsters forged huge fake

25 liabilities against these fund assets. And in so doing, that

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1 disrupted the duties of HSBC Management and HSBC Guernsey,

2 which were obligated to prevent fraud and to conserve fund

3 assets. All of a sudden, through forgeries, fraudsters are

4 imposing huge liabilities on fund assets. So that is a

5 deprivation of HSBC Management and HSBC Guernsey's right to

6 control and ability to safeguard the assets of the funds. And

7 that is a fraud on these two HSBC entities, and they are

8 victims of that.

9 The third HSBC entity was defrauded in an even more

10 direct way.

11 THE COURT: You mean HSBC Suisse?

12 MR. MONTELEONI: Yes, because HSBC Suisse was actually

13 an investor in the fund. HSBC Suisse had shares in this

14 investment fund. And when the fraudsters generated false

15 liabilities against these assets of the fund, the fund had to

16 set aside millions of dollars for legal fees to undo those

17 false liabilities. The fund had to hire lawyers to go to court

18 and undo these forged contracts, these fabricated documents and

19 the judgments based on them.

20 Now, those lawyers had to have their legal fees. The

21 legal fees came out of the assets of the fund. So the

22 investors of the fund had their investment diminished by the

23 millions of dollars of legal fees that were set aside. And in

24 fact HSBC Suisse as an investor lost over $1.9 million just to

25 these legal fees. So it, as an investor in the fund, was

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1 defrauded in a very direct way by having its investment

2 depleted by legal fees to remediate the fraud scheme. So that

3 is also fraud on the foreign bank HSBC Suisse.

4 THE COURT: Well, but here of course we're talking

5 about whether the government is entitled to partial summary

6 judgment. Now, what is it that you say is something that can

7 be summarily found by the Court because there is no factual

8 issue? What is it?

9 MR. MONTELEONI: Well, so first of all, that the fraud

10 even happened in the first place, that it wasn't just repayment

11 of taxes. Everyone agrees on that. Two of the fraudsters were

12 convicted. They admitted to that. The Russian government

13 agrees with that. An investigating intergovernmental body

14 agrees to that. So if the Court doesn't do anything else, it

15 could at least drastically streamline the trial by approving

16 the fact findings that set forth just the very barebones

17 summary that the fraud happened, which is in a second proposed

18 order that the government has attached. So that is something

19 that would take a while to try but doesn't need to be tried

20 because everyone agrees it was a fraud.

21 But beyond that, the government believes that based on

22 the fact that the fraud was committed and based on the

23 certified business records of HSBC, which show the duties of

24 HSBC Management and HSBC Guernsey and which show the depletion

25 of HSBC Suisse's investment, that the Court can rule as a

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1 matter of law that this fraud was a specified unlawful

2 activity.

3 THE COURT: So that's what you say should be summarily

4 found by the Court, that there was a specified unlawful

5 activity.

6 MR. MONTELEONI: Yes.

7 THE COURT: What would that leave for trial?

8 MR. MONTELEONI: Then we would present evidence that

9 the funds from these tax refunds were moved through a money

10 laundering network to the defendants, in a series of

11 transactions, so there would be expert testimony from both

12 sides about the tracing of the fraud proceeds to the

13 defendants. And that would be part of the proof of the second

14 element, that the defendants engaged in transactions with these

15 proceeds. There are sub-elements of that element, that those

16 transactions happened in the United States, etc. And then,

17 third, and what I think might be the biggest focus of trial,

18 is, the government would have to prove that the defendants

19 acted with the appropriate level of criminal intent, that they

20 knew or were willfully blind to the fact that these were the

21 proceeds of crime, and several other intent details that differ

22 based on the specific counts. But it would essentially be that

23 the defendants got fraud proceeds, that they did transactions

24 with them, and that they knew what they were doing.

25 THE COURT: All right. Now, look, your motion for

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1 partial summary judgment is, you feel you are entitled to

2 judgment that there was specified unlawful activity. Is that

3 right?

4 MR. MONTELEONI: That's correct, your Honor.

5 THE COURT: I'm going to turn to the defense side.

6 Why isn't it appropriate for the Court to find on summary

7 judgment that there was a specified unlawful activity?

8 MR. CYMROT: Your Honor, because the facts have been

9 disputed and because their claim of fraud on the foreign bank

10 fails to state a claim upon which relief can be granted. Both

11 grounds are needed and both grounds are lacking. So I don't

12 know if your Honor has ever entered summary judgment in a fraud

13 case. It is extremely rare. And it shouldn't be entered in

14 this case. There was no fraud on a foreign bank. And I can

15 demonstrate that the government has actually admitted that

16 there are facts in dispute.

17 THE COURT: Well, wait a minute. Isn't it correct

18 that there is no dispute about the fact that there was fraud

19 perpetrated on the Russian government?

20 MR. CYMROT: Correct. But how it happened is hotly

21 disputed. We have two widely different stories that both will

22 have to present evidence to a jury and the jury will have to

23 decide how it happened, whether these banks --

24 THE COURT: What are the issues about how it happened?

25 MR. CYMROT: Your Honor, the government says that

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1 these three companies, Parfenion, Rilend, and Makhaon, were

2 stolen from the Hermitage fund. And the defendants have

3 evidence from the discovery that they were transferred based

4 upon powers of attorney given by representatives of the

5 Hermitage fund. They were not illegally taken. And the fraud

6 on HSBC Suisse, Guernsey, and Management depend upon the fact

7 that those three companies were stolen. And I can hand you up

8 pleadings from the government that said the summary judgment

9 motion does not contest that that fact is disputed. And they

10 tried to state a claim without that fact. And they couldn't.

11 Mr. Monteleoni just told you that those companies were stolen,

12 they were forged transfers, he said.

13 MR. MONTELEONI: That is not what I just said in open

14 court in front of you.

15 MR. CYMROT: OK. I have pleadings. I have docket

16 no. 415. You remember, judge, we objected to this motion

17 because it would interfere with trial preparation and it was

18 without a basis. Docket 415, footnote 2 on page 4, "Among the

19 other things, although the government will prove at trial if

20 relevant that the organization described in the complaint

21 fraudulently reregistered the Hermitage companies," that's

22 Rilend and companies, "away from Hermitage and HSBC, the motion

23 does not rely on that potentially disputed fact." That's what

24 they said. But that is the basis of their claim. Docket

25 no. 408 has the same statement: "Insert an entirely false

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1 quotation that the motion claims that the Hermitage companies

2 were fraudulently reregistered, when these words don't appear

3 in the motion; in fact the motion stays clearly to the

4 undisputed facts that the fraudsters who controlled the

5 companies fabricated false liabilities." They are saying that

6 is a disputed fact and they're trying to stay away from it.

7 Now let me show you one more document, Judge, which is

8 the Hermitage financial statements that they rely upon. They

9 say that HSBC Suisse was an investor in the Hermitage fund.

10 And then say there was a provision made where this $1.9 million

11 was reserved on the financial statement. The provision is

12 shown in the financial statements, on page 23, note 17: "These

13 entities were legally appropriated by third parties." That is

14 the basis for the reservation of the $1.9 million. That is the

15 basis of the fraud claim against HSBC Suisse. It is disputed.

16 The facts are disputed. And there are many facts that are

17 disputed in their motion. They say that there was this

18 organization that committed the fraud. Yet the discovery has

19 shown that Mr. Browder, who is the Hermitage fund, and HSBC

20 knew about what was going on at the time it was happening, so

21 they either kept quiet or they were involved. That is a huge

22 factual dispute. You cannot enter summary judgment on a fraud

23 claim when you have those kind of disputes, your Honor.

24 When is summary judgment entered on a fraud claim? It

25 almost never occurs, for good reason.

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1 There are many factual disputes, your Honor. And I

2 will say, what are the proceeds? What are the proceeds? We're

3 talking about a money laundering case, your Honor. The money

4 laundering has to occur from the proceeds of the specified

5 unlawful activity. There are no proceeds of this bank fraud

6 that they're talking about. There are no proceeds to be

7 laundered. None of the money they're talking about came from

8 HSBC Guernsey, Management, or Suisse. None of the proceeds are

9 there to be laundered. How can you have a money laundering

10 claim when there are no proceeds that they are proving are

11 being laundered?

12 Your Honor, the other thing is, as a matter of law,

13 these three companies are not foreign banks within the meaning

14 of the money laundering statute. The money laundering statute

15 is very specific. It talks about entities involved in the

16 business of banking. A trustee, a manager, and an investor are

17 not involved in the business of banking as defined by the

18 regulations that are referred to in the International Banking

19 Act, which is specifically referred to in the money laundering

20 statute.

21 I know I'm going fast. I don't know if I've gone

22 beyond you, your Honor, but the point of the matter is, as a

23 matter of fact and as a matter of law, this is a disputed case.

24 Now, we've proposed to your Honor in a separate motion

25 the way to cut it down, that these specified unlawful

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1 activities that they're talking about fail to state a claim

2 upon which relief can be granted. There is only one that they

3 have asserted that states a claim. And that's that the fraud

4 on the Russian treasury occurred by reason of bribery. Now, if

5 they can prove that, they have a specified unlawful activity.

6 But that is the only one that satisfies a claim. All right.

7 If you were to limit them to bribery, they would then have the

8 same basic tracing issues be that are involved in the money

9 laundering. It would be a much narrower case. We filed a

10 separate motion on this, your Honor.

11 We can submit to you tomorrow -- and I'm sorry it

12 wasn't done today but there were transaction issues --

13 THE COURT: What tomorrow?

14 MR. CYMROT: We can submit to you a list of eight

15 undisputed facts that relate to the fraud on the Russian

16 treasury. What the government has tried to get you to do is

17 sign an order that would decide all of these fraud issues. It

18 would be fundamentally wrong. It would deny our clients

19 fundamental rights to a trial on those issues. And those

20 issues don't state a claim and shouldn't be in the trial for

21 that reason also. We can make the case narrower as you want by

22 deciding which of these specified unlawful activities actually

23 state a claim, because this one doesn't.

24 THE COURT: Which one doesn't?

25 MR. CYMROT: The three-bank bank fraud does not state

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1 a claim. Have you heard anything that sounded like fraud? An

2 investor in the Hermitage fund lost money because, eight months

3 after the theft of the Russian treasury, there were legal fees

4 that were paid. Does that sound like fraud? I don't know any

5 fraud that sounds like that. Eight months later, with many

6 business decisions in between, made by the Hermitage fund.

7 There's no proximate cause there. The trustee loses control

8 over property. That's not a fraud. They don't cite a single

9 case that says that's a fraud. They cite restitution cases.

10 They don't cite any fraud cases. Where are their cases? If

11 this is a fraud, they ought to have cases. They have no cases.

12 This is disputed, your Honor. It's disputed on the facts and

13 it's disputed on the law.

14 None of them are banks, but certainly management is

15 not a bank. Management, does that sound like a bank? A

16 trustee is not a bank, not for the purpose of this statute.

17 It's not engaged in the business of banking. That's what the

18 statute says.

19 You don't have a bank. You don't have a fraud. And

20 the allegations of fraud are all disputed. How can you

21 possibly enter summary judgment in that situation?

22 THE COURT: As long as we're here this afternoon, I

23 would like to make something of the afternoon. Now, it is my

24 memory of what I've done in the case that these facts occurred:

25 there was fraud on the Russian treasury, and the details of

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1 that I won't try to recite at the moment. That there was fraud

2 on Russia. That is my memory of the facts.

3 Now, that fraud on Russia yielded, in American dollar

4 terms, about 2 hundred and 16 or 17 million dollars. Now, you

5 can't just walk into the Citibank branch in Brussels and say,

6 here is $217 million, I would like to deposit to the account of

7 somebody, who was supposed to benefit from the fraud.

8 Obviously the fraud was not committed without the idea that

9 somebody would reap a benefit from the fraud.

10 Now, the United States of America comes into it as far

11 as I know because government claims that proceeds of the fraud

12 were handled in such a way that some of them came to the United

13 States and were invested here in real estate.

14 Now, the government claims that what happened to those

15 funds is called money laundering; in other words, money that is

16 obtained illegally was dealt with the way illegal funds get

17 dealt with, that is, through money laundering, trying to get

18 the funds into a form that can benefit the criminals. And the

19 government contends that Prevezon was involved in money

20 laundering.

21 Prevezon contends that it was not so involved, that

22 what it did with its funds was to take legitimate investors'

23 money and invest the money legitimately, for legitimate

24 investors.

25 MR. CYMROT: And I would add, your Honor, that they

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1 never --

2 THE COURT: Just a minute.

3 MR. CYMROT: They never received any of this money.

4 THE COURT: Can you let me finish?

5 MR. CYMROT: Yes. Go ahead.

6 THE COURT: The government contends that Prevezon, in

7 some way, participated in money laundering. That is the case

8 the government seeks to make out against Prevezon.

9 Now, look, we have a statute, an American statute,

10 which deals essentially with money laundering, and certain

11 things have to be proved to show a violation of that statute.

12 There has to be a showing of what is called a specified

13 unlawful activity. The government contends that it has shown a

14 specified unlawful activity, namely, fraud on a foreign bank,

15 as far as I understand their case. The fraud on the foreign

16 bank is fraud on HSBC Guernsey, as I understand it, and also

17 fraud perhaps on a Russian bank.

18 MR. CYMROT: No, your Honor. No, they haven't named

19 any Russian bank.

20 THE COURT: All right. Then I'm mistaken. I stand

21 corrected.

22 MR. MONTELEONI: The three HSBC entities are HSBC

23 Guernsey, HSBC Management, and HSBC Suisse.

24 THE COURT: OK. Very good. Thank you. That is a

25 good correction.

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1 Now, look, the reason I'm going through this is that I

2 don't think I recited completely all the issues, but the

3 question before the house now is whether the government is

4 entitled to partial summary judgment. And as I understand it,

5 the government contends that it has shown beyond any triable

6 issue a specified unlawful activity, namely, fraud on a foreign

7 bank. Am I right, Mr. Monteleoni?

8 MR. MONTELEONI: That's correct, your Honor.

9 THE COURT: OK. So the issue before me is, are there

10 or are there not factual issues. The government says that it

11 has shown beyond any triable issue of fact that there was a

12 specified unlawful activity, right, Mr. Monteleoni?

13 MR. MONTELEONI: That's correct, your Honor.

14 THE COURT: OK. And that it's made that showing, the

15 showing is clear beyond any triable issue. Now, why is that

16 not the case?

17 MR. CYMROT: You're speaking to me, your Honor?

18 THE COURT: Yes.

19 MR. CYMROT: Because the scheme that they describe as

20 fraud on a foreign bank is both disputed as to facts and

21 disputed as to law.

22 THE COURT: What is the factual dispute?

23 MR. CYMROT: All right, your Honor. That these three

24 companies were illegally appropriated from --

25 THE COURT: What three companies?

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1 MR. CYMROT: Rilend, Makhaon, and Parfenion.

2 THE COURT: What do they have to do with the case? I

3 know the answer, but I'm asking you.

4 MR. CYMROT: What do they have to do with the case?

5 They submitted what they had -- the government says they were

6 illegally appropriated from subsidiaries of the Hermitage fund,

7 that there were forged contracts created, then there were

8 lawsuits that were collusive that created liabilities, and that

9 those liabilities were put in tax certificates that led to the

10 fraud on the Russian treasury. We dispute every single step of

11 that way. We dispute the fact that those companies were

12 misappropriated illegally from the subsidiaries of the

13 Hermitage fund. We dispute the fact that there were

14 independently contracts. We have proven that the Hermitage

15 fund lawyers had notice of these supposedly sham lawsuits. We

16 have proven that the certificates that were used to make the

17 tax returns, the tax filings were certificates that were not

18 stolen by the fraudsters in the way that the government

19 contends. The government has a very complex fraud scheme, and

20 we dispute every single step of the way. That's one thing.

21 THE COURT: Wait a minute, Mr. Cymrot.

22 Look, let me turn to Mr. Monteleoni.

23 MR. MONTELEONI: Yes, your Honor. You'll notice

24 that --

25 THE COURT: Just a minute.

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1 MR. MONTELEONI: I'm sorry.

2 THE COURT: You're relying on fraud on a foreign bank

3 as the predicate act. Right?

4 MR. MONTELEONI: In this motion, yes.

5 THE COURT: In this motion. What is the foreign bank?

6 MR. MONTELEONI: HSBC, three HSBC companies.

7 THE COURT: Say the latter again?

8 MR. MONTELEONI: Three HSBC companies -- HSBC

9 Guernsey, HSBC Management, HSBC Suisse.

10 THE COURT: OK. Let me pause a minute. So you're

11 relying on the fact that there was fraud committed against HSBC

12 Guernsey, right?

13 MR. MONTELEONI: Yes, as well as two other HSBC

14 companies.

15 THE COURT: As well as what?

16 MR. MONTELEONI: As well as HSBC Management and as

17 well as HSBC Suisse.

18 THE COURT: What if fraud was only committed on one?

19 MR. MONTELEONI: Any one would make it a money

20 laundering predicate.

21 THE COURT: In other words, if there was fraud

22 committed against HSBC Guernsey, that would be sufficient?

23 MR. MONTELEONI: That's correct, your Honor.

24 THE COURT: Now, do you claim that there was fraud

25 committed against HSBC Guernsey beyond any trial issue of fact?

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1 MR. MONTELEONI: Yes.

2 THE COURT: And what was that fraud?

3 MR. MONTELEONI: That fraud was that fraudsters forged

4 contracts that were then used in lawsuits to fraudulently

5 generate huge liabilities against companies that HSBC Guernsey

6 was a trustee of and that HSBC Guernsey had the responsibility

7 to safeguard against fraud.

8 THE COURT: Well, that's the basic fraud in Moscow,

9 right?

10 MR. MONTELEONI: Exactly, that the fraud in Moscow

11 also victimized HSBC Guernsey because, as a trustee, HSBC

12 Guernsey had the duty to make sure that the companies in its

13 trust were not being subjected to completely forged liabilities

14 by fraudsters.

15 THE COURT: Here's what's confusing me a bit. I have

16 in my mind that there was, at least the government contends

17 that there was fraud in Moscow from which 216 million dollar

18 equivalents were derived. That's what I have in my mind. Now,

19 that is in my mind what I'll call the basic fraud.

20 MR. MONTELEONI: Sure.

21 THE COURT: Now, I have also in my mind that the

22 government contends that after the basic fraud was committed

23 and money was obtained, then there had to be the laundering of

24 that money.

25 MR. MONTELEONI: Yes.

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1 THE COURT: And in my mind, the basic fraud is

2 different from the laundering that occurred to dispose of the

3 proceeds of the fraud.

4 MR. MONTELEONI: Yes, essentially yes.

5 THE COURT: Now, what I have in my mind is that the

6 government contends that Prevezon was an instrument of the

7 laundering.

8 MR. MONTELEONI: That's right.

9 THE COURT: I don't have the idea that the government

10 contends that Prevezon did the initial fraud in Moscow.

11 MR. MONTELEONI: We do not allege that they committed

12 the basic fraud.

13 THE COURT: So what the government is saying is that

14 Prevezon helped launder the money.

15 MR. MONTELEONI: Exactly.

16 THE COURT: Now, if the government is moving for

17 partial summary judgment, and I know you've said this numerous

18 times but, again, why is the government entitled to partial

19 summary judgment in connection with the laundering?

20 MR. MONTELEONI: The government is only moving for

21 partial summary judgment because the basic fraud is an element

22 of the money laundering. If I engaged in a transaction with

23 money that came from a totally noncriminal source, I couldn't

24 have committed money laundering. So if you want to prove that

25 I committed money laundering, you have to prove that the source

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1 of the money was from some kind of crime.

2 THE COURT: Well, that's exactly right. But here's

3 the thing. And I don't know whether this is significant or

4 not. But in my mind, there is the basic fraud, where the

5 Russian government was robbed of $216 million or something like

6 that. Right?

7 MR. MONTELEONI: Yes, depending on the exchange rate,

8 yes.

9 THE COURT: OK. Now, I'm repeating myself, but I'm

10 going to do it. My understanding is that the government

11 contends that Prevezon was involved in laundering, not the

12 basic fraud.

13 MR. MONTELEONI: Exactly.

14 THE COURT: OK. Now, what does the government contend

15 Prevezon did to launder?

16 MR. MONTELEONI: It received funds derived from the

17 basic fraud, invested them initially in Europe, then invested

18 portions of them in New York real estate. And it reinvested

19 the income from that real estate in further real estate. So it

20 disguised the portion of the proceeds of the basic fraud that

21 it received in a real estate business in New York, which was

22 funded in part with the proceeds of the basic fraud.

23 THE COURT: OK. Now, let's come to the government's

24 motion for partial summary judgment. What is that motion?

25 MR. MONTELEONI: We are asking the Court to find that

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1 there is no triable issue of fact that the basic fraud

2 occurred, and also that the basic fraud victimized three

3 foreign banks, in addition to the Russian treasury.

4 THE COURT: OK. Now, let me make a note. Say it

5 again.

6 MR. MONTELEONI: We are asking the Court to find that

7 there is no triable issue of fact that the basic fraud

8 occurred. It is proven beyond any genuine dispute that the

9 basic fraud took place.

10 THE COURT: And go on. What's the rest of your...

11 MR. MONTELEONI: All right. And that the basic fraud

12 victimized not only the Russian treasury, but also HSBC

13 Guernsey, HSBC Management, and HSBC Suisse.

14 THE COURT: A little slower. The Russian treasury...

15 MR. MONTELEONI: Not only the Russian treasury, but

16 also HSBC Guernsey, also HSBC Management, and also HSBC Suisse.

17 THE COURT: Just a minute. That's all under the

18 heading "specified unlawful activity." Is that right?

19 MR. MONTELEONI: Exactly, that these facts, that I

20 just mentioned together, constitute the first element of the

21 money laundering counts, specified unlawful activity.

22 THE COURT: OK. Now just a minute. That still, if

23 you win that motion, it still leaves for trial the conduct of

24 the defendant, right?

25 MR. MONTELEONI: Yes. Both the conduct of the

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1 defendant and also the tracing of money from the Russian

2 treasury to the defendants.

3 THE COURT: But the conduct of the defendant.

4 MR. MONTELEONI: Yes, exactly.

5 THE COURT: Because, am I correct that if the motion

6 for partial summary judgment is granted, you're not seeking a

7 finding about the defendant?

8 MR. MONTELEONI: Exactly.

9 THE COURT: You're seeking a finding about the basic

10 fraudulent activity that occurred in Moscow, right?

11 MR. MONTELEONI: That is exactly right.

12 MR. CYMROT: May I speak, your Honor?

13 THE COURT: Just a minute.

14 Well, let me say this. Right now, I don't see that

15 there remains any triable issue of fact as to whether the basic

16 fraud occurred against the Russian government.

17 MR. CYMROT: Your Honor, that's --

18 THE COURT: Wait a minute. Now, what I believe is

19 left is all of the issues about the defendants' conduct, but --

20 am I right, Mr. Monteleoni?

21 MR. MONTELEONI: Yes, your Honor.

22 THE COURT: So what you have in the government's

23 motion is not a finding, a request for a finding of any kind of

24 guilt on the part of Prevezon, but simply that a fraud was

25 committed against the Russian government, and it seems to me it

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1 was.

2 MR. CYMROT: No, your Honor, not the way they say it.

3 THE COURT: I'm not asking about the way they say it.

4 MR. CYMROT: But it is critical to a U.S. crime. If

5 there is a fraud on the Russian treasury and that money were to

6 come to the United States, there would be no crime in the

7 United States. All right? The only way it becomes a crime is

8 if there is a specified unlawful activity. Only way. In other

9 words, if that money, the 216 million, let's say they

10 transferred it directly to New York and they spent it in New

11 York, that is not a U.S. crime. Nothing happened here that's

12 criminal. It has to be that it occurred by bribery, by fraud

13 on a bank, or certain other ways that aren't really relevant

14 right here. And the way it happened --

15 THE COURT: Can I interrupt you?

16 MR. CYMROT: Yes.

17 THE COURT: It is my understanding that the government

18 is seeking to take out of the trial the facts about what

19 occurred in Moscow.

20 MR. CYMROT: No --

21 THE COURT: Wait a minute.

22 MR. CYMROT: In Cyprus and a lot of other places.

23 THE COURT: Can I finish?

24 MR. CYMROT: Yes, your Honor.

25 THE COURT: You interrupted and I didn't finish. I'm

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1 going to start again.

2 My understanding is that the government is seeking to

3 take out of the trial the facts which undoubtedly occurred.

4 And that is that there was a fraud on the Russian government

5 which resulted in the government being defrauded of, in dollar

6 terms, about $216 million. Now, it's my understanding that

7 that is what the government is seeking to do. In other words,

8 the government is seeking to take out of the trial facts which

9 undoubtedly occurred. I know they occurred. Everybody in this

10 room knows they occurred. But the government is not seeking to

11 take out of the trial anything about the conduct of Prevezon.

12 Mr. Monteleoni, am I right?

13 MR. MONTELEONI: That is right. I would add that, in

14 addition to the fact that a fraud occurred, the government --

15 in order for the full relief we're requesting in the motion,

16 partial summary judgment to be granted, we need not just that

17 the fraud occurred, but also a few other details about the fact

18 that it harmed a foreign bank. If the Court is not --

19 THE COURT: Wait a minute, wait a minute. Go a little

20 slower.

21 MR. MONTELEONI: The government absolutely is asking

22 the Court to take out of the case the undisputed details about

23 the fact that the basic fraud occurred in Moscow. It is also

24 asking for a little bit more in this motion. The additional

25 facts that it's asking are for the Court to find that the basic

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1 fraud also victimized HSBC. And the reason that it's asking

2 that is because that would simplify the trial because only

3 certain types of crimes are predicate offenses for money

4 laundering, and if it is established that this fraud victimized

5 the foreign banks of HSBC, then the specified unlawful activity

6 would be established. If the Court is able to make that

7 finding, which the government believes is really not subject to

8 real dispute on the papers, then that is the order that the

9 government is seeking.

10 If the Court does not wish to make that finding, the

11 Court could still drastically simplify the trial by making the

12 fact findings of paragraphs up to 21 on the government's

13 proposed order, which just set forth the skeletal details of

14 the basic fraud. It wouldn't simplify the trial as much, but

15 it would simplify the trial substantially.

16 THE COURT: OK. Let me see if I understand. I'm not

17 looking at the papers for the moment. Let me ask you this. In

18 other words, in what you talked about in the last few minutes,

19 you talked about what I'll call two phases of things. One is

20 the basic fraud that occurred in Moscow. The other is a fraud

21 against HSBC Guernsey.

22 MR. MONTELEONI: Yes. That is included in the basic

23 fraud.

24 MR. CYMROT: No. No, you cannot say that.

25 MR. MONTELEONI: That is the government -- the

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1 government is asking the Court to find that that is included in

2 the basic fraud.

3 MR. MOSCOW: That's challenged.

4 MR. CYMROT: That's challenged. That's clearly

5 challenged.

6 MR. MONTELEONI: It is not genuinely disputed.

7 THE COURT: If you want to talk among yourselves,

8 there's a hallway out there, and you are welcome to use it and

9 I can leave you alone.

10 MR. CYMROT: No, your Honor. We need your help on

11 this.

12 MR. MONTELEONI: I apologize, your Honor. The

13 government's view is that there is not a genuine dispute under

14 Rule 56 that the basic fraud included fraud on HSBC.

15 THE COURT: I know that. But I'm asking you a little

16 different question.

17 MR. MONTELEONI: I apologize.

18 THE COURT: And that is, suppose in my mind there are

19 what I'll call two phases of what you just said. One is the

20 fraud that occurred in Moscow. The second phase occurred, the

21 fraud against HSBC Guernsey.

22 MR. MONTELEONI: Yes.

23 THE COURT: You hear what I'm saying.

24 MR. MONTELEONI: All right.

25 THE COURT: OK. Now, what you're saying is, what the

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1 government is saying is, there was no genuine issue of fact

2 about a fraud being committed in Moscow. And there is also no

3 genuine issue of fact about the idea that there was a fraud

4 committed against HSBC Guernsey. That's your position.

5 MR. MONTELEONI: That's correct, your Honor.

6 THE COURT: On the motion for summary judgment.

7 MR. MONTELEONI: Yes.

8 THE COURT: OK. Now, let me turn to the defense.

9 MR. CYMROT: There is no genuine issue, your Honor.

10 THE COURT: Can you just let me --

11 MR. CYMROT: Yes. OK. Sorry. I thought you were

12 waiting for me to talk.

13 THE COURT: Probably I should. You go ahead.

14 MR. CYMROT: OK. There's no genuine issue that false

15 tax certificates were submitted in Moscow and that the dollar

16 equivalent of $216 million was --

17 THE COURT: In other words, the fraud was committed in

18 Moscow.

19 MR. CYMROT: That, if you call that phase one, there

20 is no dispute about that. We'll submit an order tomorrow on

21 that area. Phase two, that there was a fraud on HSBC, is hotly

22 contested, in many ways. And you cannot take that out of the

23 case. It would be highly prejudicial.

24 THE COURT: I want to focus on what you just said.

25 MR. CYMROT: Yes, your Honor.

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1 THE COURT: What are the issues about HSBC that you

2 just mentioned?

3 MR. CYMROT: Yes, OK. So the government's claim is

4 that these three companies were illegally taken from HSBC

5 Guernsey as a trustee. And we have witnesses who are agents of

6 Hermitage who said they authorized those transfers. So that's

7 contested. That's contested with their own witnesses.

8 The next thing is that there were false contracts

9 created and lawsuits that were filed to create liabilities. We

10 have shown that Hermitage had notice of those lawsuits, they

11 knew about them, so they were not false lawsuits that some

12 organization created. They were on notice of these lawsuits.

13 And they didn't do anything that suggests that they were

14 involved.

15 The next thing is that they say there were

16 certificates stolen by the Russian interior ministry police in

17 order to get certificates that were used in the tax returns.

18 That has been disputed.

19 So every step of the alleged fraud against HSBC has

20 been disputed with very specific facts. And what it comes down

21 to, Judge, is, the government alleges there was an

22 organization, unnamed, mysterious organization that did all

23 this, and the evidence points that Hermitage and Mr. Browder

24 did it. That is the heart of the dispute. And HSBC is

25 Mr. Browder's agent. They were not defrauded. There are

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1 factual disputes at each step of the way. And I know that

2 doesn't involve the defendants, but it is critical to them

3 proving the crime.

4 Let me repeat. If that $216 million was stolen in

5 Moscow and came to New York, without a specified unlawful

6 activity being committed, that money would not be illegal in

7 New York, even though it was stolen in Moscow. They have to

8 prove a specified unlawful activity. They have to prove how

9 the fraud occurred that involved a U.S. crime, a specified

10 unlawful activity. And they don't have one. And certainly

11 fraud on this bank is disputed.

12 THE COURT: Let me say this, to conclude the

13 afternoon. In my view the government's motion for partial

14 summary judgment presents some points that are very well taken.

15 In other words, there are certain things that are not in

16 dispute. There are a lot of things that are hotly in dispute.

17 But some things are not in dispute. And I keep referring and

18 I'll refer to it again: the basic fraud in Moscow is not in

19 dispute. It was committed. And $216 million was stolen from

20 Russia. That is not in dispute.

21 Now, the problem is, in trying to eliminate issues by

22 granting partial summary judgment, the problem with that is, it

23 isn't that the government's motion is not well taken, but it

24 seems to me at the trial it will be necessary to put on

25 evidence of that background. I cannot see a trial that does

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1 not start with the basic evidence about what occurred in

2 Moscow. I think it would be meaningless to the jury to start

3 in the middle of things. And therefore, here's what I'm going

4 to say this afternoon, because trial is coming up soon. I am

5 going to deny the government's motion for partial summary

6 judgment. But I am going to require that the lawyers meet with

7 me to frame the issues so we're not wasting time on things that

8 are not in dispute and wasting time on things that the jury

9 doesn't need to hear about. So we do, it seems to me, want to

10 frame the issues so we don't waste time on things that are not

11 in dispute, but we want to present the case to the jury in a

12 way that will be meaningful to the jury. That means that the

13 lawyers and I have to have some more pretrial work together.

14 And with that we will adjourn for the day. Thank you.

15 MR. CYMROT: Thank you, your Honor.

16 o0o

17

18

19

20

21

22

23

24

25

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FC37PREC

1 UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x

3 UNITED STATES OF AMERICA,

4 Plaintiff,

5 v. 13 Civ. 6326 (TPG)

6 PREVEZON HOLDINGS, LTD, et al.,

7 Defendants.

8 ------------------------------x
New York, N.Y.
9 December 3, 2015
3:00 p.m.
10
Before:
11
HON. THOMAS P. GRIESA
12
District Judge
13
APPEARANCES (via telephone)
14
PREET BHARARA
15 United States Attorney for the
Southern District of New York
16 BY: PAUL MONTELEONI
MARGARET GRAHAM
17 Assistant United States Attorneys

18 BAKER & HOSTETLER LLP

Attorneys for Defendant
19 BY: MARK CYMROT
JOHN MOSCOW
20 NICK ROSE
SIMIR RANADE
21

22

23

24

25

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1 (Telephone conference in chambers)

2 DEPUTY COURT CLERK: Counsel, we are on the record

3 now. Please state your name before you begin to speak. We

4 will turn this matter over to his Honor. Go ahead.

5 THE COURT: OK. This is the judge, and let me comment

6 on what I have received from the lawyers since the last

7 conference.

8 Now, what I have received is a statement of something

9 called a statement of facts from the government with 22

10 numbered items. I have received from the defense a statement

11 of what the defense calls undisputed facts with 16 numbered

12 items.

13 Now, look, I'm sure all of that will in time be

14 useful, but let us back up a bit. This will be a jury trial,

15 and it starts on January 6. What I had in mind when I talked

16 about the possibility of undisputed facts was really the kind

17 of basic factual circumstance about the robbery from Russia.

18 Now, what you have given me obviously represents a lot of

19 analysis and work, and I appreciate it, but let me put it this

20 way. I may be wrong, but I do not think that it would be

21 useful with the jury to try to somehow make use of these

22 lengthy and detailed statements of facts. I'm sure they will

23 have use in some way at the trial, but the trial has to start

24 with the government making an opening statement to the jury

25 that the jury understands, and I don't think the government

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1 will read this list of 22 items, of course not.

2 MR. MONTELEONI: Judge, Paul Monteleoni for the

3 government. May I speak to our view of what we think this list

4 could accomplish?

5 THE COURT: Please do.

6 MR. MONTELEONI: All right. So we completely agree

7 that the presentation of this case needs to be streamlined,

8 needs to be geared in a way that the jury understands, and that

9 the opening statement is going to be an accessible snapshot as

10 opening statements generally are of the salient themes that are

11 going to come out at the trial.

12 But because the fraud was complicated, because there

13 are certain facts that are necessary to put the other facts

14 that we're going to produce at trial in context, the 22

15 paragraphs, or the 16 paragraphs -- and, by the way, this may

16 make all of this somewhat of a moot point, but we are going to

17 be getting back to the defendants with a revision of theirs, so

18 we might be able to come up with something that we can agree on

19 in relatively short order; or if there is any disagreement, I

20 think it will be very, very contained. But we think that

21 something along the lines of these 22 paragraphs, the defense's

22 16 paragraphs or probably some hybrid is the type of thing that

23 if we read it to the jury it would take maybe ten minutes at

24 the outside, but because it includes facts from a number of

25 different sources it would take the place of a number of bits

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1 and pieces that would have to be pulled together from different

2 sources that we think would be much more confusing to

3 understand.

4 So our thought was that each side will give the

5 opening statement, which is going to sound just like every

6 opening statement in the cases before the court, using everyday

7 language, talking to the jury to communicate to them. Then at

8 the beginning of the government's case the government would

9 read some number of paragraphs, probably take maybe five, ten

10 minutes, just like reading a stipulation like happens in a

11 number of cases, and then witnesses would come and explain

12 details about it, but there would at least be an initial story

13 that synthesizes facts from a number of different sources that

14 are not in dispute but that actually, you know, require a lot

15 of work to condense into just this page or two.

16 So, we a hundred percent share the court's view that

17 we don't want to be wasting time, but we think -- and it seems

18 like the defense thinks as well -- that some statement of the

19 outline in broad strokes could greatly facilitate the jury's

20 understanding of it by being the kind of framework. And we

21 think that in each case it's a page or two, and that that's a

22 very concise and ultimately digestible one as read aloud

23 statement of what is a complex but ultimately not disputed

24 fraud.

25 THE COURT: Can I hear from the defense side.

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1 MR. CYMROT: Yes, your Honor. If the plaintiff wants

2 to proceed this way, we are willing to reach a stipulation as

3 long as it is limited to what we were calling the basic theft

4 from the Russian treasury. And we're anxious to talk to

5 Mr. Monteleoni and see what he has in mind, and it seems like

6 if the government will limit itself to the basic theft issue,

7 we probably can reach a stipulation, if that's the way they

8 want to present that part of their case.

9 THE COURT: OK, this is the judge. I don't think

10 there is serious disagreement from the defense, so I will

11 comment on Mr. Monteleoni's statements here on the telephone.

12 What you say makes a lot of sense, and it was

13 something I was sort of thinking about, but you have

14 articulated it quite well. In other words, there are certain

15 facts which if we had to go back to the witnesses and the

16 evidence, it would really be kind of an impossible and useless

17 situation, because where would the witnesses come from, etc.,

18 etc. Therefore, this statement taken one step at a time is a

19 very useful synthesis of evidence which makes it unnecessary to

20 go through a rather impossible and prolonged lot of testimony

21 which may be almost impossible to get anyway. So, I think that

22 the statement is very useful.

23 The government has submitted a statement, the defense

24 has submitted a statement, and so I think in each case the

25 attempt is to take certain things that each side views as

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1 undisputed and put it down so that we don't have to go back to

2 all the original evidence, if it could be obtained. So that's

3 good.

4 Now, I haven't compared in detail the government's

5 statement and the defense's statement, but you can work

6 together to see if there can't be a stipulation. And I think

7 you're going to try to do that. Let's assume that a

8 stipulation is worked out, OK.

9 I don't really need this afternoon to get into the

10 details of how you use that stipulation, but as long as we are

11 on the phone -- and the stipulation is very important -- let's

12 talk about how to use it.

13 MR. MONTELEONI: Yes, your Honor, Paul Monteleoni for

14 the government. Our view was that the stipulation -- as a

15 number of stipulations that we enter into in this court --

16 could include language that it can be introduced as an exhibit,

17 so that it could be displayed and just like other exhibits the

18 jurors' attention could be called, if necessary, to certain

19 paragraphs, but like stipulations or documents it could also be

20 read out.

21 And I think that our view is that whether it's the

22 defense's length or the government's length, it's really not

23 going to take that long to read, so just like reading from a

24 document that's in evidence, sometimes sort of hearing someone

25 say it aloud will help the jurors follow along as opposed to

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1 reading through text, so our thought is that it could be used

2 in both ways.

3 THE COURT: Let me address that. I have seen

4 stipulations before; this is not the first one I've ever seen.

5 This is considerably more complicated than the usual

6 stipulation that is read to a jury. It refers to people,

7 entities and so forth. Obviously, as long as it is indeed

8 accurate, it's got a lot of relevant facts in it.

9 But if I can imagine myself as a juror hearing it, it

10 would mean nothing to me and, therefore, I think we've got to

11 be careful that we present things to a jury that they will

12 understand.

13 I had this suggestion: I think that you will probably

14 arrive at a stipulation that will be very important, and it

15 will eliminate the need for considerable proof, but the use at

16 the trial, I have this suggestion, that it be presented through

17 a witness or witnesses who will be able to testify as to what

18 certain entities were, who certain people were, so that you

19 have the stipulation and a witness who will explain it.

20 MR. MONTELEONI: Yes, your Honor, we certainly did

21 intend to show relevant portions of it to certain witnesses and

22 have them expand on things. And of course it would be

23 accompanied by the entire rest of the presentation. The

24 government's trial presentation could include summary charts,

25 demonstratives, other witness testimony. Just like anything

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1 that the government would introduce into evidence, the goal is

2 it's going to be one piece, and we would intend to make a

3 presentation that's comprehensible to the jury. But we

4 absolutely understand the court's suggestion, and we will

5 endeavor to do that.

6 THE COURT: OK. Now, look, what this means is that

7 you have worked out and you are continuing to work out a

8 stipulation. Mr. Monteleoni, is it possible that the attempt

9 to arrive at a stipulation will not be a hundred percent and

10 there will be certain things that you believe are not subject

11 to dispute but are not stipulated?

12 MR. MONTELEONI: Yes. And, you know, I think that our

13 current view is that if there are such things, that they will

14 be very few, so going through them with the court wouldn't be

15 an impossible task. But we're going to try to reach complete

16 agreement on the stipulation.

17 THE COURT: Look, why don't we leave it this way this

18 afternoon. The way I understand it, there are -- because this

19 case factually originated in Russia and etc., etc. -- this is

20 not the garden variety piece of litigation; it is more

21 complicated and obviously involves both Russia and other

22 countries, etc., etc. So, what you are doing, both sides, is

23 very useful to try to take out of this mass of facts things

24 that can be the subject of a stipulation. That's what you're

25 trying to do, and that will be undoubtedly very useful at the

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1 trial. Then obviously there are certain things that under no

2 circumstances can be stipulated, and they will be the subject

3 of evidence.

4 Going back to the stipulation, what you are talking

5 about is to use it with the jury in a way that is accompanied

6 by explanation so that the jury is not simply hearing 22

7 paragraphs that mean nothing to the jury. So, you are going to

8 take care of that.

9 MR. MONTELEONI: Absolutely.

10 THE COURT: And that's really all I want to do, to

11 make sure of in this discussion this afternoon, and it seems to

12 me you are all doing what you need to do. Just a minute.

13 There has also been reference to motions in limine.

14 Does anybody have any in mind a motion in limine?

15 MR. CYMROT: Yes, your Honor, the defense will.

16 MR. MONTELEONI: Yes, your Honor, the government will

17 as well.

18 THE COURT: What kind of motions are you talking

19 about?

20 MR. MONTELEONI: The government would be moving to

21 admit certain evidence, might be moving to preclude certain

22 expert opinions on Daubert grounds, standard types of motions

23 in limine.

24 MR. CYMROT: The defense will be moving to exclude

25 certain opinions on Daubert grounds. We will be moving to bar

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1 certain references to Israel and money laundering and perhaps

2 other references.

3 I have spoken to counsel for the government as to

4 whether we can agree or not; and if we can, we will not bother

5 you with a motion; if we can't, we will. We will try to avoid

6 it. We understand you don't want them.

7 THE COURT: I don't know what you are talking about.

8 MR. CYMROT: We will seek between us to agree on what

9 might otherwise be motions in limine, and if we can agree,

10 that's fine; if we can't, we will make the motion to bar

11 certain testimony.

12 THE COURT: Now, look, we will have to leave it there.

13 If there is anything that can be done in advance of trial to

14 clear away issues, and if that involves a motion in limine to

15 preclude a certain witness or type of proof, if that will

16 usefully shorten the issues for trial, of course we can have

17 that.

18 When would you propose to have a hearing with the

19 court on whatever motions in limine remain that you have not

20 resolved by agreement? When would you be ready to have such a

21 hearing?

22 MR. MONTELEONI: Paul Monteleoni for the government.

23 Under the schedule that we proposed, briefing would be complete

24 on December 22, so we could have a hearing on December 23 or

25 24, if the court wishes to do so, before Christmas holidays, or

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1 after Christmas holidays, but in that case we would probably

2 ask for January 4, because there will be I think availability

3 issues between Christmas and New Years.

4 THE COURT: You let your voice drop.

5 MR. MONTELEONI: I apologize, your Honor. December

6 23, December 24, January 4 or January 5.

7 THE COURT: To do what?

8 MR. MONTELEONI: To have an oral argument on any

9 outstanding motions in limine.

10 THE COURT: What does the defense propose?

11 MR. CYMROT: Your Honor, between the plaintiff and the

12 defense we have agreed on a briefing schedule for motions in

13 limine, so those are the dates, the 23rd, the 24th, the 4th and

14 the 5th are the days after a full briefing of those motions

15 that they would be available before trial, so we agree.

16 MR. MONTELEONI: Paul Monteleoni for the government.

17 One other thing, of course, is some of these may be amenable to

18 resolution on the papers. We have no position on that, but if

19 the court wishes argument, then those four days, the 23rd,

20 24th, 4th or 5th would be the days.

21 THE COURT: You mentioned how many days?

22 MR. MONTELEONI: Four days.

23 THE COURT: How many?

24 MR. MONTELEONI: Four possible days. December 23,

25 December 24, January 4 or January 5.

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1 THE COURT: Four days of hearings?

2 MR. MONTELEONI: Any of those days at the court's

3 convenience, if the court even wants to have a conference,

4 which the government isn't requesting and doesn't require. But

5 if the court wants a conference, any of those days the parties

6 can be available.

7 THE COURT: OK, let me think about that.

8 I think the way it is shaping up as far as I see it is

9 this: There may very well be issues to be decided in advance

10 of trial. Whether you call it motions in limine or whatever

11 you call them, I don't care. But there may be issues about

12 whether a particular witness or particular kind of proof is

13 going to come in at the trial. There may be an advantage to

14 have some pretrial disposition so you don't waste time in trial

15 preparation, and certain things that can be decided before

16 trial are thus decided.

17 However, it is my experience that a lot of times when

18 the parties want things decided in advance of trial, they

19 cannot be decided in advance of trial, and they have to be

20 decided at trial.

21 The introduction of evidence generally occurs at the

22 trial, and objections to the introduction of evidence are made,

23 and they are ruled on at the trial. And the thing is what

24 happens is that by the time these issues come up, the court and

25 the jury have heard some evidence, they have some background,

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1 they have some introduction to what is going on and, therefore,

2 when there is an offer of a particular witness, an objection to

3 that witness, that the court can deal more intelligently with

4 it at the trial. That is usually the case.

5 However, if the parties feel that there are certain

6 things that need to be decided in advance of trial to make the

7 trial more efficient and so forth, I will certainly be as

8 helpful as I can in that. But all I'm saying is let us set a

9 date for a hearing on anything that needs to be decided in

10 advance of trial. Anything about the introduction of evidence

11 that needs to be decided in advance of trial, let us set a date

12 for that. What date do you propose? A date, not five dates.

13 A date.

14 MR. MONTELEONI: Sure. The government would propose

15 January 4.

16 THE COURT: What does the defense say?

17 MR. CYMROT: I suppose that's fine, your Honor.

18 THE COURT: I think it sounds good to me.

19 All right. So we've got a date, and that means

20 anything that you want decided in advance of trial, we will

21 have a hearing on January 4, and there will be a decision.

22 Otherwise we proceed to trial and evidence is offered at trial,

23 objected to or not objected to, etc., etc., etc.

24 So, I don't think there is anything else we need to do

25 this afternoon, is there?

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1 MR. MONTELEONI: Well, one thing from the government

2 is it might help the parties just have clarity about managing

3 the preparation of anything that needs to happen if the court

4 could so order the remainder of the schedule that we proposed

5 as docket items 440. That proposed schedule is consistent with

6 the January 4th date, and it would help just give clarity to

7 the parties.

8 MR. CYMROT: Your Honor, can I speak? Your Honor,

9 it's Mark Cymrot. It is my understanding that the parties by

10 agreement had modified that schedule. Perhaps we could submit

11 something tomorrow that gives you what we have agreed to, which

12 is consistent, as Mr. Monteleoni says, with the January 4

13 hearing.

14 MR. MONTELEONI: Mr. Cymrot, I think you may be

15 referring to an earlier version. I think that the final one

16 that got worked out and that got submitted both sides were

17 onboard with.

18 MR. CYMROT: I just don't have it in front of me,

19 so...

20 MR. MONTELEONI: Sure. So maybe we could -- could we

21 advise the court by letter today to confirm that in fact the

22 parties do consent to that schedule? Does that work?

23 MR. CYMROT: Yes, that's fine with the defense.

24 THE COURT: Why don't you do that.

25 Now, look, I have to confess to you that I generally

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1 don't enter orders about these details, but I don't think there

2 is anything wrong with doing it. If it would be helpful to you

3 to submit something to me that you have agreed upon and you

4 want it to be so ordered, well, that's fine. But generally I

5 just go to trial, and people offer their evidence, and I don't

6 do a lot of this detailed scheduling in advance. But if you

7 want it approved by the court, that's OK, but I don't really

8 need it. I just need to get to trial. Now, if you want to

9 have something in advance approved, OK, but I generally don't

10 have that.

11 You're experienced lawyers; you know what has to go on

12 at a trial. There is evidence, there is testimony and

13 examination and cross-examination. I don't have it all spelled

14 out in some order in advance, but if you want it, I guess it's

15 OK.

16 Now, the thing is on voir dire please don't bother

17 submitting to me proposed voir dire except -- and I think I've

18 mentioned this -- I need to have a complete list of names and

19 places which will be referred to during the evidence at the

20 trial. And of course we need to give the jury the names of

21 potential witnesses. In other words, we want to find out if a

22 juror is acquainted with a witness, etc., etc., so, I need that

23 list.

24 MR. CYMROT: Your Honor, this is Mark Cymrot. Can I

25 speak to that?

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1 THE COURT: Yes.

2 MR. CYMROT: We are dealing with foreign parties here,

3 and particularly with Russians at a time when Russia is in the

4 news a lot. I really think we ought to be focusing on the

5 potential bias that could come from the fact that we have

6 Russian defendants, and we ought to be taking extra care to be

7 asking questions during voir dire about that, and I am

8 wondering whether you would accept some questions from us.

9 THE COURT: I would be very happy to receive proposed

10 questions on that, of course I would.

11 MR. CYMROT: All right. Thank you, your Honor.

12 THE COURT: Now, let me talk about jury instructions.

13 Instructing the jury is the job of the court. If you want to

14 submit to me proposed recommended jury instructions, do it. Do

15 it or not, but it's my job to instruct the jury; it's my job to

16 prepare the jury instructions, and I'll do it. If you want to

17 submit something that you recommend, some language, do it or

18 not do it. That's up to you.

19 Now, there will be a charge conference in advance of

20 your summing up. I don't doggedly go through everything that

21 will be said in the jury charge, like credibility, etc., etc.,

22 but the charge conference I believe in this case will be

23 important. And what I need to go over with you is the

24 important substantive jury instructions, and that's all I can

25 say on that point, because I don't know what they will be at

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1 this point. But I want to go over those with the lawyers in

2 advance of your summing up, so you will know what I'm going to

3 say on issues not about credibility but about the substance of

4 the case. So, I want to go over that with you and hear your

5 views and your proposals, and then I will let you know in

6 advance of your summation what I will say on the issues where

7 you need to know what the court will say.

8 You don't need to know what the court will say about

9 the role of the court and the jury, but you will need to know

10 what the court will say on substantive matters. And we will

11 provide how that will be done. That's really all.

12 MR. CYMROT: Your Honor, Mark Cymrot. Can I ask a

13 question?

14 THE COURT: Yes.

15 MR. CYMROT: Are you considering asking specific

16 questions to the jury as opposed to some general verdict?

17 Because we would think that would actually be helpful to the

18 jury in this kind of case.

19 THE COURT: I think it has to be. So, look, the

20 answer is yes. I haven't really thought it all through, but I

21 have to assume that the verdict form will include a few very

22 specific questions, and of course I would be glad to have

23 proposals for those questions.

24 MR. CYMROT: Thank you, your Honor.

25 THE COURT: Look, I think you probably see my

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1 approach. I don't really try at this point to lay out a minute

2 by minute schedule of when everything is to be done. You are

3 all good trial lawyers, and I've certainly tried cases, and it

4 seems to me as the trial progresses then we will get to the

5 point when you know when the summations are going to occur,

6 when the parties are going to rest, and we will then in advance

7 of your summations go over and have a charge conference.

8 Exactly what minute of the day that will occur, I don't know,

9 but we will work it out. I think that's all we need to do this

10 afternoon, isn't it?

11 MR. MONTELEONI: Yes. Nothing more from the

12 government.

13 MR. CYMROT: Nothing more from the defense, your

14 Honor.

15 THE COURT: Thank you very much. Wait just one

16 minute. We do have, therefore, a hearing on January 4, so we

17 have a date shortly before the trial, right?

18 MR. MONTELEONI: Yes, correct.

19 MR. CYMROT: Right.

20 THE COURT: OK. Thanks a lot.

21 (Adjourned)

22

23

24

25

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1 UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x

3 UNITED STATES OF AMERICA,

4 v. 13 CV 6326 (TPG)

5 PREVEZON HOLDINGS, LTD., ET

AL.,
6
Defendants.
7
------------------------------x
8
New York, N.Y.
9 December 7, 2015
2:40 p.m.
10

11 Before:

12 HON. THOMAS P. GRIESA,

13 District Judge

14
APPEARANCES
15
PREET BHARARA
16 United States Attorney for the
Southern District of New York
17 PAUL MONTELEONI (by telephone)
Assistant United States Attorney
18
BAKER & HOSTETLER, LLP
19 Attorneys for Defendant Prevezon
SAMIR RANADE
20 NICK ROSE

21

22

23

24

25

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1 THE COURT: This is Judge Griesa. Mr. Monteleoni is

2 on the phone, right?

3 MR. MONTELEONI: Yes, your Honor. Thank you.

4 THE COURT: All right. And then we have attorneys who

5 have come in and are here in my chambers.

6 Can you identify yourselves please

7 MR. RANADE: Samir Ranade.

8 THE COURT: What is your name again?

9 MR. RANADE: Samir Ranade, R-A-N-A-D-E.

10 THE COURT: And you are here from Baker & Hostetler?

11 MR. RANADE: Correct.

12 THE COURT: Attorneys for the defendants, right?

13 MR. RANADE: Defendants Prevezon.

14 THE COURT: And the other gentleman.

15 MR. ROSE: Nick Rose from Baker Hostetler, for the

16 defendants.

17 THE COURT: Now, what has happened is that according

18 to the correspondence which I've looked at in some detail, a

19 continued deposition of William Browder, B-R-O-W-D-E-R, was

20 scheduled and it was indeed required under a court order as I

21 understand it. That deposition was set for December 7. And

22 Mr. Browder had consented to appear today. And I'm getting

23 some of the materials that I'm referring to or some of

24 information I'm referring to comes from an order to show cause

25 served by Baker & Hostetler and Baker Botts attorneys for

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1 defendants and that order to show cause is dated today,

2 December 7.

3 Now, I received a letter this morning from Baker

4 Hostetler which contained the representation that the

5 government had issued a cross notice for Browder's deposition

6 and the cross deposition was noticed for January 5, 2016. That

7 is the day before jury selection for the trial.

8 Now, Mr. Browder has not come in for a deposition

9 today. I don't believe we have been in touch with his attorney

10 but in any event, the important thing is his deposition was

11 scheduled for today. He had agreed to the deposition for today

12 and he did not come in for a deposition today. And we had this

13 further development of the government issuing a cross notice

14 for his deposition for January 5.

15 I don't have any desire to be critical of any counsel.

16 This is a complicated case and the schedule is complicated and

17 I understand all that but we have to reconstruct things a bit

18 and I don't want to get into the subject of what might have

19 been done differently. What has been done has been done and we

20 have to go from there.

21 Let me ask this. If Mr. Browder's deposition had

22 taken place today who was going to question him? Because there

23 has been some questioning on one or two earlier occasions. Who

24 was going to question him today?

25 MR. RANADE: Correct. Your Honor, Mark Cymrot, a

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1 partner at Baker Hostetler, was going to question Mr. Browder

2 today. We were ready to take the deposition. We were

3 interested.

4 THE COURT: Wait a minute. Just go back over that and

5 let me make a note. Who was going to question him today

6 please.

7 MR. RANADE: Sure. Mark Cymrot from Baker Hostetler

8 for the defendants, Prevezon.

9 THE COURT: How do you spell that last name?

10 MR. RANADE: C-Y-M-R-O-T.

11 THE COURT: Mark Cymrot?

12 MR. RANADE: Correct, your Honor.

13 THE COURT: Representing?

14 MR. RANADE: Representing Prevezon. And we were

15 prepared to do that deposition via video.

16 THE COURT: Mark Cymrot connected with you?

17 MR. RANADE: Correct, Baker Hostetler.

18 THE COURT: So Baker Hostetler lawyers were going to

19 question Mr. Browder.

20 MR. RANADE: Via video link because Mr. Browder is a

21 resident in London so he had a setup in place where Mr. Browder

22 would come to Baker Botts' office in London which is our

23 co-counsel on this case. And we were ready to go forward but

24 Mr. Browder did not show up today. So we believe that he is in

25 contempt of our subpoena which was issued for a deposition

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1 today.

2 THE COURT: Let me ask you this. Who was

3 Mr. Browder's lawyer?

4 MR. RANADE: Kobre & Kim as we understand it, Michael

5 Kim.

6 THE COURT: Has anybody been in touch with Mr. Kim

7 today?

8 MR. RANADE: My understanding is that, yes, and he

9 indicated that he would not be showing up today. So deposition

10 did not go forward.

11 THE COURT: Now, who was in touch with Mr. Kim?

12 MR. RANADE: So that's Exhibit 9 of the declaration we

13 submitted just now, your Honor.

14 THE COURT: OK.

15 MR. RANADE: Mark Cymrot from my firm was in touch

16 with Michael Kim this morning.

17 THE COURT: And what did Mr. Kim say?

18 MR. RANADE: Mr. Kim said Mr. Browder will appear on

19 January 5 and accommodate questions from both parties in a

20 single session.

21 MR. MONTELEONI: Your Honor, this is Paul Monteleoni

22 for the government.

23 THE COURT: Just a minute, please. Let me look at

24 this.

25 (Pause)

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1 THE COURT: There is an exchange of e-mails which

2 confirms what you have just said, that is that the attorney for

3 Mr. Browder, namely, Mr. Kim, K-I-M, stated this morning that

4 Mr. Browder would appear on January 5 and take questions from

5 both parties and must do this all in a single session on

6 January 5.

7 MR. RANADE: If I could speak, your Honor, the problem

8 with that is it's the day before jury selection in this action.

9 THE COURT: Just state your name again.

10 MR. RANADE: Samir Ranade for defendants Prevezon. A

11 January 5 date is the day before jury selection in this action

12 and it truly does frustrate our ability to prepare for trial if

13 we have a deposition of a critical witness on the day before

14 the trial and that's why we had noticed this deposition much

15 earlier so it could happen today. We were under the

16 understanding that Mr. Browder would be available today and we

17 could have just completed the deposition today.

18 THE COURT: I'm going to say this to Mr. Monteleoni.

19 It has created a problem. I didn't want to be critical and I

20 really don't mean to be critical but it has surely created a

21 problem for you to serve a cross notice, a so-called cross

22 notice of a deposition for January 5. The deposition should

23 have gone forward on December 7 and if the government or any

24 party wanted to ask questions which were not covered today then

25 there could have been an appropriate adjournment. And if the

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1 parties couldn't agree on an adjourn date they could have come

2 to court and worked it out with the Court. But I surely

3 sympathize with the view expressed that to have the deposition

4 now the day before jury selection is a serious, serious

5 inconvenience. Now, I'm not sure what can be done to remedy

6 this.

7 I'm not going to hold Mr. Browder in contempt for not

8 showing up today. There's been a motion presented to me to

9 hold him in contempt and that motion is just simply denied

10 peremptorily. But I want to say to the government because if

11 the government has caused the confusion here by having this

12 so-called cross notice for January 5 and, again, what the

13 government should have done if the government had questions to

14 ask at the conclusion of today's deposition session it could

15 have been an adjournment of a day or so to ask further

16 questions but nobody sensibly would have scheduled the further

17 questioning for January 5. And that notice that the government

18 served for January 5 was certainly not well-advised to say the

19 least.

20 Now, what I'm directing is that the government exert

21 every effort possible -- and I want a report on this to arrange

22 for the deposition of Mr. Browder on some date as soon as

23 possible after today. And if the deposition cannot occur

24 before January 5 for some reason, then there will be some

25 appropriate notice given to the jury of what the government has

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1 done.

2 So that's the way we'll leave it today. Mr. Browder

3 is not at a deposition today and really at the government's

4 fault and I want the government to make every effort to rectify

5 that and that's the way we'll leave it today. Thank you.

6 (Adjourned)

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1 UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x

3 UNITED STATES OF AMERICA,

4 Plaintiff,

5 v. 13 CV. 6326 (TPG)

6 PREVEZON HOLDINGS, LTD, et

al.,
7
Defendants.
8
------------------------------x
9 New York, N.Y.
December 11, 2015
10 3:00 p.m.

11 Before:

12 HON. THOMAS P. GRIESA,

13 District Judge

14 APPEARANCES

15 U.S. ATTORNEY'S OFFICE

ATTORNEYS for PLAINTIFF
16 BY: PAUL M. MONTELEONI
MARGARET GRAHAM
17 KRISTY PHILLIPS
JAIMME NAWADAY
18

19 BAKER & HOSTETLER, LLP

Attorneys for the Prevezon Defendants/Movants
20 BY: MARK CYMROT
JOHN W. MOSCOW
21 NICK ROSE

22

23

24

25

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1 (Case called)

2 THE COURT: We have several things to go through. So

3 I'll get started. The parties have filed a number of motions

4 in limine.

5 What I have found is -- I wish I had had this

6 discussion with you earlier, but nothing is lost -- that the

7 matters raised in motions in limine are much better dealt with

8 at the trial when evidence is actually offered and objections

9 are made.

10 By the time such things occur, I've heard part of the

11 trial and I've got much better background to deal with the

12 issues. Therefore, the motions in limine -- I'll reserve

13 decision on all of those motions.

14 I'm sure that by the end of the trial, all the issues

15 that need to be dealt with will be dealt with at the trial.

16 MR. CYMROT: Your Honor, we raised some issues that we

17 didn't want the government raising with the jury on the

18 opening.

19 THE COURT: I'm not understanding what you're saying.

20 MR. CYMROT: We raised some issues -- let me stand up.

21 We raised some issues in our motions that we didn't

22 want the government talking about to the jury in their opening.

23 If you want to deal with those right before the opening, that's

24 fine. We don't want -- once said, they can't be taken back.

25 So we just wanted to deal with a couple of those. One

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1 of them relates to quite a bit of the evidence, which is the

2 grand jury issue. We think that should be resolved before

3 trial.

4 So we didn't file motions that we thought could be

5 dealt with as the issues came in, but there are a couple of

6 ours in particular that we're concerned about that, if they

7 talk about at the opening, there will be no taking back the

8 effect on the jury.

9 THE COURT: I understand what you're saying. Were you

10 expecting to argue those motions today? I suppose you were.

11 MR. CYMROT: No. You set those for January 4,

12 your Honor. So I thought today was to talk about what you're

13 doing now, how they'll be dealt with and how they will be

14 sequenced or whatever. We expected those would be argued on

15 January 4.

16 THE COURT: Why don't we do this: We'll deal with

17 them on January 4. The other thing I've got -- there may be

18 other things that you all have in mind. But I've got the issue

19 of the Browder deposition.

20 There was considerable correspondence culminating in

21 agreement that the deposition of Mr. Browder will be held

22 December 7. Then the government at the last moment filed a

23 cross-notice to question Mr. Browder the day before the trial.

24 Mr. Browder did not come on the 7th. I've already

25 expressed some concern about the fact that the government

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1 issued that so-called "cross-notice." But that's history now.

2 The thing to do is to try to work out a date for

3 Mr. Browder's deposition. Surely it should not occur the day

4 before the trial or before jury selection. It did not occur on

5 the 7th when it had been agreed to.

6 The reason I'm sure that it didn't occur is because

7 the government filed this cross-notice for the day before the

8 trial, which was not a helpful thing.

9 Now what I have before me is a letter from the

10 government dated today which refers to correspondence -- and

11 I'm referring to page 2 of that letter -- about possible dates

12 for Mr. Browder's deposition.

13 MR. CYMROT: Your Honor, may I speak?

14 THE COURT: Please do.

15 MR. CYMROT: We emailed to your chambers an order to

16 show cause, a renewed motion to hold Mr. Browder in contempt

17 and for sanctions against the government.

18 Since we emailed that to your chambers, we also

19 discovered that Mr. Browder's lawyer made a specific

20 misrepresentation to you when on November 9 he said Mr. Browder

21 was not planning to be in New York.

22 He was in New York last week for four days, and that

23 was planned in October. I have a statement to hand up to

24 your Honor --

25 THE COURT: Let me just interrupt you. I'm not

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1 holding anybody in contempt. The application to hold

2 Mr. Browder in contempt and for sanctions against the

3 government is peremptorily denied.

4 We're not going to do that. What we've got to do is

5 something constructive, and that is I hope that you have

6 focused on something more constructive, namely, trying to

7 figure out a date for the Browder deposition.

8 Have you agreed on a date for that deposition?

9 MR. CYMROT: No, your Honor. Mr. Browder has started

10 a public relations campaign every day in the newspaper that the

11 government has been cooperating with.

12 THE COURT: Now, look. I don't want any of that

13 rhetoric.

14 MR. CYMROT: This is prejudice to the jury,

15 your Honor.

16 THE COURT: The jury probably hasn't heard a word of

17 that.

18 MR. CYMROT: They will before they sit here. I

19 guarantee it. Your Honor, it's worse than that. The

20 government leaked an FBI statement, and Mr. Katsyv and his

21 family are endangered by misstatements made by the government

22 and by Mr. Browder that are all over the press in Russia and

23 all over the press in New York.

24 MR. MONTELEONI: That's not true.

25 MR. CYMROT: That is true.

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1 THE COURT: What do you mean "all over the press in

2 New York"? It hasn't been all over the press that I read.

3 MR. CYMROT: Well, The Daily Beast is a major Internet

4 newspaper, your Honor.

5 THE COURT: Is it all over The Wall Street Journal or

6 The New York Times or the New York Post?

7 MR. CYMROT: Yes, actually.

8 THE COURT: Is it?

9 MR. CYMROT: His press release has been on the

10 Associated Press, on ABC, and I believe in The Times. It's

11 there, your Honor.

12 MR. MONTELEONI: Which press release are you talking

13 about, Mr. Cymrot?

14 THE COURT: One at a time. Now, look here. We're not

15 going to accomplish anything with a lot of accusations. We

16 have a trial coming up.

17 If there's something that requires a court direction

18 to prevent further transactions of some kind, I'll certainly be

19 willing to entertain such an application. But don't spend one

20 minute in trying to hold somebody in contempt because I'm not

21 going to do that.

22 MR. CYMROT: Well, your Honor, then order him to

23 New York next week for his deposition because he won't give us

24 a date.

25 MR. MONTELEONI: That's not correct.

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1 MR. CYMROT: Not an acceptable date. You have the

2 government's letter. He's given a half day next week in a

3 videotape from London when he was here for four days last week,

4 and then we're supposed to do it right before trial on days

5 that I've advanced on this record that I'm not available.

6 That's what he's giving us. This man is challenging

7 this Court to require him to testify. He will not show up.

8 MR. MONTELEONI: May I be heard on this, your Honor?

9 THE COURT: I simply don't comprehend what you've

10 said. I don't comprehend.

11 MR. CYMROT: Will you order him to appear in New York

12 on Monday, your Honor? That's my application.

13 THE COURT: Is Mr. Browder represented here?

14 MR. CYMROT: No, your Honor.

15 MR. MONTELEONI: His counsel is not here. My

16 understanding is that his counsel is in Asia.

17 THE COURT: Is where?

18 MR. MONTELEONI: In Asia. We have been this whole

19 week working with his counsel, consistent with the Court's

20 request, to see if they can move around their schedules, which

21 involve family commitments by his counsel, which I understand

22 involve some type of commitments by the witness, in order to

23 make dates available.

24 They have done that. If you look at the last page of

25 the government's letter, they have notified defense counsel of

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1 a number of dates that they have partially canceled holiday

2 plans and family vacations to accomplish.

3 THE COURT: Wait a minute. I have a letter from the

4 government dated December 11. Are you referring to page 2?

5 That list of dates?

6 MR. MONTELEONI: Page 2 summarizes those dates. Those

7 dates are set forth also in the letter from Mr. Browder's

8 counsel, which is page 6 attached to the government's letter,

9 if you want to see Mr. Browder's counsel's remarks. So the

10 dates are --

11 THE COURT: Wait a minute. Are you talking about the

12 letter from Michael Kim dated December 10?

13 MR. MONTELEONI: Exactly. So he offers that the

14 deposition proceed in half-day segments because I think there's

15 a significant time difference. He says the afternoon of

16 December 18. That's a week from today. Then the afternoon of

17 December 28, 29.

18 THE COURT: Can I just interrupt you.

19 MR. MONTELEONI: Sure.

20 THE COURT: Has anybody got a reasonable estimate of

21 how much testimony is needed at this deposition? Is it a half

22 a day or a day or what?

23 MR. MONTELEONI: A half a day from the government, and

24 I don't know how much testimony the defense wants to add to the

25 day that they've already had.

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1 MR. CYMROT: Four or five hours, your Honor.

2 THE COURT: Okay. We're getting down to business now,

3 because it sounds to me as if the deposition will take a day

4 and at most a day and a half.

5 Okay. I have this letter from Michael Kim -- just a

6 minute, please. It's somewhat of a problem because what

7 Mr. Kim is suggesting is a series of half days. The first of

8 those half days is December 18, which is quite soon. Look. He

9 suggests the afternoon of December 18 and the afternoon of

10 December 28.

11 So it seems to me the deposition certainly can start

12 on December 18; and, if it is not finished, it will be finished

13 on December 28.

14 MR. CYMROT: No, your Honor. That's highly

15 prejudicial.

16 THE COURT: Why is it highly prejudicial?

17 MR. CYMROT: Because it's too close to trial for one.

18 For second of all, I announced in court my daughter is getting

19 married on the 29th, and I'm the one taking the deposition.

20 It's too close to trial. This is the man who --

21 THE COURT: Don't fight with me, please. I'm trying

22 to work something out. I don't want to interfere with your

23 family's wedding at all. Let's work something out. It seems

24 to me that --

25 MR. CYMROT: Your Honor, he was in court --

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1 THE COURT: Can I just finish. It seems to me that

2 the deposition should take place on December 18. Now, if it

3 goes a little bit into the evening, that's no terrible problem.

4 But get it over with on the 18th.

5 It won't interfere with your family wedding plans or

6 anything like that. So we're going to just say the deposition

7 will take place on the 18th and work out the timing. What's

8 proposed here is the afternoon.

9 Well, the afternoon it can start so that the

10 deposition is finished that day.

11 MR. CYMROT: If you order him to New York, your Honor,

12 we'll have plenty of time. He was in New York for four days

13 last week, and he misrepresented that to you.

14 THE COURT: Please don't keep arguing that. That

15 doesn't help.

16 MR. CYMROT: It does help.

17 THE COURT: It does not help. I want to get something

18 established. What I have in my hand is a letter from his

19 lawyer, and one of the things he proposes is December 18.

20 I don't understand why it's not -- I don't understand

21 why there's any problem with having it on December 18. It's

22 proposed by his lawyer. We've got plenty of other lawyers who

23 can attend. So the deposition will occur on December 18,

24 period.

25 MR. MONTELEONI: Your Honor, may I make one additional

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1 detailed request. The government hasn't yet had an opportunity

2 to examine Mr. Browder. We can certainly endeavor to examine

3 him on December 18.

4 Our concern is, if our examination happens after the

5 defendant's examination, because of the time difference, the

6 witness might be extremely fatigued. If the reason we can't

7 continue to another day is because of defense, then that could

8 just prejudice our ability to take his testimony.

9 So we would request that the Court allow us to take

10 our testimony, which we expect to be about 3 to 3 1/2 hours,

11 first. If the reason we're cramming it all into one day is

12 defense counsel's schedule, then let that be done.

13 THE COURT: I don't understand your point.

14 MR. MONTELEONI: Our point is at some point with the

15 time difference, this is going to be tiring to the witness.

16 THE COURT: Is he going to be testifying in London?

17 MR. MONTELEONI: I'm not sure honestly where but

18 remotely, yes. I'm not sure where he's going to be physically

19 located, but I think there's going to be a substantial time

20 difference. This is going to be fatiguing to the witness.

21 I can't make promises from his counsel obviously. But

22 we're certainly willing to get all of the examination in as

23 compact a time as possible. We would like an opportunity to

24 take his testimony at a time when the witness is not fatigued

25 if it's all going to be in one day.

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1 So we would just like the opportunity to go first.

2 Defense counsel has examined Mr. Browder first in a previous

3 deposition. It's because of defense counsel's schedule that

4 we're trying to put it all in one day.

5 THE COURT: Look. This is the kind of thing that

6 sensible lawyers work out without a problem. Obviously you

7 don't want to take testimony from a witness and have it go so

8 long that he is too tired to function.

9 All of those things come up all the time in connection

10 with trial testimony and depositions, and lawyers work it out.

11 They work it out without engaging in battles about it in court.

12 So all I'm saying is it is directed that his

13 deposition will take place on December 18. And, if it is

14 necessary to continue it to the next day or thereabouts, that

15 will be done. The lawyers are expected to do what lawyers

16 always do, and that is to arrange those details without a lot

17 of --

18 MR. CYMROT: Your Honor, can we just say it's the

19 18th instead of "thereabouts"? Let's just get it done the

20 18th and the 19th. Your Honor, if you direct it, it's going to

21 happen. The lawyers haven't been able to work this out.

22 You've seen this. Just say the 18th and the 19th.

23 THE COURT: Fine with me.

24 MR. MONTELEONI: We don't know that the witness is

25 available on the 19th. The 18th and the next available day is

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1 what we would ask for. We would love to engage with defense

2 counsel about this, but instead we get contempt motions. We'll

3 continue to try and talk to them about it.

4 THE COURT: Work it out. It will be the 18th. If it

5 has to continue beyond the 18th, you will work it out. Next

6 point.

7 MR. MOSCOW: Your Honor, I understand the Court's

8 position. If you say the 18th and the 19th, that will be

9 followed. If you say the 18th and some other date, it will

10 not. It will be some other date well after Christmas.

11 I'm asking you, please, to issue a direction that it

12 be the 18th until it's done on the 19th. A subpoena says

13 putting all other business aside, Mr. Browder is under

14 subpoena. There is an order. Let's just do it and get it

15 done. Start the 18th, and both sides will have an interest in

16 getting it done.

17 THE COURT: You've got a good point. Good point. So

18 directed. Good point.

19 MR. MONTELEONI: Your Honor, we do not know if the

20 witness is available on the 19th. What we understand from

21 counsel is that he may not be.

22 We have been engaging in good faith. If we can

23 continue to a date that the witness is available, we'd be happy

24 to let defense do the questioning on the 18th and the

25 government could do the questioning later, which wouldn't

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1 interfere with Mr. Cymrot's daughter's wedding.

2 We don't like to be discussing this with the Court.

3 We think that we can work this out between lawyers. But we

4 think that there shouldn't be a rigid date set that the witness

5 may not be able to do.

6 MR. CYMROT: Your Honor, we filed our motion on

7 October 13. We've been doing this for two months. You must,

8 please, direct it.

9 THE COURT: I don't understand why it needs a lot of

10 discussion about the point we're supposedly now discussing. If

11 the deposition occurs on the 18th, probably it will finish on

12 the 18th.

13 If it doesn't and you all are licensed attorneys,

14 you'll figure out a day to have it after that. We will leave

15 this subject. The deposition will occur. It will start on the

16 18th.

17 As far as threatening me with the idea that

18 Mr. Browder, if he's not practically chained down, will extend

19 this until a year from Christmas, I don't accept that kind of

20 argument. We will leave this subject.

21 Now, I have received an application to hold

22 Mr. Browder in contempt and to sanction the government. There

23 is simply no merit whatsoever in such applications. They are

24 denied.

25 Is there anything else?

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1 MR. MONTELEONI: Nothing from the government,

2 your Honor.

3 MR. CYMROT: No, your Honor.

4 THE COURT: Thank you.

5 (Adjourned)

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1 UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x

3 UNITED STATES OF AMERICA,

4 Plaintiff,

5 v. 13 CV. 6326 (TPG)

6 PREVEZON HOLDINGS, LTD, et

al.,
7
Defendants.
8
------------------------------x
9 New York, N.Y.
December 14, 2015
10 3:35 p.m.

11 Before:

12 HON. THOMAS P. GRIESA,

13 District Judge

14 APPEARANCES

15 U.S. ATTORNEY'S OFFICE

ATTORNEYS for PLAINTIFF
16 BY: PAUL M. MONTELEONI
MARGARET GRAHAM
17 KRISTY PHILLIPS
JAIMME NAWADAY
18

19 BAKER & HOSTETLER, LLP

Attorneys for the Prevezon Defendants/Movants
20 BY: MARK CYMROT
JOHN W. MOSCOW
21

22

23

24

25

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1 (In chambers)

2 THE LAW CLERK: You're on the line.

3 THE COURT: This is the judge. I'm not sure that at a

4 conference or conferences prior to today everything was made

5 clear but what has happened is that I've received from the

6 government seven motions in limine. Defendants have filed five

7 motions in limine.

8 Now, what I want to repeat, or if I am saying it for

9 the first time I'm saying it for the first time, I generally

10 handle motions in limine at the trial. Motions in limine are

11 generally about whether certain evidence should be received or

12 not received. And it is my practice, and I hope I have

13 expressed this to you before now but if I haven't I'll express

14 it now, it is my practice to deal with evidence issues at the

15 trial, not before the trial; in other words, whether certain

16 witnesses should be heard or whether certain evidence should be

17 heard. If there are objections, then the time, in my practice,

18 to do it is at the trial.

19 Now, if there is some reason to cover something before

20 the trial, of course I'm willing to do that.

21 In other words, if the issue is whether some witness

22 is going to travel from Israel to the United States or

23 something like that, of course I don't want a witness traveling

24 across the world unnecessarily. But, that's a rare, rare

25 situation. So, the motions in limine do not need further

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1 briefing. They will be covered at the trial when evidence is

2 offered. And if evidence is offered and there is objection to

3 that evidence I'll rule on the objection. That is the way the

4 motions in limine will be handled.

5 I hope I expressed this before but if I didn't express

6 it before I want to express it now.

7 MR. CYMROT: This is Mark Cymrot. Can I say

8 something?

9 THE COURT: Sure, sure.

10 MR. CYMROT: Okay. There were -- I actually raised

11 this at the last conference, I think, that there may be -- and

12 I have two issues that the government may or may not be

13 interested in talking about at opening and we might be able to

14 resolve them right now quickly if the government just says

15 they're not going to mention them on opening then we'll wait

16 until later into the case. But if I could just list those

17 maybe the government will say whether it's part of their

18 opening or not and needs a decision before the opening.

19 MR. MONTELEONI: Sure. And by the same token there

20 are a few issues in our motions that if we can just get the

21 confirmation that you won't open on then we may be able to

22 defer everything as the judge requested. But you can go first.

23 MR. CYMROT: Is that okay, Judge?

24 THE COURT: Of course, of course.

25 MR. CYMROT: In paragraph 115 of the second amended

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1 complaint the government makes reference to a settlement that

2 one of Mr. Katsyv's companies entered into more than ten years

3 ago with the government of Israel. There had been an

4 allegation of money laundering. He settled it because they

5 tied up a lot of money and ultimately went to trial against the

6 codefendant and the court held there was no money laundering.

7 So I'm wondering whether the government is going to be

8 referring to that in their opening.

9 MR. MONTELEONI: No. We won't open on that. But as

10 we mentioned we do need a copy of that judgment that you

11 offered to the court. But we can talk about that offline.

12 THE COURT: You won't open on that?

13 MR. MONTELEONI: We won't open on that.

14 THE COURT: That takes care of that.

15 Next point.

16 MR. CYMROT: The next one is the complaint refers to

17 the Magnitsky law, and I'm talking about the act of Congress,

18 not the individual. And there is clear -- and that is referred

19 to in their complaint also. And there is clear Second Circuit

20 authority that an act of Congress and factual findings in an

21 act of Congress are not admissible to prove facts in a civil

22 case.

23 So, again, if they're not going to mention the

24 Magnitsky law itself in the opening then we can put this issue

25 off also.

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1 MR. MONTELEONI: Yes. We weren't planning on opening

2 on that either.

3 Can I raise the issue that we would like you not to

4 open on?

5 THE COURT: Wait a minute. One at a time.

6 MR. MONTELEONI: Sorry. Paul Monteleoni for the

7 government.

8 We are not planning on mentioning in our opening

9 statements the subject matter of the motion in limine that Mark

10 Cymrot just mentioned, motion in limine five, a particular act

11 of Congress. So as a result we agree with what I think counsel

12 for defense just expressed that that motion in limine can be

13 deferred until the time of trial and it won't be implicated by

14 the opening statements.

15 THE COURT: Now is there anything else, Mr. Cymrot,

16 along that line?

17 MR. CYMROT: No, your Honor. The other things can be

18 handled as they come up at trial.

19 THE COURT: Very good.

20 Now let's go to the government.

21 MR. MONTELEONI: Thank you, your Honor.

22 There are two issues that we think need to be

23 addressed now. One of those just concerns the proper standards

24 for tracing money. As the Court knows, part of the case is

25 going to involve tracing assets from the Russian treasury to

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1 the defendants. And the methodology -- the question of what

2 methodology you use to do that is a question of law and we

3 filed a motion in limine to ask the defendants not to make

4 statements about that methodology because that -- the question

5 of what is the applicable legal standard is for the jury. So

6 we -- I'm sorry, is for the court to instruct the jury on.

7 Sorry. And so we would request that they not in their opening

8 statements make statements about the appropriate standards

9 because that's something that we don't believe is a subject for

10 evidence. We believe that's subject for instruction from the

11 court.

12 So was that something you were planning on mentioning

13 in opening?

14 MR. CYMROT: Well, okay. Let me just distinguish

15 between the law and the facts. We are going to open

16 criticizing Mr. Rollins' tracing. But we're not going to talk

17 about well the law says this or the law says that. We're just

18 going to say that the tracing is -- proves to be wrong. So, if

19 that clarifies it.

20 We weren't going to talk about the law. We are going

21 to criticize the tracing itself on factual grounds.

22 MR. MONTELEONI: But the problem with that, though, is

23 that the -- the standard, if it's saying that this methodology

24 is a recognized methodology, the methodology that Mr. Rollins

25 uses isn't a recognized or appropriate methodology, that

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1 also -- even if you don't say the word "law," that counts under

2 the cases in our motion in limine as an attempt to sneak in

3 essentially a legal issue into factual form. So that's still

4 covered by our motion. So if you do still intend to say

5 something like he's not using a recognized methodology or his

6 methodology isn't a valued methodology you can use, then we

7 would need a ruling from the court on our motion.

8 THE COURT: Now, look. In other words the date for

9 the hearing, if we have one, of January 4, that is an issue

10 that will -- should be decided then; is that right?

11 MR. MONTELEONI: That's our view unless defense

12 counsel doesn't intend to raise it but it sounds like they do.

13 MR. CYMROT: Well, I don't agree -- Judge, I think the

14 answer to your question is yes, it should be resolved then

15 because I don't agree between the difference of fact and law as

16 Mr. Monteleoni is defining it.

17 MR. MONTELEONI: We need to talk about it at the

18 hearing.

19 THE COURT: Let us say that that is a subject for the

20 hearing on January 4. That's fine. We have a subject for that

21 hearing. Are there any other subjects for that hearing?

22 MR. MONTELEONI: From the government --

23 MR. CYMROT: Before you move on, Judge, can I just ask

24 should we then put in a written response to their motion since

25 you'll be deciding it on January 4, or you don't need it?

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1 THE COURT: Look, I would vastly rather not have

2 anymore briefing and just --

3 MR. CYMROT: That's fine, Judge.

4 THE COURT: -- cover it on January 4. I think we can

5 do it.

6 MR. CYMROT: Okay. That's fine.

7 THE COURT: Is there anything --

8 MR. MONTELEONI: There's another set of issues, your

9 Honor, that we would like to -- either put on for the hearing

10 or get a confirmation that defense will not raise in their

11 opening, if I may.

12 THE COURT: Go ahead.

13 MR. MONTELEONI: All right. So these relate to the --

14 our motions in limine five and six and defense's motion in

15 limine one all of which revolve around the conduct of the

16 government attorneys or investigators in bringing this case and

17 litigating this case.

18 Our view, as we've indicated in those motions, is that

19 this is a trial about what the defendants did. It is not a

20 trial about what phonecalls were made by the U.S. Attorney's

21 Office. And we think that it's very important that that aspect

22 is not part of the case and not yet brought into the case. So

23 if defense plans to open on things about how this investigation

24 was done, what government lawyers, what government agencies,

25 then we'll need to put that on at the hearing too.

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1 THE COURT: What's the defense say on that?

2 MR. CYMROT: I think it's too broad a subject. Let me

3 break it down, Judge.

4 THE COURT: Sure.

5 MR. CYMROT: We have a motion in limine saying certain

6 documents are not admissible because they were obtained through

7 grand jury subpoena and other criminal processes. We don't

8 plan to raise that with the jury. That is strictly a legal

9 issue for your Honor. So that is one.

10 THE COURT: So that will be -- that will not be part

11 of any opening, right?

12 MR. CYMROT: That won't be part of any opening that

13 they used grand juries and things like that. Correct.

14 THE COURT: So we don't have to have anything about

15 that at a hearing on January 4, right?

16 MR. CYMROT: Correct.

17 THE COURT: Let's move to the next point.

18 MR. CYMROT: The next point -- I'm just looking at

19 their motion. Number -- I'm not really clear about their five.

20 Let me go to six.

21 Six says we cannot -- it's to exclude any reference to

22 the nature of the government's pre-suit investigation. And it

23 is clearly admissible, and you have to decide this one on

24 January 4, because it is clearly admissible things the

25 government doesn't do. There is very good case law to say if

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1 they did certain things, that they didn't do other things that

2 we say they should have done, that is clearly admissible. And,

3 yes, I would plan to open on that.

4 So as to their motion number six I would say that has

5 to be decided.

6 THE COURT: As to government motion number six?

7 MR. CYMROT: Correct.

8 MR. MONTELEONI: Then what about number five, Mark?

9 MR. CYMROT: I need to break down five. Five says to

10 exclude references to allegations from legal theories not

11 pursued by the government. As to legal theories, we're not

12 going to get into legal theories with the jury. On the other

13 hand, the government has sworn statements repeatedly that

14 change over time that is fundamental cross-examination

15 material. It is admissions of the government when we're

16 talking about facts they allege that are in sworn statements.

17 We do plan to open on that.

18 MR. MONTELEONI: So then we'll need it to cover

19 basically most of motion in limine five also.

20 THE COURT: In other words, motion in limine five will

21 need to be covered on January 4, right?

22 MR. MONTELEONI: Right.

23 THE COURT: Anything else?

24 MR. MONTELEONI: Mr. Cymrot, are you planning on

25 opening on Oleg Lurie or the UBS reporting in particular --

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1 MR. CYMROT: No. I can hold on those.

2 MR. MONTELEONI: Then we're good -- sorry. We're good

3 on that. There is another issue relating to our trial

4 preparation that we would like to raise at this time if it's

5 appropriate.

6 THE COURT: Go ahead. Of course.

7 MR. MONTELEONI: There are some documents that defense

8 counsel has that they haven't given to us and we think that

9 they're clearly discoverable. We've been following up with

10 them about it and they still haven't indicated that they are

11 going to give it to us or when.

12 There's basically two categories of documents that are

13 pretty similar. One, which I just mentioned earlier, is a

14 court judgment that they refer to that the Israeli government

15 entered into in a motion. They've offered it to the court in

16 support of their motion, understanding that that motion in

17 limine is now going to get resolved at trial, not before. But

18 they still think it's relevant enough to offer it to the court.

19 But they won't give it to us. And we've been asking for it.

20 So we request that they give us this document which is

21 sufficiently relevant that they're offering to show it to the

22 court.

23 THE COURT: What about that? That's a request for

24 production.

25 MR. CYMROT: Your Honor, I believe they have -- it's

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1 not a judgment -- but the court document. What we have said to

2 your Honor is it costs something like $25,000 to translate it

3 and unless your Honor needs it we're not going to spend $25,000

4 to translate it. And I would say, your Honor, you could hear

5 argument on this without getting into every word of the

6 settlement agreement between the government and Israel and

7 Mr. Katsyv, which is quite lengthy and would be very expensive

8 to translate so we don't want to translate it and spend $25,000

9 to do it.

10 MR. MONTELEONI: Mark, on the translation we hear you.

11 But can you identify the Bates range under which you produced

12 the documents. We're pretty sure we haven't gotten it from

13 you.

14 MR. CYMROT: We'll certainly give you the documents.

15 That's not an issue.

16 MR. MONTELEONI: The other thing that there is

17 disagreement on is as part of their exhibit list the defendants

18 identified a number of documents, mostly case files or other

19 court documents in Russia. As the court is familiar, there are

20 ways of obtaining case files and court documents in Russia but

21 it's not always easy. And defense counsel apparently has a

22 number of these documents, considered them sufficiently

23 relevant to put on their exhibit list. So they identified

24 which documents they are. But they've never produced us those

25 documents. And when we asked for those documents they said

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1 that those documents are their work product.

2 Now, of course, we're not asking for any documents

3 that they wrote. We're not asking for any documents that they

4 asked someone else to write. But we are asking for preexisting

5 documents, documents that appear in court files and the like.

6 All of the documents at issue on their list, we've given them a

7 number of the -- the numbers on which they appear in the

8 exhibit list, fall into this category. So they should produce

9 them.

10 They now are saying well maybe we won't offer those

11 exhibits at trial, we'll just take them off the list and not

12 produce the documents. But that really only goes to trial.

13 That doesn't go to discovery. They should have disclosed those

14 documents to us in discovery. And so we would ask that they

15 disclose those documents.

16 THE COURT: What are you saying, Mr. Cymrot?

17 MR. CYMROT: This is work product, Judge. And I think

18 when we sought work product you told us we had to do our own

19 investigation. These were things that the Russian lawyers for

20 the client in her mind thought she should have. We said

21 they're not relevant and in any case they reflect the choices

22 of counsel about what should be collected and what shouldn't be

23 collected. They were put on the witness list by mistake.

24 We're not planning to use them. And I don't know that they're

25 relevant. But certainly it's -- reflects the work product of

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1 the defense team to say what was collected and what wasn't.

2 MR. MONTELEONI: Can I respond to that very briefly?

3 THE COURT: Certainly.

4 MR. MONTELEONI: When this issue was raised seeking

5 our work product we had already disclosed all the preexisting

6 documents. The set of preexisting documents that we collected,

7 we turned over. The only thing that was at issue is our

8 correspondence with people asking for things. We're not asking

9 for that from the defendants. We're just asking for the

10 documents that were made not for this case. They were made for

11 other cases. And defense counsel is now saying well the fact

12 that they thought that this was relevant would reveal their

13 work product. But they've already revealed that they thought

14 it was relevant. They've disclosed that they thought it was

15 relevant in their exhibit list. So giving up the documents

16 doesn't reveal anything else about their thinking. It just

17 gives us documents that are relevant.

18 THE COURT: Look, I'm lost. I'm really lost.

19 On what you're discussing now if you want a ruling

20 from me now today you have to go into this more. If it is

21 something that is really appropriate for January 4 we are going

22 to have a hearing on January 4. I think we greatly, greatly

23 simplified it. But we have a January 4 date and we can take up

24 issues on January 4.

25 What do you all propose?

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1 MR. MONTELEONI: Well the problem for the government

2 with January 4 is that if, in fact, we do get these documents

3 that we believe we're entitled to, getting it right before the

4 start of trial isn't going to give us enough time. If we are

5 entitled to these documents, we're entitled to them now. So

6 since this wasn't on the court's agenda for this call right

7 now, if you would like to put it over until -- we could go into

8 it more today or we could go into it more in a day or two on

9 another call if you would prefer, but we can't really wait

10 until January 4 because then if we get the documents it will be

11 too late for us to do anything useful with them.

12 THE COURT: Can I suggest this? It's not going to

13 help me to wait a day or so and if you need a ruling on

14 something now I just would -- I'd like to get to it now.

15 MR. MONTELEONI: Sure.

16 THE COURT: The thing is which party is requesting

17 what? I really haven't followed it very well.

18 MR. MONTELEONI: I apologize, your Honor. Paul

19 Monteleoni for the government.

20 The government is making this request. What we are

21 requesting are a number of documents which are from Russian

22 court and police files that were disclosed by the defendants to

23 us on their exhibit list as documents that they might use at

24 trial.

25 As the Court knows, this case involves a Russian

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1 fraud. A lot of litigation about the Russian fraud was done in

2 various courts in Russia. Some of the cases in which forged

3 documents were presented were in Russian court cases identified

4 by defendants. Some criminal investigations of the matter

5 later. There's a lot of Russian court cases that have evidence

6 of the Russian fraud. And the defendants have been able to

7 gather some of those court documents and that includes some

8 court documents that the government has not been able to gather

9 because it's somewhat difficult at times to gather court

10 documents in Russia. And the court documents are from other

11 cases. So they're not from the Prevezon Holdings case. But

12 they're very relevant to the Prevezon Holdings case because

13 they are about the underlying fraud.

14 THE COURT: Can I interrupt. Does the defense lawyer

15 understand what is being described?

16 MR. CYMROT: Partially, your Honor, I haven't reviewed

17 it myself. But I understand there were some court documents

18 that our team collected from Russia. I questioned the

19 relevance of it and certainly the fact that our team used its

20 thought processes to pick things and choose things is relevant.

21 It is our investigation. It is not the underlying facts of a

22 fraud that he's talking about.

23 So I think this is work product that reveals the

24 thought processes of our team. And I don't think it ought to

25 be produced.

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1 THE COURT: Let me say this. Documents that exist or

2 existed that were created in Russia or created in some country,

3 documents that were created, to the extent that they are in the

4 possession of any party should be produced.

5 Now, anything written by an attorney making a request

6 is work product because that may very well contain some

7 opinion, some reasoning of an attorney, and that is work

8 product and such requests need not be produced.

9 Now, I don't have complete confidence that my ruling

10 has covered what the issues you're talking about so I'll just

11 ask: Has what I have said covered the issues you have raised?

12 MR. MONTELEONI: Yes, it has covered the issues the

13 government has raised. We are not asking for anything that

14 defense counsel wrote. We are asking for documents that

15 already existed.

16 THE COURT: I'm asking you just one simple question.

17 Did what I just say now cover the issues, Mr. Monteleoni?

18 MR. MONTELEONI: Yes, it has.

19 THE COURT: All right. Do you agree that the ruling

20 has covered the issues, Mr. Cymrot?

21 MR. CYMROT: Yes, your Honor.

22 THE COURT: Then we can let it go at that.

23 Is there anything to be covered today, else to be

24 covered today?

25 MR. MONTELEONI: One moment. Let me confer with

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1 counsel if I may, your Honor? Very briefly.

2 THE COURT: Of course.

3 (Pause)

4 MR. MONTELEONI: Your Honor, just -- we have some

5 other issues but we can continue to talk. We don't need to ask

6 the court of them at this time.

7 THE COURT: Well that sounds good.

8 Now we still have the hearing for January 4. And what

9 is on the agenda now for January 4 as a result of how we've

10 narrowed things? What is on the agenda for January 4?

11 MR. MONTELEONI: The government's first motion in

12 limine, the government's fifth motion in limine, and the

13 government's sixth motion in limine.

14 THE COURT: Give me the numbers again.

15 MR. MONTELEONI: 1, 5, 6.

16 THE COURT: Anything else for January 4?

17 MR. MONTELEONI: Not for January 4. But we would just

18 ask a time when defense counsel has to produce the documents

19 pursuant to your ruling just now.

20 MR. CYMROT: We'll do it in the next two or three

21 days.

22 MR. MONTELEONI: Excellent. Thank you.

23 THE COURT: Is there anything else for January 4

24 besides government motion in limine 1, 5, and 6?

25 MR. MONTELEONI: Nothing from the government, your

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1 Honor.

2 MR. MOSCOW: We may have some proposals regarding voir

3 dire, your Honor.

4 MR. CYMROT: That's true. We will be sending you,

5 your Honor, you gave us permission because of the high

6 visibility of the case to send you proposals on voir dire.

7 We'll do that before January 4 and you may want to discuss them

8 on January 4.

9 THE COURT: That sounds perfectly fine. Very fine.

10 MR. MONTELEONI: And we may similarly have responses.

11 THE COURT: That will be easy to cover on January 4.

12 Anything else for this afternoon?

13 MR. MONTELEONI: No, your Honor. Thank you.

14 MR. CYMROT: No.

15 THE COURT: Thank you both very much.

16 (Adjourned)

17

18

19

20

21

22

23

24

25

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Fci1prea

1 UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x

3 UNITED STATES OF AMERICA,

4 Plaintiff,

5 v. 13-CV-6326 (TPG)

6 PREVEZON HOLDINGS, LTD., et

al.,
7
Defendants. Oral Argument
8
------------------------------x
9 New York, N.Y.
December 18, 2015
10 11:53 a.m.

11 Before:

12 HON. THOMAS P. GRIESA,

13 District Judge

14 APPEARANCES

15 UNITED STATES ATTORNEY'S OFFICE

SOUTHERN DISTRICT OF NEW YORK
16 For Plaintiff
BY: PAUL M. MONTELEONI, ESQ., AUSA,
17 MARGARET S. GRAHAM, ESQ., AUSA
KRISTY PHILLIPS, ESQ., AUSA
18 JAIMIE LEESER NAWADAY, ESQ., AUSA

19 BAKER & HOSTETLER, LLP

Attorneys for Defendants
20 BY: MARK A. CYMROT, ESQ.

21 SUSMAN GODFREY, LLP

Attorneys for Nonparty Movant Hermitage Capital
22 BY: JACOB W. BUCHDAHL, ESQ.
CORY BULAND, ESQ.
23

24

25

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1 (Case called)

2 THE DEPUTY CLERK: All parties are present, your

3 Honor.

4 THE COURT: Everybody sit down.

5 This is a motion by a nonparty, referred to as

6 Hermitage, to disqualify John Moscow as counsel to the

7 defendants in this case. And today we hear that motion. Who

8 would like to speak for that motion?

9 MR. BUCHDAHL: Good morning, your Honor. My name is

10 Jacob Buchdahl. I'm with the firm Susman Godfrey, and we

11 represent Hermitage on this motion.

12 THE COURT: What is the standing of Hermitage to make

13 this motion?

14 MR. BUCHDAHL: Our standing is that of former client

15 of Baker & Hostetler, counsel for the defendants in this case,

16 and we also are an essential party in the sense that we are a

17 key witness in the trial that is --

18 THE COURT: Wait. Go over this again. Start again.

19 MR. BUCHDAHL: So taking one step back, your Honor, in

20 2008, my client, Hermitage, hired the law firm of Baker &

21 Hostetler because they were concerned that they were being

22 framed for a massive fraud on the Russian Treasury, and now

23 that same law firm, Baker & Hostetler, having been retained in

24 2008 to defend Hermitage against potential charges that they

25 were involved in that fraud, this very same law firm, your

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1 Honor, is now about to try to prove at trial that my client,

2 Hermitage, was responsible for that fraud.

3 THE COURT: Okay. Let's go back. So in 2008, Baker &

4 Hostetler -- am I saying it right?

5 MR. BUCHDAHL: Absolutely.

6 THE COURT: -- and Moscow with that firm were

7 retained, right?

8 MR. BUCHDAHL: That is correct.

9 THE COURT: By Hermitage.

10 MR. BUCHDAHL: Yes.

11 THE COURT: For what purpose again, please?

12 MR. BUCHDAHL: Hermitage became concerned in 2008 that

13 they were being framed for a fraud committed against the

14 Russian Treasury -- a $230 million tax fraud. And Hermitage

15 retained Baker & Hostetler to try to figure out ways to prevent

16 themselves from being framed for that crime and to try to

17 figure out who else may have been responsible for that crime.

18 THE COURT: Retained whom?

19 MR. BUCHDAHL: They retained Baker & Hostetler, the

20 firm, and Mr. Moscow specifically, who is a partner at that

21 firm.

22 THE COURT: All right. All right.

23 MR. BUCHDAHL: So in 2008 they asked Baker & Hostetler

24 and Mr. Moscow to try to help them figure out how to defend

25 themselves against being framed for this fraud, and they talked

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1 about speaking to the American authorities and encouraging the

2 US authorities to try to go after other people who were in fact

3 responsible for the fraud and maybe even try to forfeit funds

4 that were proceeds from the fraud. The trial that is now

5 before your Honor in many ways is the fruits of those

6 conversations that Baker & Hostetler had with the U.S.

7 Attorney's Office back in 2008. And now what we have --

8 THE COURT: The trial that is coming up is about

9 forfeiture.

10 MR. BUCHDAHL: It is a money laundering action.

11 THE COURT: Money laundering, forfeiture set of

12 issues, right?

13 MR. BUCHDAHL: That's exactly right, but the key is

14 that it is money laundering of the proceeds of the very fraud

15 that my client hired Baker & Hostetler to defend them against

16 back in 2008. So what we have is a scenario where my client is

17 now being accused by this law firm of the very fraud that they

18 hired this law firm to defend against. Now, your Honor, I

19 don't take lightly --

20 THE COURT: Now wait a minute. When you say accuse,

21 what do the records show about that?

22 MR. BUCHDAHL: Here's what the record shows. I'm

23 going to read to you what Baker & Hostetler said about my

24 client on November 30th of this year, just a couple weeks

25 ago. The context for this, your Honor --

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1 THE COURT: In what? Is this a brief or what?

2 MR. BUCHDAHL: This is from the hearing transcript on

3 the government's partial summary judgment motion that had to do

4 with whether or not the government would have to prove exactly

5 where this money came from, what the specified unlawful

6 activity was, was the source of the funds at issue in the case

7 before you. And so Baker & Hostetler said --

8 THE COURT: This was a hearing on the government's

9 motion for partial summary judgment.

10 MR. BUCHDAHL: Exactly right, your Honor.

11 THE COURT: All right. And the date of that is,

12 again?

13 MR. BUCHDAHL: November 30th.

14 THE COURT: All right. Very good.

15 MR. BUCHDAHL: So on that date here's what Baker &

16 Hostetler said. And this is a direct quote: "What it comes

17 down to, Judge, is, the government alleges there was an

18 organization, an unnamed, mysterious organization that did all

19 of this, and the evidence points that Hermitage and Mr. Browder

20 did it. That is the heart of the dispute." So what Baker --

21 THE COURT: Read that again. Read it again.

22 MR. BUCHDAHL: Absolutely. And again, the speaker

23 here is Baker & Hostetler, my client's, Hermitage, former

24 attorney. Here is what they said to your Honor on

25 November 30th: "What it comes down to, Judge, is, the

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1 government alleges there was an organization, an unnamed,

2 mysterious organization that did all this." Meaning the

3 Russian Treasury fraud. And then my client's former counsel

4 said the following: "The evidence points that Hermitage and

5 Mr. Browder did it." So to be very clear --

6 THE COURT: Who was saying that?

7 MR. BUCHDAHL: Mr. Cymrot -- and I apologize if I'm

8 not pronouncing his name correctly -- of Baker Hostetler,

9 Mr. Moscow's partner. They literally came into court and

10 accused their former client of committing the fraud that they'd

11 been hired to defend against in 2008.

12 THE COURT: All right. Now I know you've read it two

13 or three times, but read it once more.

14 MR. BUCHDAHL: Absolutely, your Honor. And I can say,

15 if it's easier, while I read it, we provided Mr. Zaepfel with

16 some large exhibits, and this is Exhibit C, so it's the third

17 one in the sequence.

18 THE COURT: Is it this document?

19 MR. BUCHDAHL: It is one of those documents.

20 Absolutely.

21 THE COURT: Now where is it in the document?

22 MR. BUCHDAHL: It is on the bottom right-hand corner

23 of the document marked at the top as Exhibit C. So there's a

24 green arrow that says Today, and we've selected a few quotes

25 from Mr. Cymrot's law firm, Baker & Hostetler, and so I'm just

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1 going to read it into the record for your Honor one more time.

2 What Baker & Hostetler said in open court, again, about their

3 former client, they said that evidence points that Hermitage

4 and Mr. Browder did it. What are they talking about there?

5 They are talking about the specified unlawful activity that is

6 at the heart of the government's case that is supposed to begin

7 in January.

8 Your Honor, the reason --

9 THE COURT: Now Mr. Cymrot is representing whom?

10 MR. BUCHDAHL: He now is representing the defendant

11 Prevezon.

12 THE COURT: And when he was speaking on November 30,

13 he was representing?

14 MR. BUCHDAHL: Prevezon as well, your Honor.

15 THE COURT: Prevezon.

16 MR. BUCHDAHL: Right. And so the reason this is

17 important is because Baker & Hostetler correctly points out

18 that you denied a year ago a similar motion. But if you listen

19 to what Baker & Hostetler is saying, they acknowledge that

20 things are very different now, and on the very same page that

21 you're looking at, Judge, two boxes above that one, right below

22 the green arrow, there's a quote from the November 9

23 transcript, and here's what Mr. Cymrot said at that time. This

24 is a quote again. "Hermitage is central to everything, and the

25 case has changed." That's not our position, your Honor,

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1 although we agree. That is Baker & Hostetler's position. On

2 November 9, Mr. Cymrot said on the record to your Honor,

3 "Hermitage is central to everything." That's my client, and

4 their former client. "Hermitage is central to everything, and

5 the case has changed."

6 And that is why we are here again. We don't take

7 lightly moving to disqualify an attorney, and we certainly

8 don't take lightly revisiting an issue that has already been

9 decided by a court. But in the words of the very counsel at

10 issue, the case has changed. And whether they knew it was

11 going to change or not, it has now changed. And counsel for

12 these defendants, Baker & Hostetler, again, my client's former

13 lawyers, have now decided that their former client, Hermitage,

14 is not only at the center of everything but that they "did it."

15 What did they do, according to their former lawyer? According

16 to my client's former lawyer, they are now responsible for this

17 fraud, which is why we now face the spectacle of their former

18 counsel trying to frame them for the very same charges that

19 they hired them to prevent them from getting framed about back

20 in 2008.

21 THE COURT: Now Cymrot is with Baker & Hostetler?

22 MR. BUCHDAHL: That's exactly right, your Honor.

23 THE COURT: All right. Let me read that passage at

24 the bottom of the page.

25 Why is that the heart of the dispute? And I'm quoting

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1 from that passage.

2 MR. BUCHDAHL: The dispute that Mr. Cymrot was

3 referring to is a dispute over whether partial summary judgment

4 should be granted on what is the specified unlawful activity,

5 and so this is how Baker & Hostetler's conflict was smoked out

6 recently, your Honor. The government came into court and said,

7 let's just have you, the Court, rule as a matter of law that

8 there was a fraud on the Russian Treasury and that HSBC, by

9 virtue of its control of certain Hermitage companies, and by

10 virtue of an HSBC affiliate's direct investment in Hermitage,

11 suffered as a victim of that fraud. The government said, let's

12 not spend this trial litigating the nature of the criminal

13 activity in Russia, which should not be disputed, the

14 government said. The government said, let's instead at this

15 trial focus on demonstrating that these defendants, A, received

16 the proceeds from that crime, and B, did so with criminal

17 intent. And the response from Baker & Hostetler was, not so

18 fast. Baker & Hostetler was not willing to concede that there

19 was a crime committed against HSBC in Russia. Why? Because

20 Baker & Hostetler decided that it would be appropriate to say

21 that the real people responsible for that fraud were none other

22 than their former clients. That was Baker & Hostetler's

23 decision in responding to this summary judgment motion.

24 THE COURT: Now refresh my memory. What does HSBC

25 stand for?

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1 MR. BUCHDAHL: I believe that's the Hong Kong Shanghai

2 Corporation. It's now just a big multinational bank.

3 THE COURT: All right. Go ahead. Go ahead.

4 MR. BUCHDAHL: It definitely involves a Far Eastern

5 locale.

6 So that's how what Baker & Hostetler is doing became

7 clear. And this is why it's so different, your Honor, than

8 where things were a year ago. And that is why Mr. Cymrot said,

9 on November 9, the case has changed and Hermitage is central to

10 everything, because it is now Baker & Hostetler's contention

11 that what really should be in dispute at this trial is not

12 whether the defendants received proceeds from this crime but

13 whether in fact this crime was one orchestrated by Hermitage,

14 where HSBC wasn't a victim but was simply in on it with

15 Hermitage all along. And it's that turn which is almost

16 exactly opposite to what Baker & Hostetler told you a year ago

17 that has brought this into such sharp relief, because a year

18 ago Baker & Hostetler said: We could defend Prevezon without

19 it being in any way inconsistent with our defense of Hermitage.

20 Mr. Moscow stood before you and said they all could be

21 innocent, essentially. There's nothing inconsistent about

22 people being wrongly accused all over the world. That's

23 certainly theoretically correct. That is no longer the

24 defense. In Mr. Cymrot's words, the case has changed and

25 Hermitage is central to everything. I just want to rephrase

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1 that slightly. What Mr. Cymrot said, essentially, is, our

2 former client is central to everything and the case has

3 changed. And to use that same formulation in his latter quote,

4 he now says, "The evidence points that our former clients did

5 it."

6 So the reason we're back is because Baker & Hostetler

7 has made it clear that they are no longer attempting to defend

8 this case in ways that are not materially adverse to my

9 client's interests. They are now attempting to defend this

10 case by framing my client for the very same fraud that it was

11 trying to be framed with back in 2008 that caused them to hire

12 Baker & Hostetler. Hermitage paid Baker & Hostetler nearly

13 $200,000 to defend it against being accused of participating in

14 this fraud. It's really that simple. And now Baker &

15 Hostetler is making those accusations itself.

16 THE COURT: Now say again what you've just said,

17 please. Repeat that.

18 MR. BUCHDAHL: In 2008, your Honor, Baker & Hostetler

19 was retained by Hermitage to defend it against accusations that

20 it had participated in this fraud. It worried it was being

21 framed, and it wanted help, and it hired Baker & Hostetler to

22 help defend it against being framed for this treasury fraud.

23 And now --

24 THE COURT: Who retained Baker & Hostetler back then,

25 right?

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1 MR. BUCHDAHL: Exactly right. Now Baker & Hostetler

2 is involved in a case involving the exact same fraud. It's not

3 just substantially related, it's the exact same fraud. But

4 now --

5 THE COURT: You're saying that they are accusing

6 Hermitage.

7 MR. BUCHDAHL: In no uncertain terms, on the record,

8 they have stated that evidence points that Hermitage did it.

9 That is what they are alleging now, that their former client is

10 responsible for the fraud at the center of this trial.

11 THE COURT: All right. Okay. I get your point.

12 Let's hear the other side.

13 MR. CYMROT: Thank you, your Honor. Mark Cymrot for

14 the defendant from Baker & Hostetler.

15 So your Honor, they made the exact same motion last

16 year, and you ruled on it, and you ruled against them on every

17 legal point. And what you said at that point was, this is not

18 the same proceeding. It's not the same proceeding. It's not

19 substantially related. And the reason it's not substantially

20 related is Hermitage is not a party to this case. Hermitage

21 will have no liability and will not have any effect by a

22 verdict in this case. Indeed, your Honor, the jury will not

23 even be asked whether Hermitage did something wrong or not.

24 Now what we were talking about in November, so it's a

25 substantially different case, and Mr. Buchdahl overstates the

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1 representation in 2008. We were retained to get a subpoena,

2 and we never even proceeded to get the subpoena. They hired

3 another lawyer to do that, all right? So the idea that somehow

4 this wasn't that case back then in 2014 when you ruled and that

5 it's not the same case now, it's the very same allegations in

6 the complaint. We are entitled, as you said, without

7 inhibition, to challenge the credibility of the government's

8 evidence. That's all we are doing. We are challenging the

9 credibility of the government's evidence in this case, and

10 whatever the jury decides, it's going to have no impact on

11 Hermitage. They're not going to be liable. There's not going

12 to be a finding that they did it. The jury's not even going to

13 be asked that, all right? So this is exactly what you faced

14 back a year ago, and you said we could defend our case without

15 inhibition.

16 There's another thing, your Honor. Mr. Browder at

17 that point was said to be an important witness. The government

18 has now said he's not coming to trial. Maybe the jury will

19 hear a couple of video clips of depositions, but that's it. So

20 he's gone from being the key witness -- they called him back

21 when he moved to disqualify us at that point -- to somebody

22 who's not showing up at trial and we'll show some video clips.

23 That's what you said.

24 MR. MONTELEONI: If I can correct that briefly, we're

25 not certain, but we certainly have not ruled that out. He

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1 might be coming to trial. We don't know whether he will, but

2 it's certainly the case that we are not certainly committed to

3 calling him as a witness at trial.

4 MR. CYMROT: Okay. They're not committed to calling

5 him as a witness. So what are we doing here? Because we are

6 challenging the credibility of the government's case that you

7 said we are entitled to do without inhibition, that was your

8 ruling, and we've proceeded on that basis, we're now three

9 weeks from trial, and you're going to consider disqualifying

10 us? Do you understand the prejudice to our clients? There is

11 no other lawyer left in the case. Baker Botts has withdrawn

12 because this issue was resolved. There's nobody to try the

13 case. The prejudice would be enormous, your Honor, and for

14 what? The jury is not going to decide liability of Hermitage.

15 And all we're doing is challenging the credibility of the

16 government's evidence. So there is no basis for this. It is

17 not substantially related. Hermitage is not a party. We are

18 entitled to challenge, and you said it yourself, the

19 credibility of the government's evidence, and we do, and the

20 jury is not going to find any liability as to Hermitage. They

21 won't even be asked. They won't be part of your jury

22 instructions. Your jury instruction will relate to a specified

23 unlawful activity.

24 We have proceeded in good faith, your Honor. The

25 government's case keeps coming up with new theories, new

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1 theories, new theories. We have to respond to new theories.

2 You said -- and the client relied upon this, we relied upon

3 this -- we can go forward without inhibition. There will be no

4 finding in this case of who did it because the issue here is

5 whether our clients got money from the $230 million fraud. The

6 jury will be asked whether that was done in various ways.

7 They're not going to be asked whether Hermitage did it.

8 THE COURT: Well, who prepared this sheet?

9 MR. BUCHDAHL: We did, your Honor. We are counsel for

10 Hermitage. We prepared it. We prepared it to illustrate the

11 ways that things have changed since the last motion.

12 MR. CYMROT: Your Honor, when I was referring to

13 things have changed, the government filed an amended complaint

14 on October 23rd and November 6th filed a summary judgment

15 motion based upon a different theory. Things had changed. The

16 idea, the same fraud, the same facts, have not -- this is the

17 same complaint with some minor changes that you addressed in

18 2014; the same $230 million fraud, the same allegations that

19 Hermitage's companies were taken, all of that is the same. The

20 discovery has put serious questions into the government's case.

21 We're entitled to attack the credibility of the government's

22 evidence without inhibition was your ruling.

23 THE COURT: Look --

24 MR. CYMROT: May I read from your prior ruling, your

25 Honor?

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1 THE COURT: No. Just a minute, please, please,

2 please.

3 MR. CYMROT: Okay.

4 THE COURT: Mr. Cymrot, you're representing Prevezon,

5 right?

6 MR. CYMROT: Right.

7 THE COURT: Now let's talk a moment about Hermitage.

8 Hermitage is not a defendant.

9 MR. CYMROT: Right.

10 THE COURT: It's not a plaintiff.

11 MR. CYMROT: Right.

12 THE COURT: It's my understanding that whatever

13 judgment comes out of the case, if the government wins, there

14 will be forfeiture and maybe some money judgment, but there

15 will be something against Prevezon.

16 MR. CYMROT: Correct.

17 THE COURT: Not against Hermitage.

18 MR. CYMROT: Correct.

19 THE COURT: And Prevezon has retained you, correct?

20 MR. CYMROT: Right. From the beginning.

21 THE COURT: And obviously they desire you as their

22 counsel, right?

23 MR. CYMROT: Correct.

24 THE COURT: It now appears that there may be evidence

25 at the trial relating to some extent to Hermitage. Right?

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1 MR. CYMROT: That's correct. That's been in the

2 complaint since day one. The government's allegations in that

3 regard haven't changed since the beginning of the case.

4 THE COURT: So although Hermitage is not being sued,

5 there may be evidence and ultimately some findings, in jury

6 interrogatory answers or something, that may be adverse to

7 Hermitage, isn't that correct?

8 MR. CYMROT: No, I don't think it is, Judge.

9 THE COURT: Why is it not correct?

10 MR. CYMROT: Clearly there will be evidence about this

11 $230 million fraud that has been involved since the beginning

12 of the case, but the jury will not be asked whether Hermitage

13 did it or anything of the sort. They will be asked whether the

14 fraud occurred through a specified unlawful activity which

15 might be fraud on HSBC Suisse or it could be -- the specified

16 unlawful activities, let me go through them, your Honor. There

17 is that the fraud was done through bribery.

18 THE COURT: That what?

19 MR. CYMROT: Through bribery. No allegation that

20 Hermitage bribed somebody, all right, or embezzlement of a

21 government official. That's number one.

22 Number 2, that there was stolen funds that were

23 transported. That's a question of whether the money can be

24 traced to Prevezon.

25 Number 3 is whether the fraud was done through a fraud

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1 on HSBC Suisse, which was an investor in Hermitage. There is

2 not going to be a question to the jury, did Hermitage commit

3 the fraud? That will not be a jury question because it doesn't

4 relate to the specified unlawful activities that are listed

5 there, Judge.

6 THE COURT: Well, pursuing that -- I'll get back to

7 the other gentleman -- in other words, what you're saying is

8 that there may be evidence about Hermitage, but you do not

9 believe there will be a jury verdict or a jury answer to a

10 questionnaire which implicates Hermitage.

11 MR. CYMROT: I do not, your Honor.

12 THE COURT: Let me ask you this: You said, on

13 November 9 of this year, "Hermitage is central to everything,

14 and the case has changed." You made that statement, did you

15 not?

16 MR. CYMROT: I did, your Honor.

17 THE COURT: All right. Now let me go down --

18 MR. CYMROT: I'm reading the transcript. I don't

19 remember it, but I'm reading what they -- I assume they're

20 quoting --

21 THE COURT: Assuming they accurately reproduced the

22 transcript. All right. Then going down in this display, this

23 was a transcript of a hearing on November 30. I guess that was

24 the partial summary judgment hearing?

25 MR. CYMROT: Yes. I'm not sure what the 9th was and

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1 what I was referring to there. They only give you a few words

2 of the transcript. But the 30th was the partial summary

3 judgment here.

4 THE COURT: All right. And you said, as quoted here,

5 "Every step of the alleged fraud against HSBC has been disputed

6 with very specific facts. And what it comes down to, Judge,

7 is, the government alleges that there was an organization,

8 unnamed, mysterious organization that did all this, and the

9 evidence points that Hermitage and Mr. Browder did it. That is

10 the heart of the dispute." That's the end of the quotation on

11 this display here.

12 Now here is really my question. Before we get to

13 transfers of money and money laundering, there has to be a

14 crime involving the taking of money. At least it has to be in

15 this case. Otherwise, there's no money to be laundered and no

16 money to be transferred or anything like that. So the taking

17 of money is, as far as I can see, a part of the case, and you

18 in effect said that. The evidence points that Hermitage and

19 Browder did it. That is the heart of the dispute. The "did

20 it" refers to the taking of money.

21 Now look, if your firm is representing the defendant

22 and does what lawyers do in representing, they make opening

23 statements, they cross-examine, they examine, they make closing

24 arguments, they do all that. Now if your firm is defending the

25 case and is necessarily doing all of that, but I see a problem,

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1 and I'm not going to answer the problem, but I see a problem,

2 and I pose this to you, a problem about having evidence in the

3 case about the law firm and the lawyer indicating the evidence

4 being about activities and transactions and so forth. Here is

5 the law firm arguing the case to the jury, and at the same time

6 there being evidence about that law firm that comes up in the

7 facts. And please don't misinterpret me. I'm not answering my

8 question, but it raises a question in my mind about the

9 propriety of that situation.

10 MR. CYMROT: Your Honor --

11 THE COURT: Go ahead.

12 MR. CYMROT: Yes. You may have misspoken, or I didn't

13 understand you. You said there would be evidence in the case

14 about the law firm. There will be no evidence in the case

15 about the law firm. There's evidence in the case about

16 Hermitage but no evidence in the case about the law firm.

17 THE COURT: Wait a minute. Wait a minute. Wait a

18 minute.

19 MR. CYMROT: I wasn't sure whether you misspoke or

20 not.

21 THE COURT: I probably did. Let me think that again.

22 I didn't phrase it well at all. And it's really

23 phrased in this display. There will be evidence about

24 Hermitage and Browder.

25 Now let me go back to the attorney for Hermitage. I'm

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1 going to let you recap your argument.

2 MR. BUCHDAHL: Absolutely, your Honor.

3 First of all, I'm not sure that you did misspeak at

4 all. Imagine a situation where Mr. Browder is on the stand and

5 he's being asked about what happened and he says, well, the

6 first time someone tried to frame me for this case, I went and

7 I hired Baker & Hostetler. Why couldn't that be part of the

8 evidence? Why isn't that a potential problem? Likewise, when

9 the government describes the harm that was done as part of the

10 specified unlawful activity, one of the things they talk about

11 is the fact that Hermitage had to spend a ton of money on legal

12 fees in order to defend against these accusations. That's part

13 of the chain of evidence that the government uses to describe

14 how a bank was harmed in this case. The Hermitage had to spend

15 money on legal fees. Well, guess what? $200,000, nearly

16 $200,000 of those fees went to defense counsel, Baker &

17 Hostetler. So I don't think you misspoke, and I think you've

18 identified a problem, but I don't necessarily believe, your

19 Honor, respectfully, that it's the worst problem. The worst

20 problem is that Baker & Hostetler intends to introduce evidence

21 at trial that their former client is guilty of criminal

22 activity. It's that simple. And counsel very carefully said

23 that the jury would not be asked to find the Hermitage engaged

24 in criminal activity. But he has to acknowledge that the way

25 they intend to defend against this case is to invite the jury

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1 to find that there was no specified unlawful activity because

2 Hermitage was the guilty party. That's their defense: their

3 former client is guilty so their current client isn't. It's

4 that simple.

5 And I want to go back to something that your Honor

6 said a year ago. Because a year ago Baker & Hostetler tried to

7 say that they could defend this case without attacking their

8 former client, and so a year ago your Honor found, "There is no

9 indication that counsel is in any substantial way taking a

10 position which involves an attack upon Hermitage." But what

11 you said, your Honor, then was, if counsel is now turning on

12 the former client and attacking the former client, that

13 wouldn't even be a hard case for disqualification. And the

14 difference between then and now, your Honor, is that now they

15 have turned on that client, their former client, and now they

16 are attacking their former client. Because now they've

17 decided -- and you drilled right down to it, your Honor. You

18 put your finger right on it. Baker & Hostetler said that

19 Hermitage is central to the case. The reason is, they intend

20 to put forward evidence at trial that the reason there is no

21 specified unlawful activity -- and your Honor was exactly

22 right. Before you get to the laundering of the money, you have

23 to get to the crime that generated the money, and their defense

24 now is, HSBC is not the victim of any crime because Hermitage,

25 our former client, Hermitage, did all of this itself. That's

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1 the defense. And I think the question for counsel --

2 THE COURT: Go over that again. Go over that again.

3 MR. BUCHDAHL: Right. Baker & Hostetler's defense at

4 this trial is going to be the following: There is no specified

5 unlawful activity because our former client, Hermitage, is

6 actually the party responsible for this crime. And I think the

7 question for counsel, your Honor, is -- and you started to ask

8 it and then counsel kind of dodged it.

9 THE COURT: You're saying the defense will be --

10 MR. BUCHDAHL: Exactly.

11 THE COURT: -- that Prevezon is not liable because the

12 guilty party is Hermitage.

13 MR. BUCHDAHL: Right. And it's incorrect in the

14 following sense. They're going to say Prevezon is not guilty

15 of money laundering because there was no specified unlawful

16 activity because Hermitage is the true guilty party. They're

17 not saying Hermitage did exactly what their clients are accused

18 of, but they are saying that Hermitage's guilty conduct and

19 criminal activity does result in them not being guilty of money

20 laundering. And that's why he was able to say --

21 THE COURT: I'm not quite following where we are right

22 now. Just go over this again. I want to make sure I got it in

23 my mind.

24 MR. BUCHDAHL: All right. So your Honor, you said

25 before there is any money laundering, there has to be a crime.

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1 And you were exactly right about that. And so defense counsel

2 now, Baker & Hostetler, has decided to focus a substantial part

3 of their defense on whether there was a crime that actually

4 qualifies as specified unlawful activity. They've shifted

5 their defense. This is the difference from a year ago.

6 They've shifted their defense from a focus on the money

7 laundering part to a focus on the specified unlawful activity

8 itself, the original crime. And when the government came in

9 and said, let's just all agree that the facts about the

10 original crime are not in dispute, that was the basis of their

11 partial summary judgment motion. The government came to the

12 Court and said, the specified unlawful activity, you should

13 find as a matter of law, HSBC suffered as a victim of a fraud

14 part of this big treasury fraud in Russia. That was the

15 government's position. Defense counsel said no. Why did they

16 say no? Again, your Honor, you put your finger on it. Because

17 they have disputed -- in Mr. Cymrot's words, every step of the

18 alleged fraud against HSBC has been disputed. That's defense

19 counsel's words. How is he going to dispute it, now and at

20 trial? He is going to tell this jury that his former client is

21 guilty of a crime. Not just any crime. The crime that that

22 former client had hired that firm to defend against.

23 THE COURT: Just factually, what is the claim now?

24 MR. BUCHDAHL: The claim now by defense counsel is

25 that HSBC is not the victim of a crime because Hermitage, who

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1 worked with HSBC, committed the crime, and therefore, there's

2 no specified unlawful activity. That's the defense. And so

3 right now --

4 THE COURT: How does that involve Hermitage?

5 MR. BUCHDAHL: Because defense counsel is pointing the

6 finger at Hermitage. They say that evidence points that

7 Hermitage did it. That's how they are defending against the

8 existence of a specified unlawful activity. And I think the

9 question for counsel is very simple. I think the question for

10 Baker & Hostetler is, do you intend to present evidence to this

11 jury that Hermitage engaged in wrongdoing? They have to

12 acknowledge that they plan to do that. And that should be the

13 end of the matter.

14 THE COURT: And that being a problem because that's

15 the former client of Baker & Hostetler, right?

16 MR. BUCHDAHL: Exactly right. Exactly right. And I

17 want to take just a moment, because counsel said a couple of

18 things. Counsel said they were hired to get a subpoena and

19 they never even got it. That's not how you earn $200,000 is by

20 not getting a subpoena. I've never charged a client $200,000

21 for not getting a subpoena. You charge your client $200,000

22 when you go to work for them and you try to do your best to

23 help them. And here's the help that Hermitage needed in 2008.

24 They were being framed for this crime, and Baker & Hostetler,

25 among other things, spent five hours --

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1 THE COURT: Who was being framed?

2 MR. BUCHDAHL: Hermitage was being framed for this

3 treasury fraud back in 2008. And guess what? They're still

4 being framed for this crime. The Russian authorities are still

5 after Hermitage. They have said publicly they are watching

6 this trial very closely. They are still trying to arrest

7 people from Hermitage. They are still pursuing my client. And

8 you now have a spectacle where my client's former lawyer wants

9 to stand up in the United States federal court and accuse his

10 former clients of participating in the fraud that his firm was

11 asked to defend against in 2008. It is not right. It violates

12 their confidences. It betrays their duty of loyalty. It is

13 not permitted by the rules of professional conduct, and it is

14 exactly what causes people to lose confidence in lawyers more

15 generally.

16 THE COURT: All right. We'll take a short recess and

17 we'll be back with --

18 MR. CYMROT: Can I answer some of that, your Honor?

19 THE COURT: Of course. We'll take a short recess.

20 MR. CYMROT: Thank you, your Honor.

21 (Recess)

22 (In open court)

23 THE COURT: I'm ready to adjourn with decision

24 reserved. And I'd like to do that very promptly, unless

25 there's something absolutely of the greatest essential nature

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1 that somebody wants to add.

2 MR. CYMROT: Your Honor, we've had two days to respond

3 to this motion. We're entitled to a brief. I think you ought

4 to let us know when you want the brief, because there's a lot

5 of things here that have been exaggerated and the record's not

6 complete, and so a two-page letter, if you're going to consider

7 this seriously, is not an adequate response.

8 THE COURT: Well, what do you want to file?

9 MR. CYMROT: I'd like to file a brief. I'll do it as

10 quickly as you say you want it.

11 THE COURT: When?

12 MR. CYMROT: Next week. Wednesday? If you're

13 considering granting the motion, we're entitled to more of a

14 response than we've had. We've had two days to respond to

15 this.

16 THE COURT: The thing is, we've had a very thorough,

17 lengthy argument this morning, and I assumed that the lawyers

18 had presented in the argument what you want to argue. Is there

19 something different that you want to put in a brief?

20 MR. CYMROT: Well, I think we would have more law.

21 They have an expert. We would have our expert. I mean, this

22 is a very serious matter. Our client's going to be severely

23 prejudiced by this. So we're under an obligation to make sure

24 we fully brief this.

25 THE COURT: At the same time we've had a lengthy and

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1 extensive argument this morning. Now obviously you haven't

2 cited caselaw, but I assume the points you want to make have

3 been made. I mean, you've had plenty of opportunity to make

4 your points. Are there other points that you want to make? If

5 so, go ahead. But the thing is that we have a trial coming up,

6 and we need to reach a decision very promptly and so that

7 whatever needs to be done to prepare for the trial can be done.

8 If you have any other points. I don't need caselaw.

9 MR. CYMROT: Okay. I have one other point, your

10 Honor, and I have one question, all right?

11 THE COURT: Okay.

12 MR. CYMROT: What I was referring to in that quote

13 relates to HSBC Suisse. That came into the case on

14 November 6th or 9th. It is not in the second amended

15 complaint. And we have a motion pending before you to dismiss

16 that claim for failure to state a claim. And so the idea that

17 this is going to the jury on this issue is premature. So

18 that's one point, that SUA may not go to the jury because we

19 have a motion pending. And the only SUA we say states a claim

20 would not relate to these facts. That's for bribery, it's not

21 a who stole the money.

22 THE COURT: Those are the points you want to add, and

23 I certainly hear them.

24 MR. CYMROT: Okay. One other question now.

25 MR. MONTELEONI: The government doesn't agree with

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1 that, by the way.

2 MR. CYMROT: Okay. We are scheduled to start

3 Mr. Browder's deposition at 1:00. Am I free without risk to

4 take that deposition?

5 MR. BUCHDAHL: Your Honor, while you consider this

6 motion, we would respectfully ask that you stay further

7 attempts by Baker & Hostetler to attack Hermitage, including

8 through discovery. So we would ask for a brief stay of that

9 deposition just until this motion can be decided.

10 MR. CYMROT: Now we've gotten to the heart of why the

11 motion was filed, your Honor.

12 MR. BUCHDAHL: I object to that, your Honor.

13 THE COURT: What do you mean by that? Please.

14 MR. CYMROT: First there was a cross-notice from the

15 government to delay the deposition, now there is this motion to

16 delay the deposition. Mr. Browder doesn't want to be deposed.

17 That was the motive. Because this same issue has been in this

18 case since the beginning. And we have been saying things about

19 Hermitage since the beginning, and certainly in motions

20 throughout the fall. So it gets filed on the eve of

21 Mr. Browder's deposition. That's what I mean by that.

22 MR. BUCHDAHL: Your Honor, may I just respond in two

23 sentences?

24 THE COURT: Yes.

25 MR. BUCHDAHL: Mr. Browder has already been deposed,

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1 and he has no objection to being deposed. He does, however,

2 object to being deposed by his former lawyer on the very

3 subject that he hired that lawyer to defend him against. So we

4 request a brief stay of any discovery toward Hermitage and its

5 employees while the court considers this. The Court is right.

6 It's a significant, weighty motion, and it's going to be

7 decided promptly, and a brief stay of this discovery will not

8 prejudice anyone.

9 THE COURT: What I'm going to do, I believe there has

10 been an ample opportunity, in briefs and in argument this

11 morning, to present the points that the parties wish to

12 present, and anything that the attorneys for Hermitage wish to

13 present. There's been an opportunity. And any further

14 discovery is stayed pending the issuance of what I believe will

15 be a very prompt decision on the issues before me.

16 Thank you very much.

17 MR. CYMROT: Thank you, your Honor.

18 MR. BUCHDAHL: Thank you, your Honor.

19 THE DEPUTY CLERK: Thank you, all.

20 o0o

21

22

23

24

25

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1 UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x

3 UNITED STATES OF AMERICA,

4 Plaintiff,

5 v. 13 Cv. 6326 (TPG)

6 PREVEZON HOLDINGS LTD., et al.,

7 Defendants.

8 ------------------------------x
December 23, 2015
9 12:10 p.m.

10 Before:

11 HON. THOMAS P. GRIESA

12 District Judge

13 APPEARANCES

14 PREET BHARARA
United States Attorney for the
15 Southern District of New York
PAUL MONTELEONI
16 MARGARET GRAHAM
Assistant United States Attorneys
17
BAKER & HOSTETLER LLP
18 Attorneys for Defendants
MARK CYMROT
19 JOHN MOSCOW
NICK ROSE
20 -and-
NATALIA VESELNITSKAYA
21
SUSMAN GODFREY L.L.P.
22 Attorneys for Hermitage
JACOB W. BUCHDAHL
23

24

25

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1 (In chambers; phone conference)

2 LAW CLERK: Can you please identify yourselves again.

3 MR. MONTELEONI: Paul Monteleoni and Margaret Graham

4 for the government.

5 MR. CYMROT: Mark Cymrot, John Moscow, Nick Rose,

6 Samir Ranade, and Natalia Veselnitskaya from Russia, for the

7 defendants.

8 MR. BUCHDAHL: Jacob Buchdahl for Hermitage.

9 THE COURT: I appreciate you all being available on, I

10 guess it's Christmas Eve Eve. Anyway, there are some things

11 that should be gone into in this call, as I will describe, and

12 the attorneys may have other things, but I want to just go

13 briefly into the background, which you know.

14 Hermitage moved to disqualify Moscow and his firm.

15 Now, that motion was granted and there was an opinion

16 dated December 18.

17 Now, on December 22, the defendants served and filed

18 an order to show cause requesting that an appeal be certified

19 by the district court pursuant to 28 U.S.C., Section 1292(b).

20 Now, that was a perfectly orderly step, and it was

21 perfectly clear what the defendants were doing.

22 Now, what the Court did on the 22nd was to sign an

23 order, which in effect certified the matter for appeal. There

24 was no lack of clarity in that. It was perfectly clear what

25 was being done. And that was signed on the 22nd.

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1 Now, the defendants had filed a memorandum of law in

2 support of the certification, and that was dated December 21,

3 and everybody, I am sure, got a copy of that. And the

4 intention of that memorandum and the substance was perfectly

5 clear. Obviously, there are parties who disagree with the

6 substance, but procedurally everything was perfectly clear.

7 Now, I signed an order on December 22nd certifying the

8 matter for appeal and staying other matters in the district

9 court pending the outcome of the appeal. Again, this was all

10 perfectly clear. There wasn't any need for the clarification

11 that one piece of correspondence asked for.

12 Now, the Court received a letter from the government,

13 and that letter is dated December 22. I am going to treat that

14 letter, in accordance with some of its terms, as a request for

15 reconsideration as to the issue of whether the matter should be

16 certified for appeal.

17 So that procedurally is where we stand as far as the

18 Court is concerned. The government's letter of December 22,

19 again, asks for reconsideration and sets forth at some length

20 the reasons for that request.

21 Now, what I am saying is, in my view, procedurally we

22 have a request for reconsideration of my certification of the

23 matter for appeal. I certified it for appeal on something that

24 I signed on the 22nd. And now I am going to treat the

25 government letter, and I am treating the government letter

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1 according to its own terms, as an application for

2 reconsideration of my direction that there can be an appeal.

3 Now, what I would like to know is what the parties

4 propose in order to have a proper briefing and argument on this

5 application for reconsideration.

6 Now, there was a memorandum of law filed by Baker &

7 Hostetler dated December 21. There is the letter of the

8 government dated December 22. What I would like to know is

9 what further steps, if any, are needed to complete the

10 submission on what I will call the motion for reconsideration.

11 So I would like to have comments on that question,

12 please.

13 MR. CYMROT: This is Mark Cymrot for the defendants.

14 We would like a reply, perhaps we can do it by the end

15 of business on Friday, to that motion. But, your Honor, you

16 might give us some guidance. The government is not the movant.

17 I don't know how the government has standing to move for

18 reconsideration. I can make this point in a letter, which we

19 will, but I don't know if you have some guidance on that point.

20 They weren't the movant. They aren't our client. Why do they

21 have standing to file a motion for reconsideration?

22 MR. MONTELEONI: Paul Monteleoni. May I be heard?

23 THE COURT: Of course.

24 MR. MONTELEONI: We are certainly comfortable

25 proceeding with our motion for reconsideration based on the

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1 submission that we already made. We are ready to argue it

2 today, though if defense wants to file something on Christmas,

3 we don't object.

4 Our standing is that once the district court has

5 entered an order, as the government, when that order is

6 challenged on appeal, we as a typical matter defend the orders

7 of the district court; and, additionally, the certification and

8 the stay affects the timing of this case which we are

9 litigating. But if defense wants to reply and the Court thinks

10 that that's important, we can defer actually reaching those

11 issues until that's done.

12 THE COURT: What we are talking about is whether there

13 is anything that can properly go to the Court of Appeals, and

14 the government's letter discusses that, and I am going to take

15 the government's letter on its merits for the reasons the

16 government has explained. I think the government had a right

17 to file that letter, and I think the government has a right to

18 put in its discussion what it has put in, and I will certainly

19 consider this.

20 Now, does anybody else wish to file any other

21 submission on the question of whether there is properly an

22 appealable issue here?

23 MR. BUCHDAHL: This is Jacob Buchdahl for Hermitage.

24 We certainly join the government in the position they

25 took in their December 22nd letter, and we do not think that

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1 this is an issue that should be properly certified for appeal.

2 We are happy to put in a short letter setting forth our

3 position, but we don't need to do so unless the Court wishes to

4 hear from us.

5 THE COURT: I would be glad to hear from you.

6 MR. BUCHDAHL: Then we will submit a letter setting

7 forth our position. We prefer not to put it in on Christmas,

8 if that's OK, and we would ask for it to be Monday, if that's

9 all right, or we can submit it tomorrow if you'd rather have

10 everything before you.

11 THE COURT: Now, look here, we have got Christmas

12 here, and let's have some sensible and humane schedule. I

13 think, and there may be objections to this, but I think that

14 there are issues now which need to be decided, which make it

15 very unlikely that we can have a trial on the scheduled trial

16 date in January.

17 Let me back up a bit. The government has filed a

18 letter with very, very fine legal propositions and briefing,

19 but let's remember that this is a court of justice and justice

20 deals with human beings.

21 Now, on Friday, when I ordered that Mr. Moscow needed

22 to be disqualified, that was a drastic order. So what occurred

23 was something to take out of the case a lawyer who had

24 performed very well in this case over a long period of time.

25 There were reasons which were explained in what I filed why I

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1 felt the disqualification had to be made, but it was a very

2 difficult decision for me, and I think I said it, and I will

3 say it again, I made it reluctantly. I have no hesitation

4 about saying that.

5 Now, certain papers have been filed to pave the way

6 for review by the Court of Appeals. There are serious

7 questions about whether there can be review by the Court of

8 Appeals at this stage. But all of that has to be very

9 carefully considered and very carefully handled. Therefore, I

10 would welcome any further briefing that would assist the Court

11 in dealing with what is a very difficult issue. And there is

12 no rush. The job must be done properly.

13 Can the lawyers on the phone tell me, or do you want

14 to adjourn and give it further consideration, what further

15 briefing anybody wishes to make. And I want to emphasize that

16 we have a very serious issue here, and it is not to be tossed

17 off lightly, and I want you to consider very carefully what

18 further briefing is necessary in the interest of your clients

19 and in the interest of providing guidance to the Court.

20 I would be glad to adjourn this telephone conference,

21 or if you are ready to tell me now what further briefing, if

22 any, you wish to submit, and when you wish to submit it, I will

23 hear that now, or I will adjourn. We can have another

24 telephone call tomorrow or early next week. There is no rush

25 about this.

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1 What do you propose?

2 MR. CYMROT: It sounds like Mr. Buchdahl would like to

3 put in his submission. I think he ought to do it before the

4 defendants. I don't suggest that he do it on Christmas or

5 anything of the like. So if he would tell us a reasonable

6 time, we will tell you a reasonable time to respond.

7 The one thing I do want to point out to your Honor is

8 that you have a $15 million freezing order in place. So while

9 I think there needs to be reasonable time for the parties to

10 brief the issue and for you to consider it, I wouldn't say from

11 the defense side that time is not important, time is important

12 given that freezing order. So if Mr. Buchdahl would suggest a

13 time for his submission, I will suggest a time for ours.

14 THE COURT: Very good.

15 What about that?

16 MR. BUCHDAHL: We would request one week to prepare a

17 short brief setting forth our legal position, to be due one

18 week from today on December 30, next Wednesday.

19 THE COURT: That's excellent.

20 Mr. Cymrot.

21 MR. CYMROT: Yes, your Honor. I would say we could

22 make our submission on January 6.

23 THE COURT: Very good.

24 So the dates are the 30th and the 6th, right?

25 MR. CYMROT: Yes, your Honor.

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1 THE COURT: Now, if there is anyone, the government or

2 anybody else, who has standing to file, anything must be filed

3 either the 30th of December or the 6th of January.

4 So what I think we have accomplished today is we have

5 a sensible schedule for some very, very important briefing, and

6 that is an accomplishment. I think that's all we need to do at

7 the present time.

8 MR. CYMROT: Your Honor, can we do one more thing?

9 THE COURT: Sure.

10 MR. CYMROT: Ms. Veselnitskaya, the Russian lawyer for

11 the defendants, has flown in because of your prior order and

12 would like just a minute or two to address the Court about the

13 defense wanting Baker & Hostetler to proceed. She is on the

14 phone. Would you just give her a minute or two to speak to

15 you?

16 THE COURT: Of course. What is her name?

17 MR. CYMROT: Natalia Veselnitskaya,

18 v-e-s-e-l-n-i-t-s-k-a-y-a.

19 THE COURT: All right. Go ahead, please.

20 MS. VESELNITSKAYA: Good afternoon. I am going to

21 speak in Russian through an interpreter. And I wish you good

22 day, your Honor, and esteemed court.

23 I would like to thank you for giving me an opportunity

24 to express my position before you, and this is coming directly

25 from my client. I do not want to conceal from you that your

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1 decision from December 18 was very aggravating for him, and the

2 owner of the companies who are subject to this case, Mr. Denis

3 Katsyv, has asked me to fly to New York, to come back to New

4 York, to express his position to both our lawyers and also to

5 our respected opponents, and also to your Honor as well.

6 His position is that he does not wish to change

7 lawyers and wants to present his case to the people of the

8 United States with the representation of the excellent lawyers

9 who have been doing a good job on the case for two and a half

10 years. And we do hope that the justice of your country that we

11 have heard so much about would be just and would be applied to

12 us as well, and we are hoping that it would carry on to our

13 case as well.

14 May it please the Court, I wanted to thank your Honor

15 for giving me the opportunity to express this position directly

16 to you. Thank you.

17 THE COURT: Do I understand that you support retaining

18 Mr. Moscow as the attorney, as he has been retained thus far,

19 is that correct?

20 MS. VESELNITSKAYA: Absolutely. Absolutely. That is

21 the purpose of my flying in to New York yesterday, is to

22 express that. We completely support the position of our

23 lawyers, of our counsel, and we support the decision to go to

24 the appellate court.

25 THE COURT: Now, you flew in from where?

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1 MS. VESELNITSKAYA: From Moscow, your Honor.

2 THE COURT: Can I say this. I appreciate your coming

3 this long distance, and although you spoke briefly, you made a

4 point which I will consider very carefully.

5 MS. VESELNITSKAYA: Thank you, your Honor.

6 THE COURT: Is there anything else to be done on this

7 telephone conference?

8 MR. MONTELEONI: No, your Honor.

9 MR. CYMROT: No, your Honor.

10 THE COURT: Thank you all very much.

11 (Adjourned)

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1 UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x

3 UNITED STATES OF AMERICA

Plaintiff
4
v. 13 CV 6326 (TPG)
5 Telephone Conference
PREVEZON HOLDINGS, LTD., et
6 al.,
Defendants
7
------------------------------x
8 New York, N.Y.
December 28, 2015
9 3:00 p.m.

10 Before:

11 HON. THOMAS P. GRIESA

12 District Judge

13 TELEPHONIC APPEARANCES

14 UNITED STATES ATTORNEY'S OFFICE

Attorneys for Plaintiff
15 PAUL A. MONTELEONI
KRISTY PHILLIPS
16
BAKER & HOSTETLER LLP
17 Attorneys for Defendant Prevezon Holdings
MARK CYMROT
18 JOHN W. MOSCOW
NICK ROSE
19
SUSMAN GODFREY LLP
20 Attorneys for Defendant Hermitage Cap. Mgmt.
CORY S. BULAND
21
- also present -
22 NATALIA VENELITKAYA
DENIS KATSYV
23 ANATOLI FAMORY, Intepreter (Russian)
LAURA LEWIS (Hermitage)
24

25

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1 (In chambers; telephone conference)

2 THE COURT: Who is on?

3 MR. MONTELEONI: Paul Monteleoni and Kristy Phillips

4 for the government.

5 MR. MOSCOW: John Moscow, Mark Cymrot, Nick Rose for

6 the defendants, as well as representatives of the defendants

7 Natalia Venelitkaya and Denis Katsyv. And the translator

8 Anatoli Famory.

9 THE COURT: Mr. Moscow, is that you speaking?

10 MR. MOSCOW: No, I am here, your Honor.

11 THE COURT: Who is speaking now?

12 MR. MOSCOW: John Moscow here.

13 THE COURT: So I -- Mr. Monteleoni is on. Mr. Moscow

14 is on. Mr. Cymrot is on. Is that correct?

15 MR. MONTELEONI: Yes, but there are others.

16 MR. BULAND: This is Corey Buland from Susman Godfrey.

17 I represent Hermitage. With me on the phone today is a

18 representative from Hermitage Laura Lewis where she works as

19 in-house counsel.

20 THE COURT: Let me proceed. This is the Judge.

21 At the argument which was held on December 18, counsel

22 for Prevezon asked for an opportunity to file a brief in

23 response to the disqualification motion filed by Hermitage.

24 Incidentally, the record shows that Hermitage is not a party to

25 this action, but I have been willing to hear from Hermitage in

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1 any event and will still hear from them.

2 Now, however, I wanted to deal with the

3 disqualification motion promptly. I felt that I had heard

4 sufficient arguments about that issue, and I denied the request

5 of Prevezon to file a brief, and I proceeded on that very day

6 to issue a ruling granting the motion to disqualify Mr. Moscow

7 and his firm.

8 Now, upon further reflection and further review of the

9 record, I believe that it was not fair or proper to proceed

10 without allowing the kind of brief that Prevezon wanted to

11 file. Therefore, in my view, I now believe that the ruling I

12 made was made without giving a fair and normal opportunity for

13 briefing to be done by Prevezon.

14 The issue before the Court then was an issue of the

15 utmost importance. The disqualification of an attorney is

16 something of important consequences, and that must be

17 recognized and given full weight. Consequently, I do not wish

18 to make a final ruling on the issue of disqualification without

19 allowing the briefing which Prevezon wishes to make and perhaps

20 other parties also.

21 Therefore, the Court withdraws the December 18 opinion

22 in order to allow Prevezon and perhaps others to file what they

23 consider a sufficient brief, but in what I am saying now, I

24 have particular reference to Prevezon because Prevezon

25 specifically asked for the opportunity to file a brief, and I

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1 proceeded thinking that I had sufficient arguments to work

2 with, and I proceeded to make a ruling without allowing

3 Prevezon to file what it considered a sufficient brief.

4 Therefore, as I have said, I am withdrawing the December 18

5 opinion and there will now be an opportunity for Prevezon and

6 perhaps others to file the briefs that they consider

7 sufficient.

8 Now, I am directing that Prevezon may file its brief

9 by Tuesday, January 5. If others wish to brief, that is the

10 date for everybody.

11 MR. MONTELEONI: Your Honor --

12 THE COURT: Just a minute.

13 After the disqualification issue is fully briefed, the

14 Court will, of course, issue its ruling. That ruling is, of

15 course, still to come. It follows that all issues about appeal

16 are now premature.

17 I think somebody wanted to make a comment. Please go

18 ahead

19 MR. BULAND: Your Honor, Corey Buland for Hermitage.

20 I apologize for interrupting the court. We would request the

21 opportunity -- we have filed a brief already, as your Honor is

22 aware. We would request the opportunity to reply two days

23 after Baker & Hostetler makes their submission.

24 THE COURT: Look, Hermitage, who isn't even a party to

25 the action, has filed what I assume you believe is the brief

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1 you want to file.

2 Now, I'm not going to shut the door, but I am not

3 inviting Hermitage to file anything further. If you do, I am

4 sure it will be read by the Court but it's got to be filed very

5 promptly because this issue must be filed very promptly, and it

6 must not be forgotten that Hermitage is not a party to the

7 action.

8 That concludes the proceedings for this afternoon.

9 Thank you very much

10 (Adjourned)

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G169USAC

1 UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x

3 UNITED STATES OF AMERICA,

4 v. 13 CV 6326 (TPG)

5 PREVEZON HOLDINGS, LTD., ET

AL.,
6
Defendants.
7
------------------------------x
8 New York, N.Y.
January 6, 2016
9 12:13 p.m.

10 Before:

11 HON. THOMAS P. GRIESA

12 District Judge

13 APPEARANCES

14
PREET BHARARA
15 United States Attorney for the
Southern District of New York
16 PAUL MONTELEONI
MARGARET GRAHAM
17 Assistant United States Attorney

18 BAKER & HOSTETLER, LLP

Attorneys for Prevezon Defendants/Movants
19 MARK CYMROT
JOHN W. MOSCOW
20
SUSMAN GODFREY, LLP
21 Attorneys for Nonparty/Movant Hermitage Capital
Management, Ltd.
22 JACOB BUCHDAHL

23

24

25

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1 (In open court; case called)

2 THE COURT: I think it would help to have the people

3 present identify themselves for the record.

4 MR. MONTELEONI: Good afternoon, your Honor.

5 THE COURT: We'll start with the government.

6 MR. MONTELEONI: Yes. Good afternoon, your Honor.

7 Paul Monteleoni for the government. With me at counsel table

8 are my colleagues, Margaret Graham, Jaimme Nawaday, and Kristy

9 Phillips.

10 THE COURT: Very good.

11 MR. CYMROT: Your Honor, Mark Cymrot and John Moscow

12 for the defendants.

13 I'd also like to introduce Mr. Katsyv, who owns the

14 defendants, who is here in court with his lawyer. So this is

15 Dennis Katsyv. He owns the defendants. And this is his

16 Russian lawyer who has spoken on the record in the past,

17 Natalia Veselnitskaya.

18 THE COURT: Does the reporter have the spelling?

19 MR. CYMROT: Yes, your Honor. We gave it to your

20 clerk.

21 THE COURT: Very good. There is somebody else here

22 for --

23 THE DEPUTY CLERK: Mr. Buchdahl, your Honor.

24 Mr. Buchdahl.

25 MR. BUCHDAHL: Good afternoon.

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1 Jacob Buchdahl with Susman Godfrey. We represent

2 Hermitage. We remain interested in this case as counsel that

3 the court had previously disqualified is still appearing for

4 defendants.

5 THE COURT: Wait. I didn't understand the last thing

6 you said. Just a little louder, please.

7 MR. BUCHDAHL: Sure. We represent Hermitage. We had

8 submitted a motion to disqualify defense counsel. And that

9 motion remains pending before the court.

10 And since the counsel that we had moved to disqualify

11 is here appearing on behalf of defendants, in case that subject

12 were to come up, I thought it prudent for us to be here today

13 as well, your Honor.

14 THE COURT: I'm glad you're here. Thank you very

15 much.

16 Now, look, what are the issues, if any, that require

17 any ruling by the court today?

18 MR. CYMROT: Yes, your Honor. Mark Cymrot.

19 Mr. Katsyv and Ms. Veselnitskaya must leave the United

20 States on the insistence of the prosecution by tomorrow. And

21 we are here to ask your Honor to make a finding that if the

22 prosecution goes through with its threat that there would be a

23 violation of due process of law.

24 If I may explain, your Honor?

25 THE COURT: Well, let me just interrupt.

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1 Mr. Katsyv and Ms. Veselnitskaya have come here,

2 obviously, because they have an interest in the litigation

3 which is pending now and apparently at some point will require

4 a trial. Mr. Katsyv, I believe, is an executive or may be the

5 chief executive of the defendant Prevezon. Am I right?

6 MR. CYMROT: And the owner, your Honor. He is also a

7 claimant in this proceeding.

8 THE COURT: Wait. Go back. Say that again.

9 MR. CYMROT: He's the owner of the defendants and a

10 claimant in the proceeding. He is a party to the proceeding as

11 a claimant.

12 THE COURT: I should know, but refresh my memory.

13 What is meant by being a claimant?

14 MR. CYMROT: Well, the United States wants to forfeit

15 the companies that are -- the companies and properties that are

16 defendants. And he's saying those are mine and I am an

17 innocent owner of those properties. Therefore, they should go

18 to me.

19 THE COURT: That is the claim of Mr. --

20 MR. CYMROT: -- Katsyv personally.

21 THE COURT: Now as far as the government is concerned,

22 I'll start in that fashion, what is the status of Mr. Katsyv

23 and Ms. Veselnitskaya?

24 MR. CYMROT: They have refused --

25 THE COURT: Wait a minute.

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1 MR. CYMROT: You want from the government?

2 THE COURT: Mr. Monteleoni.

3 MR. MONTELEONI: Thank you, your Honor. I would point

4 out first that we were not privy to any of the communications

5 that set up this conference and defense counsel has refused to

6 tell us what they told the court ex parte that caused this

7 conference to be held. So we object to that. And we are a

8 little confused as to why this is being brought before the

9 court now.

10 But, the immigration status of Mr. Katsyv and

11 Ms. Veselnitskaya is that I've been told by defense counsel

12 that they've applied for visas and those were denied. We, the

13 government, the U.S. Attorney's Office here, have no influence

14 over -- participation in that visa process.

15 But, Mr. Katsyv, as a party to this case, was required

16 to come in for a deposition and intends to come in at trial to

17 testify as a witness. So, in October the government bypassed

18 the normal visa process and gave a type of extraordinary

19 permission to enter the country called immigration parole.

20 That's a discretionary act that the statute allows the Attorney

21 General to do in extraordinary circumstances. In this case, we

22 did that so that Mr. Katsyv could testify. And we made the

23 further accommodation of allowing his Russian lawyer into the

24 country to assist. We did that when there was depositions

25 scheduled -- those depositions have happened -- and when trial

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1 is scheduled. The trial was previously scheduled for December.

2 So we granted this extraordinary relief of immigration parole

3 to allow them to come into the country during that time.

4 What we've told defense counsel, when they have asked

5 for it to be extended, is we will reauthorize the immigration

6 parole to allow them to attend for trial and for reasonable

7 pretrial preparation once there is a trial date. But, right

8 now there -- the trial date isn't set yet. And there are

9 various possibilities. The trial date could be soon or could

10 be in quite some time.

11 So, we've offered to give this immigration parole once

12 there is a trial date set and we're willing to do that. We

13 think that that's really the end of the matter and that further

14 proceedings on this should just wait until there's a trial date

15 set. At that point we will quickly turn around their parole

16 and they can reenter the country.

17 THE COURT: Well, there are certain things that have

18 to be taken in a certain order. What Mr. Monteleoni has just

19 said is perfectly reasonable.

20 Now --

21 MR. CYMROT: Your Honor, may I speak to that?

22 THE COURT: Just a minute.

23 What is still pending before me and has great

24 relevance to the course of the proceedings is the motion of

25 Hermitage to disqualify Mr. Moscow. And the record shows what

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1 it shows about the status of that and I'm not going to go into

2 that. But that is a matter that is pending. It is still being

3 briefed. It should be no secret that my intention is to decide

4 that as soon as possible. Now, what that decision will be I'm

5 certainly not going to announce at this conference.

6 Now, what Mr. Monteleoni has described is the

7 government's current view of what is called the immigration

8 parole.

9 Now, Mr. Cymrot, you wanted to speak and I interrupted

10 you. You go ahead now.

11 MR. CYMROT: Yes, your Honor.

12 It is essential that Mr. Katsyv and his lawyer stay in

13 the United States right now. The situation is that you're

14 going to decide promptly, you just said, whether counsel will

15 be disqualified. If counsel is disqualified, if you grant the

16 motion, then they need to be here to find new counsel. They

17 cannot do that from Moscow.

18 If you deny the motion, we were three weeks away from

19 trial and there has been a --

20 THE COURT: If the motion is denied, what did you say?

21 MR. CYMROT: We were previously three weeks away from

22 trial. And as we've previously discussed, there's a $15

23 million freezing order on the case and that calls for a prompt

24 trial. So they will have to be here for that. So either way

25 they should stay in the United States either to hire new

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1 counsel or to prepare for trial.

2 It is, I can tell you, very difficult over the last

3 two years plus to coordinate with them in Moscow. And the

4 government has denied them entry into the United States

5 repeatedly.

6 It is a very difficult thing to coordinate. And since

7 they have been here and been to some hearings they have a much

8 better understanding of the proceedings. And we have had a

9 much better opportunity to prepare for trial. It is essential

10 that they be here. There is -- any other litigant would be

11 entitled to be here and to be represented. And the law

12 provides a specific visa for persons who are defending lawsuits

13 in the United States.

14 The United States government has frozen their property

15 for more than two years and yet denied them the right to defend

16 this proceeding properly. That is where we stand. And now

17 they are in the United States and things are going to happen

18 over the next several weeks that they have to be here for, and

19 the prosecution is forcing them to leave which will make it

20 difficult if they have to hire new counsel or difficult if they

21 have to prepare for trial.

22 MR. MONTELEONI: May I respond, your Honor?

23 THE COURT: Yes.

24 MR. MONTELEONI: Thank you.

25 So there are several other possibilities of what might

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1 happen in the next few days that would not mean that there

2 would be a trial right away.

3 If the court decides the motion one way or another for

4 disqualification, and the party that loses appeals that, that

5 decision, then there might be a stay while the Second Circuit

6 reviews that decision. That could mean that there is a time

7 period when they don't need to hire new counsel and they don't

8 need to be present for trial. If, of course, there's a time

9 period when they do need to be present for trial, like the

10 government said, we will make those arrangements.

11 Regarding hiring of counsel. There is no due process

12 right to enter the country if you're not admissible for those

13 purposes. And, in fact, the government doesn't believe that

14 they initially entered the country when they hired

15 Baker & Hostetler. So I think that legally and practically it

16 can be done.

17 Regardless, this is all just premature. If

18 proceedings recommence and there is not an appeal so that we're

19 headed right towards trial, we will promptly reissue the

20 parole. They can come and defend that.

21 THE COURT: What did you just say? What did you just

22 say?

23 MR. MONTELEONI: If as a result of the court's ruling

24 proceedings recommence and a trial date is scheduled in the

25 near future and there is no stay of that, then the government

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1 will promptly issue new parole so that they can come back and

2 prepare for trial. But, there are real possibilities that

3 that's not going to be what happens. And so under the

4 regulations the government doesn't issue parole just when it

5 would be in someone's convenience. The government does it when

6 there's a need. So we're just waiting to see if there's a need

7 for parole now. If there is, then we will issue that parole.

8 THE COURT: Look, here is the thing. I think I've

9 said this and I'll repeat it. I intend to decide the issue of

10 disqualification very promptly. It would be my intention,

11 regardless of how that's decided, to have as prompt a trial as

12 possible. The trial has been long delayed to the prejudice of

13 people who have considerable money at stake in that trial. So

14 the trial has to take place. And it's my intention to have it

15 as soon as possible.

16 Now, that's not going to be tomorrow or the next day,

17 but when I "say as soon as possible" I mean it within the plain

18 language of those words.

19 Now, as the government points out and everybody in the

20 room knows, there's some unknowns right now. I want to clear

21 up those unknowns as soon as possible.

22 Mr. Monteleoni, something expires the 7th. What is

23 that?

24 MR. MONTELEONI: The --

25 THE COURT: You've said it but go over it again.

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1 MR. MONTELEONI: Sure. So, the authorization for

2 Mr. Katsyv and Ms. Veselnitskaya to be in the country without

3 visas for a trial. Using the process of immigration parole

4 expires on the 7th.

5 THE COURT: Now, look. The 7th makes no sense now.

6 If everybody acts as fast as possible, including the court, it

7 makes no sense to have that immigration visa or those

8 immigration visas expire tomorrow so that these people would

9 have to go back to Russia. That is totally about as poor an

10 arrangement as I could dream up.

11 Now, what I'm going to request -- and this should not

12 be litigated -- but I'm going to request that the immigration

13 parole or what do you call it be extended past tomorrow and

14 until -- let me get a calendar -- extended for one week to the

15 14th.

16 Will the government agree to that?

17 MR. MONTELEONI: So as I sit here I, Paul Monteleoni,

18 don't have the final say but I will certainly pass the request

19 along to those in the government who do, and I think for an

20 extension of that length I'm optimistic.

21 THE COURT: Well that's a perfectly satisfactory

22 statement. I'll count on that.

23 Now, as far as I know there is nothing more that can

24 be done today here. There's a lot to be done but nothing more

25 in court this morning. And I'll assume that the extension is

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1 granted to the 14th and we all have some work to do. I think

2 that's as far as we can go this morning.

3 MR. CYMROT: Thank you, your Honor.

4 MR. MONTELEONI: Thank you.

5 THE COURT: Thank you all very much.

6 (Adjourned)

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G1CKPREM CONFERENCE

1 UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x

3 UNITED STATES OF AMERICA,

4 Plaintiff,

5 v. 13 CV 6326 (TPG)

6 PREVEZON HOLDINGS LTD, et al.,

7 Defendants.

8 ------------------------------x
New York, N.Y.
9 January 12, 2016
1:05 p.m.
10
Before:
11
HON. THOMAS P. GRIESA,
12
District Judge
13
APPEARANCES
14
PREET BHARARA
15 United States Attorney for the
Southern District of New York
16 PAUL MONTELEONI
KRISTY PHILLIPS
17 JAIMME NAWADAY
Assistant United States Attorneys
18
BAKER & HOSTETLER LLP
19 Attorneys for Prevezon Defendants
BY: MARK CYMROT
20 JOHN W. MOSCOW

21

22

23

24

25

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G1CKPREM CONFERENCE

1 THE DEPUTY CLERK: Conference in the matter of the

2 United States of America versus Prevezon Holdings Ltd. et al.

3 All parties are present, your Honor.

4 THE COURT: Sit down, please. The events leading up

5 to today are all recorded and there's no point in reviewing

6 that. We'll start where we are right now; and that is,

7 preparing for the trial. The trial in this case will start

8 January 21, as I think you have been informed; jury selection

9 will take place that day; and the trial will move forward from

10 that point. The trial days will begin at 10:30 in the morning

11 and, with a lunch break, the trial days will last until 4:30 in

12 the afternoon.

13 Now, the government and the defense have both provided

14 me estimates, which allow an overall estimate of trial time,

15 but let me tell you what is in my notes and see if this is

16 still accurate. According to my notes, the government

17 estimates that it will need two to three weeks to put on its

18 case.

19 Is that still a fair estimate?

20 MR. MONTELEONI: Yes, your Honor, though we believe

21 that it is likely to be at the higher end of that because of

22 learning about the precise trial schedule in terms of the trial

23 hours, and also because a number of the issues in limine are

24 going to be resolved at trial it might be closer to three to

25 four weeks. Probably three is about the right number.

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1 I would, if I may, like to be heard about a request

2 for a very brief continuance of the trial date, until

3 February 1st, to allow us to get our witnesses from Europe

4 here, because we have been contacting them when we found out

5 about the January 21st date, and with this short notice, it's

6 very difficult and our witnesses aren't going to be available

7 to start on a January 21st trial, so we would request jury

8 selection can begin the last week of January, but then, if the

9 actual presentation of our witnesses could begin on

10 February 1st, that would allow our witnesses the opportunity to

11 be here. So we would request that, respectfully.

12 THE COURT: I don't think there's any problem but let

13 me just look at the calendar again with you.

14 But what does the defense say on that?

15 MR. CYMROT: I was hoping my clients would be here --

16 I'm not authorized to agree to a continuance, your Honor -- but

17 one week doesn't seem like a lot.

18 I would say that we shouldn't be picking a jury on the

19 21st and starting testimony on February 1. It would seem like

20 we ought to move everything a week, but as I say, without my

21 clients here, I'm not really authorized to agree to an

22 extension.

23 THE COURT: Look, when your clients get here, we'll

24 hear their views -- this is something we'll all work out

25 together -- but let me get a calendar in front of me.

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1 Mr. Monteleoni, can you recap?

2 MR. MONTELEONI: Yes, your Honor. We would request

3 that jury selection begin either the week of the 25th or on

4 February 1st but that the actual witness presentation and the

5 opening statements, not begin until February 1st. We estimate

6 approximately three, maybe a little more, weeks with our case.

7 THE COURT: I'm going to ask that you go over that

8 again because I wasn't making a note and I need to make a note.

9 Please go over that again.

10 MR. MONTELEONI: Sure. We would request to begin

11 trial on February 1st.

12 (Pause)

13 MR. MONTELEONI: So, defense counsel has requested

14 that if we do that date, we do jury selection on Wednesday,

15 January 27th. The government takes no position on that; that

16 would be fine. Our concern is that the witnesses start

17 February 1st or after jury selection on February 1st.

18 THE COURT: Just a minute, just a minute.

19 So, is it correct both sides are requesting that the

20 actual trial, with openings and witnesses, start February 1?

21 Is that right?

22 MR. MONTELEONI: The government is.

23 MR. CYMROT: And we're suggesting jury selection

24 should be the week before, your Honor.

25 THE COURT: Okay.

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1 MR. CYMROT: In other words, like Wednesday before,

2 the way you had it set up. Well, you had it Thursday. We're

3 suggesting jury selection on the 27th. We're going to ask you,

4 when we get into it, for a questionnaire, a written

5 questionnaire, so it might take two days for jury selection,

6 not one. And then February 1st is a Monday; that would be when

7 witnesses would start, opening and witnesses.

8 THE COURT: Do I understand it correctly that both of

9 you agree, both sides agree, that the presentation of witnesses

10 will start on Monday, February 1, and that the selection of the

11 jury would take place the preceding week? Is that right?

12 MR. CYMROT: Starting on Wednesday, the 27th.

13 THE COURT: Is that agreeable to everybody?

14 MR. MOSCOW: Yes, your Honor.

15 MR. MONTELEONI: Yes, your Honor, jury selection

16 January 27th; opening statements and witnesses, February 1st.

17 THE COURT: I think that's really what's proposed also

18 by the defense; isn't that right?

19 MR. CYMROT: Yes, subject to our clients' approval,

20 which we don't have at the moment but that seems reasonable,

21 yes.

22 THE COURT: We heard from the jury room that they can

23 accommodate the dates we're talking about, so that's good.

24 So, to recap and repeat, jury selection will start

25 Wednesday, January 27. And in the federal court, it generally

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1 only lasts a day, so the jury will be selected on the 27th, and

2 if that spills over to the 28th, of course there's no problem.

3 And then the openings, really the commencement of the trial

4 itself, will start February 1. Very, very good.

5 If I've covered this this morning, forgive me for

6 asking for a repetition, but my notes show -- I think I went

7 over this but I'll go over it again -- that the government

8 estimates it needs two to three weeks to put on its case. Is

9 that still accurate?

10 MR. MONTELEONI: Probably more like three to four but

11 probably three weeks.

12 THE COURT: You covered that and that's fine, fine,

13 fine. Just a minute.

14 The government case might take as much as four, right?

15 MR. MONTELEONI: Yes.

16 THE COURT: How about the defense side?

17 MR. CYMROT: I don't remember what I told you before,

18 but I think, given the schedule, it will be about two to three

19 weeks.

20 THE COURT: Now, I have to have these estimates for

21 the purpose of giving information to the prospective jurors as

22 to how long they need to count on serving. What I have

23 concluded from what you've given me is that anyone serving on

24 the case needs to be able to serve seven weeks. I arrive at

25 the seven weeks by taking four weeks for the government's case

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1 and three weeks for the defense case, so that a juror needs to

2 count on serving as much as seven weeks.

3 Now, there is a motion to dismiss from the defense

4 side, which, as of today, is fully briefed. We need to set a

5 hearing date for that motion, which we'll come to in a moment.

6 Last month the parties submitted a total of 12 motions in

7 limine. After some conferencing, this has boiled down to what

8 my notes show are four motions which need to be decided before

9 the trial. The other motions in limine will be decided during

10 the trial. So, we have to set a hearing date for the motions

11 that must be decided before the trial.

12 Putting it all together, we have to have a hearing

13 date that covers the defense motion to dismiss and for the

14 motions in limine.

15 Let me work on the dating. Just a minute.

16 (Pause)

17 THE COURT: Subject to any problems you have, I would

18 set January 21 as the date with the hearing on the motion to

19 dismiss and the motions in limine that we're going to decide

20 before the trial.

21 MR. MOSCOW: Your Honor -- John Moscow -- if we could

22 make it the 20th, that would be a big improvement for me in

23 terms of what else is going on. If we can't, that is fine.

24 THE COURT: Well, I have no problem with the 20th at

25 all.

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1 Is the 20th good for you?

2 MR. MONTELEONI: The 20th is fine for the government.

3 Thank you.

4 THE COURT: All right, we'll do it the 20th.

5 MR. MOSCOW: Thank you.

6 THE COURT: 11:00 o'clock in the morning.

7 MR. CYMROT: Your Honor, if we could do it in the

8 afternoon, I can come up that morning from Washington. In

9 other words, I get here around --

10 THE COURT: Well, what time is good for you in the

11 afternoon?

12 MR. CYMROT: Say 2:00 o'clock.

13 THE COURT: We'll do it at 2:00 o'clock. We can take

14 care of it all.

15 MR. CYMROT: Thank you, your Honor.

16 THE COURT: 2:00 o'clock.

17 MR. CYMROT: Thank you.

18 THE COURT: Now, I have pending before me a request

19 from Hermitage for a certification for appeal with regard to my

20 denying the motion to disqualify John Moscow.

21 Does the government know whether you are going to file

22 anything on that matter?

23 MR. MONTELEONI: On that request, we are not. We have

24 set forth, in connection with the substantive briefing, our

25 concerns both on the issue and on the procedural uncertainties

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1 that proceeding now, while actions in the Second Circuit might

2 invalidate it, have -- we've set that out in our previous

3 letter. We think that those are real concerns, but we don't

4 intend to file anything about the requests that Hermitage filed

5 yesterday.

6 THE COURT: About the what?

7 MR. MONTELEONI: About the precise motion that

8 Hermitage made yesterday, the request for certification.

9 THE COURT: Okay, that answers my question.

10 Is there anything else to cover today?

11 MR. CYMROT: Yes, your Honor. I have two things.

12 THE COURT: Sure.

13 MR. CYMROT: We would like the government to tell us

14 whether Bill Browder will be called as a witness at trial. If

15 he's not going to be called as a witness at trial, I would

16 forego the need for his deposition. If he is going to be

17 called as a witness at trial, we would continue to pursue his

18 deposition and ask that it be scheduled.

19 MR. MONTELEONI: We will get back to counsel on that.

20 I'm not prepared to answer that right now.

21 THE COURT: Okay, they'll get back to you.

22 MR. CYMROT: All right. Can we have a deadline?

23 Because the trial is approaching. Can they tell us by Friday?

24 THE COURT: Look, the government is going to do it as

25 soon as they can.

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1 MR. MONTELEONI: That's correct.

2 THE COURT: They'll work with you, they'll work with

3 you.

4 MR. CYMROT: Okay. Thank you, your Honor.

5 THE COURT: Anything else for today?

6 MR. CYMROT: Yes. The one other thing is, we would

7 request as part of the jury process that we be permitted or the

8 Court issue a written questionnaire that the jurors have to --

9 THE COURT: I never use written questionnaires and I

10 won't start now.

11 MR. CYMROT: Thank you, your Honor.

12 MR. MONTELEONI: We have two minor points also, your

13 Honor.

14 THE COURT: Let me respond.

15 However, to me, the written questionnaires include a

16 lot of things, generally, that prove to be quite irrelevant,

17 but if there's something particular that you have in mind that

18 you want asked, please let me know, either in advance of the

19 examination of the jury or after I've concluded. I will

20 welcome your suggestions.

21 MR. CYMROT: Thank you, your Honor. We'll be

22 submitting some questions to you in advance.

23 THE COURT: That's fine. Very good.

24 MR. MONTELEONI: We have just two housekeeping

25 questions. First of all, we've agreed with defense to exchange

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1 exhibits electronically on disks in light of the volume of the

2 documents and we'll provide copies to the Court.

3 The second question is just regarding the Court's

4 practices on summations. We would request that in this case

5 the plaintiff be afforded a principal summation and a rebuttal

6 summation.

7 MR. CYMROT: Well, why would that be? That's very

8 unusual, your Honor. I'm not sure we have to decide that

9 today, though.

10 MR. MONTELEONI: Well, this is the pretrial

11 conference.

12 In some civil cases, the plaintiff gives a summation

13 after the defendant's summation but in other civil cases the

14 plaintiff gives a summation, then there's a defense summation

15 and then a rebuttal, just like in a criminal case. We think

16 that this is a very complicated case and the lawyers on both

17 sides are going to need to do a lot of work to make matters

18 comprehensible to the jury and the Court. And both sides, I'm

19 sure, are going to be putting a great deal of effort towards

20 that, but the party that bears the burden of proof should get

21 the final opportunity to address the jury. And if the

22 plaintiff just gives a summation after hearing the defense

23 summation, then things aren't going to be as clear to the jury

24 as if, just like in a criminal case, just like in many civil

25 cases, in this complicated case, the plaintiff sets out its

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1 view of what it believes the evidence proves, the defense

2 responds, and then the plaintiff, with the burden of proof,

3 gets to reply to issues raised in the defense response.

4 MR. CYMROT: Your Honor, I have been in many

5 complicated trials. I've never seen that. They get the first

6 word with the jury, which is a huge advantage, at the opening.

7 To give them the first word and the last word would be grossly

8 unfair.

9 THE COURT: Say that again, what you're saying.

10 MR. CYMROT: I'm saying that they get the first word

11 with the jury at the opening. That has a huge impact. They

12 have a huge advantage by getting the first word. If they get

13 the first word and the last word, that is clearly an unfair

14 advantage and the jury will be sitting for apparently five to

15 seven weeks. They're going to hear enough stuff, that the

16 prosecution ought to be able to sum up its case. They

17 shouldn't get the first word and the last word.

18 MR. MOSCOW: Procedurally, your Honor, if I may, this

19 is a civil case. What counsel are saying is they want to bring

20 charges that sound like they are crimes, they want to treat it

21 as though it was a crime --

22 THE COURT: Wait. I don't hear you.

23 MR. MOSCOW: I'm sorry, your Honor.

24 Counsel are seeking to have this treated as a criminal

25 case when it is a civil case. They can't have a burden of

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1 proof beyond a reasonable doubt, so they want preponderance but

2 they want to be able to sum up first and last. That is an

3 advantage that you get, as I understand it, only in a criminal

4 case, when the burden is proof beyond a reasonable doubt.

5 MR. MONTELEONI: That's not true.

6 MR. MOSCOW: This is not that case. It is grotesquely

7 unfair, and I say that I've watched a lot of trials, I've

8 participated in a lot, and the rhetorical advantages that

9 counsel seeks are, in this case, just simply improper and very,

10 very harmful to the defense.

11 MR. MONTELEONI: Your Honor, if I may respond briefly

12 to that: Counsel is giving a characterization that is just not

13 consistent with the practices of the judges of this court.

14 Recently, Judge Rakoff authorized just this procedure in a

15 complicated civil case on the grounds that it would make it

16 comprehensible to the jury. There are judges who do this

17 procedure in every civil case. When I was clerking for Judge

18 Gleason in the Eastern District, every civil case was done this

19 way. There are judges in this district --

20 THE COURT: "This way" being?

21 MR. MONTELEONI: Being that the plaintiff sets out its

22 theory in the summation of what it believes the evidence

23 showed, the defendant sets out its theory in a summation of

24 what it believes the evidence showed, and the plaintiff gets to

25 reply to issues that the defendant raises, so that the party

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1 bearing the burden of proof doesn't get a chance for the other

2 side to raise confusions that the party bearing the burden of

3 proof could address. That is a very standard procedure that

4 some judges employ, and it makes perfect sense in complicated

5 cases. My understanding is that Judge Rakoff did it in a civil

6 case even though in simple civil cases he didn't do it but when

7 he came to a complex civil case, he authorized this

8 procedure -- summation by the plaintiff, summation by the

9 defense, and a brief reply.

10 We would certainly be willing to consent that the

11 reply be short in duration. The point isn't to --

12 THE COURT: Are you talking about opening statements

13 or summations?

14 MR. MONTELEONI: In summations.

15 THE COURT: And what is your proposal?

16 MR. MONTELEONI: Our proposal is that the government

17 would give a principal summation, the defense would give a

18 summation, and the plaintiff would get a brief rebuttal that

19 could be limited in time.

20 MR. CYMROT: Your Honor, when the prosecution gets the

21 first word and the last word, it is deeply unfair to the

22 defense. And the same issues that Mr. Monteleoni raises about

23 the last word, that the prosecution can say things that we

24 can't respond to and confuse things -- and there are cases

25 based upon confusion -- is deeply unfair to the defense, to

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1 change the usual procedure.

2 THE COURT: Let's go back to opening statements. How

3 are the openings going to be?

4 MR. MONTELEONI: For opening statements, we assume

5 that the Court would follow the standard practice of the

6 plaintiff giving the opening statement first and the defense

7 giving an opening statement after that.

8 THE COURT: All right. What you're really talking

9 about is summations?

10 MR. MONTELEONI: Absolutely. I'm looking forward.

11 MR. CYMROT: I'm not sure why you need to decide this

12 now, your Honor. You can see how the trial goes and decide

13 whether there is a risk of confusion.

14 MR. MONTELEONI: That's also certainly an option.

15 THE COURT: Am I correct that the usual practice in a

16 civil case is to have the plaintiffs -- let me interrupt

17 myself.

18 What is the usual practice?

19 MR. MONTELEONI: The usual practice, among some

20 judges, is to allow the defense to make a principal summation

21 and then the plaintiff to make a principal summation. The

22 usual practice, among other judges in civil cases --

23 THE COURT: In what order?

24 MR. MONTELEONI: Sorry. So, some judges in civil

25 cases have their usual practice that for summations the defense

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1 goes first and the plaintiff goes second. Some judges have

2 their usual practice in civil cases that the plaintiff goes

3 first, the defendant goes second, and then the plaintiff gets a

4 brief rebuttal. That's what we would ask to be done in this

5 case.

6 THE COURT: What I am thinking about is, obviously,

7 what is fair to the parties but, obviously, what will be the

8 most assistance to the jury. I have in civil cases followed

9 what I thought was the usual practice, and that is, to have the

10 party with the burden of proof, meaning the plaintiff, start,

11 and then the other side go second.

12 I think that we will start with the idea of each side

13 giving one summation and we'll start with the government and

14 end with the defense.

15 Now, look, if I feel that the jury would be assisted

16 by hearing a brief rebuttal, I'll allow a brief rebuttal. My

17 concern is what will assist the jury. And that's the way we'll

18 leave it.

19 Thank you very much.

20 (Adjourned)

21

22

23

24

25

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1 UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x

3 UNITED STATES OF AMERICA,

4 v. 13 Civ. 6326 (WHP)

5 PREVEZON HOLDINGS, INC., et

al.,
6
Defendants.
7
------------------------------x
8
New York, N.Y.
9 January 25, 2017
10:10 a.m.
10

11 Before:

12 HON. WILLIAM H. PAULEY III,

13 District Judge

14
APPEARANCES
15
PREET BHARARA
16 United States Attorney for the
Southern District of New York
17 PAUL M. MONTELEONI
CRISTINE I. PHILLIPS
18 Assistant United States Attorneys

19 QUINN EMANUEL URQUHART & SULLIVAN LLP

Attorneys for Defendants
20 BY: KEVIN S. REED
ADAM M. ABENSOHN
21 RENITA SHARMA

22

23

24

25

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1 (Case called)

2 MR. MONTELEONI: Good morning, your Honor, Paul

3 Monteleoni for the government. With me at counsel table are my

4 colleague, Cristine Phillips and, with the Court's permission,

5 my extern from NYU, Sarah Higgins.

6 THE COURT: Very well. Good morning to you,

7 Mr. Monteleoni.

8 MR. REED: Good morning, your Honor, Kevin Reed from

9 Quinn Emanuel Urquhart & Sullivan here with my colleagues, Adam

10 Abensohn and Renita Sharma.

11 THE COURT: Good morning to you, Mr. Reed, and your

12 colleagues.

13 Back in April of last year this case was reassigned to

14 me from Judge Griesa for trial and all purposes at a time when

15 the government's appeal was pending in the Second Circuit. I

16 entered an order fixing this conference as soon as the mandate

17 came down from the Second Circuit. And I see that, like this

18 Court, Quinn Emanuel is new to the case.

19 Let's begin by telling me essentially what the status

20 of the proceedings are from the parties' perspective positions

21 with a view to trying to fix a trial date in this case.

22 Mr. Monteleoni.

23 MR. MONTELEONI: Thank you, your Honor. This case

24 seeks the civil forfeiture of property worth between 13 and $14

25 million and civil money laundering penalties based on the same

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1 underlying conduct, which is allegations that the defendants, a

2 set of real estate companies owning the property for which

3 forfeiture is sought, laundered a portion of the proceeds of an

4 extensive Russian fraud scheme principally into purchases of

5 New York real estate, also real estate in Germany.

6 The case has been pending for a long time but with

7 respect to the status of the proceedings a very small portion

8 of that time has actually involved active discovery as there is

9 an extensive period during which the parties had agreed to have

10 discovery on hold pending a dispositive motion filed by the

11 defendants and then pending prediscovery settlement

12 discussions.

13 So discovery commenced in this case on June 15 of

14 2015. Before then there had been two partial depositions that

15 had been taken, each in sort of unusual procedural

16 circumstances. But documents first were exchanged June 15 of

17 2015 and the parties moved expeditiously to prepare this highly

18 complex case for trial, scheduled ultimately in February. It

19 was going to be scheduled in early January, but the

20 disqualification proceedings, as a result of the prior

21 counsel's indication of their intention to accuse their former

22 client of a crime, came up very late in the proceedings.

23 So between the district court's stay and then the

24 Second Circuit's stay, the case has really been actively

25 litigated for between six and seven months. During that time

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1 the government made a voluminous discovery production,

2 including a number of foreign language documents and voluminous

3 bank records, a number of fact depositions were taken and

4 expert depositions were taken on multiple issues.

5 THE COURT: When you use the adjective voluminous, can

6 you give me some idea of the magnitude?

7 MR. MONTELEONI: That's fair. It feels voluminous to

8 us, though I'm sure courts in this district deal with somewhat

9 larger productions. The government ultimately produced about

10 221,000 pages of documents and the defendants produced about 20

11 to 30,000 pages of documents.

12 THE COURT: And with respect to those documents that

13 may be in foreign languages, have they been translated?

14 MR. MONTELEONI: Not in their entirety. The parties

15 have been preparing the translations of the portions that they

16 wish to introduce in trial. There are large volumes of foreign

17 language documents of which portions are relevant but not the

18 entirety. In particular there is about a 32,000-page Russian

19 court file of which contains a number of relevant portions and

20 those have largely been translated. There may be a few

21 additional translations that we would wish to make. But

22 translating 32,000 pages or so of Russian documents is an

23 extraordinary expense. And so the translations have largely

24 been done by this point. But they were going at a track along

25 with basically everything else sort of simultaneously. In

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1 order to compress all of this into the allotted time, facts

2 discovery bled over into the expert discovery period and indeed

3 a partial summary judgment motion was filed and briefed while

4 depositions both fact and expert depositions were taking place.

5 THE COURT: Let me interrupt you for just a moment.

6 How many depositions have you taken in the case?

7 MR. MONTELEONI: I don't have the exact number at my

8 fingertips. I believe it's around 13 to 14 fact witnesses and

9 the government is putting forth three experts and the

10 defendants put forth three experts as well, I believe.

11 THE COURT: And have all of the experts been deposed?

12 MR. MONTELEONI: Well, yes, with the exception -- with

13 a complication. In the summary judgment briefing the

14 defendants first advanced a theory that two powers of attorney

15 in Russian showed that their former prior defense counsel's

16 former client committed the fraud and thus they argued that it

17 wasn't a specified unlawful activity. As a result of that

18 theory that they advanced we had a document examiner examine

19 those signatures and very shortly before trial came forward

20 with an expert report concluding that these signatures that

21 were relied on by prior defense counsel in his opinion were

22 likely forgeries. Defense counsel at the time moved to

23 preclude that due to the lateness of the disclosure. We think

24 that there is no basis to preclude that and we have certainly

25 no objection to that expert being deposed on the opinions.

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1 THE COURT: Aside from that expert, what are the other

2 areas in which experts who have been designated by either the

3 government or the defendant? What areas are they proposing to

4 offer opinions in?

5 MR. MONTELEONI: Absolutely, your Honor. So the

6 government is offering the opinion of an expert on Russian

7 organized crime, an expert on asset tracing, and an expert on

8 money laundering. The defendants offered an expert on asset

9 tracing, an expert on money laundering, and an expert

10 putatively on real estate practices who we believe offered a

11 number of opinions on money laundering that will be the subject

12 of a Daubert motion.

13 This is a civil forfeiture case with respect to the

14 specific assets. However, the Russian treasury fraud and the

15 money laundering network that laundered those funds are the

16 subject of a criminal investigation that's also been

17 proceeding. There have been motions in which the defendants

18 objected to this. We believe it's authorized. That's the

19 subject of motions. But the criminal investigation continued

20 during the stay. So we actually obtained a number of

21 additional documents from other countries. We received

22 additional documents from other countries in the ongoing

23 investigation into the money laundering network. Pursuant to

24 our continuing disclosure obligations we plan to produce those

25 to the defendants in a few days. We expect that some of them

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1 will be relevant to this case. Some of them may not, but we

2 will be producing them in an abundance of caution. But we also

3 expect that our tracing expert has additional opinions that he

4 has been able to form by examining some of the bank records.

5 THE COURT: That have been received in connection with

6 the ongoing criminal investigation?

7 MR. MONTELEONI: Yes.

8 THE COURT: Approximately what's the volume of the

9 material that you are about to produce from that continuing

10 investigation?

11 MR. MONTELEONI: It's hard to estimate because it

12 hasn't been numbered and some of these bank records go on. We

13 think it's in the tens of thousands of pages. However, we

14 think that, you know, the expert's supplemental report, which

15 we expect to produce in a few weeks, will only be relying on

16 certain of those pages that might help the defense counsel in

17 prioritizing which pages -- what to focus on first or most.

18 Those were the principal areas that were outstanding

19 at the time of the stay, but there were a few other areas that

20 were outstanding because of the sort of simultaneous nature of

21 the proceedings. There were several depositions which the

22 parties had agreed to that were scheduled before the

23 disqualification proceedings put a stop to that. We have

24 talked to defendants about both some depositions that we wanted

25 to take and some depositions that their prior counsel had

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1 wanted to take, and they have not yet formulated a position on

2 those loose ends. But there were these loose ends with respect

3 to those depositions.

4 They also, during the stay of proceedings, asked the

5 Second Circuit to modify the stay to allow them to take an

6 additional deposition of an additional witness. That was

7 denied, but we may be able to engage with them if they still

8 want to take that deposition as well.

9 Finally, if this can be worked into a schedule that

10 works for both sides, the ongoing criminal investigation also

11 included the interviews by the Latvian police at our request of

12 several Latvians who were nominal directors or otherwise

13 affiliated with some of the companies that we allege to be

14 shell companies, and we think that one of those in particular

15 would be appropriate to take a remote deposition of, either by

16 video conference to Latvia or by traveling to Latvia. That

17 witness has expressed a willingness to testify in Latvia, but

18 not in the United States.

19 THE COURT: Is that witness a director or a law

20 enforcement individual in Latvia?

21 MR. MONTELEONI: Sorry. A director. One of the

22 nominal directors whose signature or reputedly his signature

23 appears on the foundation documents of a number of companies

24 that we allege to be shell companies and they are shell

25 companies are relevant to the tracings of the assets from them.

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1 So we believe that his testimony is material to that.

2 There were also some documents outstanding from the

3 defendants' production that we did not raise with the

4 defendants prior to this stay as a result of how fast the

5 proceedings were going. But in looking things over once the

6 stay went into place, we discovered that they actually hadn't

7 produced any documents at all from two corporate entities who

8 are part owners of the defendant companies and thus are covered

9 by our document requests. And the significance of at least one

10 of those companies, actually it turned out through depositions

11 and through some of their other discovery productions, turns

12 out to be quite significant for reasons I can explain to you

13 factually if you want to hear them now.

14 THE COURT: What companies are they?

15 MR. MONTELEONI: Sure. The two companies are called

16 IKR and Martash Holdings, and they are both companies that are

17 essentially related to the Prevezon network. The Martash

18 Holdings is a small part owner of Prevezon Holdings, the

19 umbrella company for the LLCs, and then IKR, I believe, is a

20 part owner of several of the LLCs.

21 Now, Martash Holdings in particular, they are relevant

22 not just because they are a part owner like IKR is, but also

23 some of the paperwork that the defendants submitted to their

24 bank to justify the transactions that we contend are money

25 laundering was loan paperwork that was, we believe, false, and

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1 these false loans were then transferred off the books of

2 Prevezon, which is a company in Cyprus required to keep audited

3 financial statements. They were transferred to Martash

4 Holdings, which is a British Virgin Islands company, not

5 required to keep audited financial statements.

6 We believe that the effect of that transfer was to

7 prevent any auditors from learning that these supposed loans

8 would never be paid back. So we believe that Martash Holdings

9 documents or lack of documents are actually quite relevant.

10 They are not things that we were able to prioritize during the

11 period before trial.

12 THE COURT: There were any number of motions in limine

13 that had been made just as the trial was approaching and all of

14 those motions were terminated by reason of the application of

15 the Court of Appeals. Tell me just very briefly whether it's

16 the government's intention -- and I'll ask the same of the

17 defendants -- to file similar motions or updated motions prior

18 to trial.

19 MR. MONTELEONI: Yes, your Honor. I'll speak to that,

20 but I also, there are several motion-related issues beyond the

21 motions in limine that are also outstanding.

22 THE COURT: Start where you think is most appropriate.

23 MR. MONTELEONI: The operative complaint is the second

24 amended complaint which was amended following the judge's

25 August 2015 ruling denying a motion to dismiss. It was amended

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1 in the fall alongside a number of other things. That complaint

2 hasn't yet been answered. There is a pending motion to

3 partially dismiss it as to certain specified unlawful

4 activities that are alleged to be money laundering predicates.

5 That wasn't ruled on. As a result, no verified answer has been

6 given to the final complaint.

7 There was also an issue of, one particular theory of

8 specified unlawful activity was arguably not set forth with

9 specificity in the second amended complaint because some facts

10 were developed while the motion to file a second amended

11 complaint was being briefed. That theory was then presented to

12 the court in the partial summary judgment briefing so it not

13 only has been the subject of briefing, but of evidentiary

14 production by both sides.

15 So we believe that this particular theory of a

16 particular way in which the underlying Russian treasury fraud

17 was a fraud on a foreign bank, we think that that theory is

18 subject to proof at trial under Rule 15(b)(1), as the substance

19 has already been before the parties. We have asked the

20 defendants whether they agree. If they don't, we would seek to

21 either secure a pretrial ruling from the Court that it is

22 subject to proof under 15(b)(1) or simply file a third amended

23 complaint that sets forth that final theory. But one way or

24 another, whatever happens with that, there is still a pending

25 motion to partially dismiss and a pending answer. Then I could

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1 speak to the motions in limine unless you have questions about

2 that.

3 THE COURT: Let me interrupt your presentation for a

4 moment to ask Mr. Reed whether there is any reason, if there is

5 a dispute about whether a particular theory is covered by the

6 second amended complaint, why not simply let the government

7 file a third amended complaint.

8 MR. REED: Your Honor, that gets to sort of a theme

9 that we wanted to explore this morning.

10 From our perspective, from our client's perspective, a

11 little more accurately, this case has been pending for far too

12 long. It was on the verge of trial, literally a week or so

13 away, when it got stayed.

14 What we have heard from the government, and we still

15 have some speaking to do with them because we are only at the

16 beginning of conferring, is that in a number of areas they want

17 to sort of restart or redo things in a way that we think will

18 unfairly delay the case that ought to really be tried as soon

19 as possible.

20 With respect to the specific issue you raised, the

21 third amended complaint, there is a motion for summary judgment

22 pending in which they have put forth this new theory. That was

23 denied, to be more accurate. They now want to incorporate that

24 theory into a formal pleading.

25 Our view is, it's far too late to amend the complaint

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1 in a case that was ready to go to trial a week before it was

2 stayed. It may be that they can get it in under Rule 15(b).

3 That's something we are reserving and we told them we will give

4 them a position as soon as we are able. If the law says they

5 can do it, they can do it. But from our perspective, if they

6 are not permitted to proceed on it under Rule 15, they

7 shouldn't be allowed to amend the complaint a week before the

8 trial should start.

9 It's true that the case has been stayed for a year.

10 But, again, from our client's perspective, that's time that

11 didn't really elapse because the delay wasn't their fault.

12 They didn't know that their counsel had a putative conflict.

13 We obviously weren't engaged during that, so we didn't have the

14 benefit of that here. As we see it, things should pick up

15 largely where they were at the time this case was stayed.

16 THE COURT: Let me ask you this. When are you going

17 to be ready to go to trial?

18 MR. REED: Our hope is to be ready to go to trial some

19 time either late May or June. The way we envision it unfolding

20 would be, there are several outstanding motions that the

21 government has alluded to. We would like time to basically

22 repackage those to the Court to decide what we want to advance,

23 what we won't, streamline it, make sure it's presented to you

24 in a way that gives you the necessary background to understand

25 it. We would like to file dispositive motions, including one

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1 that's pending with respect to the theories --

2 THE COURT: There are no motions that are pending.

3 All the motions were terminated when the case went up to the

4 Second Circuit. And I am going to require the parties to file

5 any motions they want to make so that I've got a clear record

6 and supply me with paper copies.

7 MR. REED: Sure. That's precisely our concept. What

8 we would like to do is file a set of dispositive motions in the

9 early March time frame, file motions in limine shortly

10 thereafter and proceed to trial hopefully in late May or at

11 some point in June.

12 The government has raised a number of issues and if

13 I'm going beyond what you want addressed at this point --

14 THE COURT: That's all right. Go ahead.

15 MR. REED: The government has raised a number of

16 issues with respect to what they perceive as outstanding items.

17 They identified these to us a couple of days ago, helpfully, as

18 we began to talk to each other in preparation for this

19 conference, and we told them we will look at them and get back

20 to them our position.

21 As an overall matter, subject to further discussions

22 with the government on some of these items, as an overall

23 matter, the view that I think we are going to take is, to the

24 extent there was discovery that had been ordered by the Court

25 that hadn't been done, let's get that done. To the extent it

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1 goes beyond that, we think it's too late. We think this case

2 should not be further delayed by discovery that they now want

3 to do, taking advantage of the stay.

4 For example, they speak about 10,000 or so new

5 documents that they discovered through a criminal investigation

6 during the pendency of the stay which they will presumably

7 disclose to us and they want us to analyze and they want to put

8 in an expert report in a couple of weeks and we will have to

9 put in an expert report.

10 From our perspective, none of that should be

11 admissible. They wouldn't have had it if the case had gone to

12 trial when it was supposed to. There is no reason to allow

13 that.

14 Similarly, on the other items, to the extent the

15 government had authorization to do it when the case was stayed,

16 we will work that out. To the extent they didn't, I think we

17 are likely to say, let's go to trial because it's not part of

18 the record and it shouldn't be part of the record.

19 We will confer with them, as I said, because there may

20 be some items that are easy enough to knock off that it doesn't

21 make sense to fight over, and we are certainly not looking to

22 delay the litigation with needless disputes. I think we need

23 to talk to them further and see what precisely they want to do.

24 But our position is going to be, ultimately, we want

25 to get this to trial as soon as we can because our client's

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1 business has been essentially shut down for a year. They are

2 laboring under the taint of allegations that they have been

3 involved or somehow tied with a massive fraud on the Russian

4 treasury, and their interests are in getting this done as soon

5 as possible. That's what we were brought on to do. We have

6 been drinking from the fire hose as fast as we can and are

7 committed to being ready as soon as we can, but we don't want

8 to be slowed down by redoing and restarting and reopening

9 discovery that we think should have been closed at the time

10 this case was ready to go to trial.

11 THE COURT: Prior to the stay, had the parties

12 exchanged witness lists for trial?

13 MR. MONTELEONI: Yes, your Honor.

14 THE COURT: And have the witnesses who the parties are

15 going to call at trial been deposed?

16 MR. MONTELEONI: Most, but not all. Some of these

17 outstanding issues were a witness that was on the defendants'

18 disclosures that they had agreed to a deposition that then just

19 didn't happen in time.

20 THE COURT: Was that the witness that the application

21 was made to the Second Circuit?

22 MR. MONTELEONI: No. That's a different person all

23 together.

24 THE COURT: Thank you, Mr. Reed.

25 Why don't you continue, Mr. Monteleoni, with your

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1 report.

2 MR. MONTELEONI: Yes, your Honor. Thank you.

3 With respect to motions in limine, we do intend to

4 file new motions in limine. We think that there are several

5 areas in which trial can be made much more orderly if they are

6 thoroughly briefed and teed up through motions in limine.

7 And just to preview, one of those areas is in the

8 matter of asset tracing. The money laundering network was

9 extremely complex and in these circumstances there are a number

10 of legal rules that govern when the government can trace assets

11 and deem assets from commingled companies or money laundering

12 companies to continue in further steps in the chain.

13 One motion in limine will I think will be on

14 instructing the jury and in barring contrary evidence that

15 contradicts these asset tracing principles. In fact,

16 defendants' tracing expert testified that he thought that these

17 principles weren't appropriate, and we think it's important for

18 a ruling where the actual appropriate principles are determined

19 by the Court in advance and no contrary evidence is going to be

20 put before the jury. That's one area that I think will impose

21 some more order on the tracing portions of it.

22 Another area is, this case presents somewhat more

23 complex authentication issues for some documents than a number

24 of cases do. A large amount of the subject matter of the case,

25 the initial fraud, took place in the territory of the Russian

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1 Federation. The Russian Federation has not granted our legal

2 assistance request with respect to this case, which is,

3 overall, covers a rather politically sensitive subject matter.

4 And there were also some witness safety concerns that

5 mean that some of the evidence will come in the form of

6 documentary evidence that we believe can be authenticated

7 through methods such as Rule 901(b)(3) or (b)(4) involving a

8 careful comparison to authenticated documents and circumstances

9 of that nature.

10 For things like that, since it's not as easy as just

11 calling the bank custodian to come in and talk about the

12 regular course of business, we think that that would also make

13 sense to be teed up through a rather lengthy motion in limine,

14 and then there are other sort of Daubert expert issues with

15 respect to some of the opinions that defendants previously

16 indicated they wanted to offer. We do envision a substantial

17 amount of motions in limine, and I think that this case,

18 perhaps more than the usual case, would benefit from thoughtful

19 presentation by the parties of them.

20 THE COURT: When is the government prepared to try the

21 case?

22 MR. MONTELEONI: If the defendants are ready to go to

23 trial in May, we can work with that. I think that would

24 require a very fast turnaround on a lot of these discovery

25 issues and I think that it could -- the problem that I foresee

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1 is, if the discovery issues then need to be litigated, I think

2 if the documents were just going to be exchanged and the

3 witnesses were going to be deposed, I would think that that

4 could all be done in time.

5 I think that if there is going to have to be motions

6 for protective orders and the like to get rulings on whether

7 this discovery needs to come out, I think that might be

8 difficult to get it done in May or early June, but we do want

9 to proceed expeditiously as well. We think that these things

10 need to be addressed so we proceed in an expeditious and

11 orderly way.

12 THE COURT: How long does the government anticipate it

13 will take to try the case?

14 MR. MONTELEONI: Our previous estimate was three to

15 four weeks for the government's case in chief. That was based

16 in part on an understanding of the previous district court's

17 length of trial day and trial week and the like. I think that

18 it would be probably on the lower end. We have tried to make a

19 conservative estimate.

20 THE COURT: Let me interrupt. On that score let me

21 tell both sides that my customary practice is to, with a jury

22 trial, bring the jury out at 10:00 and to try the case until

23 5:00 four days a week, Monday through Thursday, and to take a

24 one-hour luncheon recess from 1 to 2 and a very short

25 midmorning and very short midafternoon break. And I also

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1 insist that counsel be present as early as necessary on any

2 given trial day so that we can take up any issues that they

3 want to raise with the Court outside of the hearing of the jury

4 so that at 10:00 we bring the jury out and they listen to

5 testimony and examine exhibits. I know, from looking at some

6 transcript of these earlier proceedings, that Judge Griesa's

7 trial day was shorter than that.

8 And so against that backdrop, what is your sense of

9 the government's case? I might say one other thing on this

10 score, that my practice at trial is to have a witness called

11 only once. And so to the extent that both parties intend to

12 call the same witness, if the government calls the witness, the

13 defendants' examination of that or cross-examination of that

14 witness is not limited to the scope of the government's direct.

15 It's only after both sides have had a full and wide-open

16 opportunity to inquire of each witness that I start to limit

17 the scope of redirect and recross. And so that should be

18 hopefully a time saver for the parties as opposed to the

19 artificial constraints of having each side call some of the

20 same witnesses.

21 MR. MONTELEONI: Yes, your Honor. May I have a moment

22 to consult with cocounsel?

23 THE COURT: Sure.

24 MR. MONTELEONI: There is going to be some uncertainty

25 because there are questions about how many facts we can

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1 stipulate to with defendants. There were some discussions of

2 that ongoing that didn't make it in. And also some of the

3 motions in limine, how much of it can be disposed of in advance

4 of trial. We think two to three weeks for the government's

5 case in chief with a fairly high variance of uncertainty.

6 THE COURT: Mr. Reed, what's the defendants' view of

7 how long it will take to try the case?

8 MR. REED: Your Honor, I have to caveat it by telling

9 you that we are still really getting our hands around what's

10 involved. My sense would be that we would be looking at a

11 two-week presentation from the defendants, but it's a pretty

12 soft estimate at this point.

13 THE COURT: Incidentally, how many of the witnesses do

14 the parties anticipate will be testifying through interpreters?

15 MR. MONTELEONI: We believe that perhaps three

16 witnesses would be testifying live through interpreters. There

17 are a number of recorded depositions, some of which involved

18 interpreters, that would be presented. That would increase the

19 number by another three or four, I think.

20 THE COURT: Go ahead, Mr. Reed.

21 MR. REED: I think the majority of ours, other than

22 experts, would be testifying through an interpreter, your

23 Honor.

24 THE COURT: It seems to me that at the outset we need

25 to promptly tee up any dispositive motion either addressed to

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1 some portion of the second amended complaint or for partial

2 summary judgment. If it's largely an issue of simply refiling

3 motions with a quick update on the law, that shouldn't take

4 much time to do at all, it seems to me.

5 What are the parties' views on that?

6 MR. MONTELEONI: We don't intend to revisit the

7 district court's denial of our partial summary judgment motion,

8 so other than motions in limine, we have no motions.

9 THE COURT: What about you, Mr. Reed?

10 MR. REED: I think we need approximately four to five

11 weeks. What we would like to do is take the motion that was

12 filed with respect to the second amended complaint, kind of

13 redo it and update it. And then, in addition, there is a

14 motion that has not yet been filed, even in a now defunct form,

15 relating to the tracing of assets. That is a complicated issue

16 that we need a little time to get our hands around.

17 THE COURT: What would be the contours of that motion

18 with respect to tracing of assets? Is that an in limine motion

19 involving one of the government's experts, or what?

20 MR. REED: I think, your Honor, it may dovetail with

21 the in limine motion. I think the theory of the motion, and we

22 are still getting our hands around it, is that under applicable

23 law they simply can't trace the assets to our clients in a way

24 that they need to to establish liability. It would be in the

25 nature of summary judgment. It may be that as we make it, they

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1 will clarify it and sort of invite some of the issues that the

2 government is raising in terms of what the applicable rules and

3 law is with respect to tracing. It may be that that

4 incorporates the motion in limine that they are intending to

5 make as an opposition to our motion.

6 THE COURT: Sounds a little nebulous at the moment,

7 but let me fix a schedule and fix a schedule with a trial date.

8 Why don't you file any motion addressed to the second amended

9 complaint or for partial summary judgment by February 28.

10 Mr. Monteleoni, how much time would the government

11 like to oppose it?

12 MR. MONTELEONI: Three weeks, your Honor.

13 THE COURT: March 21 and any reply by March 28. I am

14 going to set those motions down for oral argument on April 5.

15 And what I'd like to do is see if we can't set this case down

16 for jury selection and trial beginning on May 15 with the hope

17 that we might complete the case before the Second Circuit

18 judicial conference which begins on June 7. If not, we will

19 press on. I would like to complete this case before we get

20 into the summer.

21 I would also like to fix a schedule now for motions in

22 limine. I would like to see a joint pretrial order. And I

23 think I will get you to give me a joint pretrial order,

24 recognizing that it can be subject to some modifications, but

25 get me a joint pretrial order by March 10 so that I can start

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1 to wrap my head around this case. And then I would suggest

2 that the parties file any in limine motions by March 23,

3 oppositions by April 6, replies, because of the holidays, by

4 April 18, and I can set all of those motions down for an oral

5 argument on May 3. We will make it May 3 at 11:00.

6 Obviously I agree with Judge Griesa's observation that

7 sometimes it's difficult to resolve motions in limine without

8 the context of a trial, but I'll do my best to resolve as many

9 of those issues as I can before the parties have to go into

10 jury selection and trial.

11 MR. REED: Your Honor, may I --

12 THE COURT: I'm reminded that for oral argument on the

13 motions for partial summary judgment and addressed to the

14 second amended complaint, I set it for April 5. Let's set it

15 for 10:30 on April 5 for oral argument.

16 MR. REED: Your Honor, with respect to the motions in

17 limine schedule, may I ask for just a small modification, which

18 would be rather than having replies due on the 18th of April,

19 can we do it on the 21st, at the end of that week?

20 THE COURT: Yes.

21 MR. REED: Thank you.

22 THE COURT: Now we have teed up in limine motions, the

23 dispositive motions. I would like the parties also then to

24 submit any proposed voir dire that they think is unique to this

25 case to me together with a joint request to charge. Why don't

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1 you plan to submit that by May 1 and then we can select a jury

2 on May 15. I'll undoubtedly have a final pretrial conference

3 with you right before May 15 to take up any loose ends.

4 Is this a schedule that is acceptable to the parties?

5 If you're troubled about the jury instructions, I'll move it to

6 May 9. I think that might be better. All the dust will have

7 cleared by then.

8 MR. MONTELEONI: The government can work with that,

9 your Honor. But I think that it would be helpful to set some

10 type of deadlines that would allow the resolution of all of the

11 outstanding discovery expert, etc. matters because I think my

12 concern is that if they require relief from the Court it's

13 going to be very hard to get all this done certainly by the

14 joint pretrial order date of March 10. So I don't know what

15 you're envisioning.

16 THE COURT: Get me the joint pretrial order by April

17 7. The only reason I had suggested a much earlier date is that

18 that then makes it clear to the parties what they may want to

19 be moving in limine about. But if there is a concern about

20 that --

21 MR. MONTELEONI: May I consult with cocounsel?

22 THE COURT: Sure.

23 MR. MONTELEONI: We think that we could work with that

24 for the pretrial order.

25 Could we also request that a deadline be set for

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1 discovery-related motions. Because I think our concern is that

2 defense counsel is getting up to speed on these various loose

3 ends that we believe are there and we want to make sure that we

4 can get this teed up in time that they could be resolved. So

5 we would propose February 10 would be the filing date for those

6 and then some reasonable response schedule.

7 THE COURT: Well, let's do this. Mr. Reed, do you

8 think you would be in a position in a little more than two

9 weeks from now to advise the Court by letter about any

10 additional discovery that the defendant believes is necessary

11 in order to proceed to trial?

12 MR. REED: I believe we would, your Honor. I think

13 the issue from our perspective is more likely to be precluding

14 discovery that the government --

15 THE COURT: Here is how we will handle it then. By

16 February 10 each side will submit a letter to me telling me

17 what discovery they believe they need in order to complete

18 their preparation for trial and why it wasn't previously

19 completed. And after I get those letters I will schedule a

20 conference for the following week in April to discuss it and

21 resolve it.

22 MR. MONTELEONI: Did you say a conference for the

23 following week in April?

24 THE COURT: In February. Excuse me. Submit letters

25 to me on February 10 with respect to your respective positions

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1 and then you can counter each other's letters or explain to me

2 why the other side shouldn't be able to take whatever discovery

3 they are requesting by February 15, and we will have a

4 conference in the matter on February 17.

5 MR. MONTELEONI: Thank you, your Honor.

6 THE COURT: I'll set it down for 12:00 on the 17th of

7 February. The Court and the parties will know after that time

8 what discovery the Court is going to permit.

9 When is the government going to produce again to the

10 defendants the documents that they have obtained?

11 MR. MONTELEONI: Within a week.

12 THE COURT: I am going to include that in the

13 scheduling order that I'll enter, by no later than February 1

14 the government will produce the additional documents for the

15 defendants' consideration.

16 MR. MONTELEONI: Thank you, your Honor.

17 THE COURT: When you do that, you already know which

18 documents among those your expert intends to refer to. You

19 should set that forth in a letter to counsel with the document

20 production so their focus can be directed on it and it will

21 sharpen the arguments with respect to the need for discovery.

22 MR. MONTELEONI: Thank you, your Honor. We will do

23 that.

24 THE COURT: Is there anything further that we can

25 accomplish today?

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1 MR. MONTELEONI: Nothing from the government, your

2 Honor. Thank you.

3 MR. REED: No thank you, your Honor. We appreciate

4 your time and consideration.

5 THE COURT: One last question. During the pendency of

6 this case had any references been made to Magistrate Judge

7 Peck?

8 MR. MONTELEONI: No, your Honor.

9 THE COURT: The parties should understand that

10 generally I tend to supervise any discovery disputes in my

11 cases unless I'm overwhelmed by something here, in which case I

12 wouldn't hesitate to refer it to Judge Peck, who is very

13 competent and very efficient.

14 MR. MONTELEONI: Your Honor, with apologies, there is

15 one thing that I neglected. Can we say that any issues

16 regarding the Rule 15(b)(1) or third amended complaint issue be

17 included in the February 10 letters of outstanding discovery

18 matters?

19 THE COURT: Sure.

20 Thank you very much for coming in. I'm available. So

21 if there is any issue that arises, don't wait to bring it to my

22 attention. Send me a joint letter consistent with my

23 individual practices, and we will take it up right away.

24 Thank you all.

25 o0o

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1 UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x

3 UNITED STATES OF AMERICA,

4 Plaintiff, New York, N.Y.

5 v. 13 Civ. 6326(WHP)

6 PREVEZON HOLDINGS, et al.,

7 Defendants.

8 ------------------------------x

9 February 17, 2017

12:05 p.m.
10
Before:
11
HON. WILLIAM H. PAULEY III,
12
District Judge
13

14
APPEARANCES
15

16

17 PREET BHARARA
United States Attorney for the
18 Southern District of New York
CRISTINE I. PHILLIPS
19 PAUL M. MONTELEONI
Assistant United States Attorneys
20

21 QUINN EMANUEL URQUHART & SULLIVAN, LLP

Attorneys for Defendants
22 BY: KEVIN S. REED
ADAM M. ABENSOHN
23 FAITH E. GAY

24

25

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1 (Case called)

2 MS. PHILLIPS: Good afternoon, your Honor. Christie

3 Phillips, assistant U.S. Attorney, on behalf of the United

4 States. With me is my colleague Paul Monteleoni.

5 THE COURT: Good afternoon, Ms. Phillips.

6 MR. REED: Good afternoon, your Honor, or good

7 morning. Kevin Reed from Quinn Emanuel, on behalf of the

8 defendants, here with my colleagues Faith Gay and Adam

9 Abensohn.

10 If I could, I would like to introduce our client's

11 Russian counsel, Natalia Veselnitskaya, who is with us.

12 THE COURT: Good afternoon. If she would like to come

13 up and join you at counsel table, she may do so.

14 MR. REED: Thank you, your Honor. I think she is more

15 comfortable with her interpreters next to her.

16 THE COURT: Okay. Very well. All right.

17 We have a number of discovery issues to address today.

18 I thought that the government's initial letter laid out matters

19 as they stand, and I will take them in the same order that the

20 government raised them.

21 I would like to begin with the parties with respect

22 to the government's request for the Martash and IKR documents.

23 Do you want to be heard further on that,

24 Ms. Phillips?

25 MS. PHILLIPS: Thank you, your Honor.

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1 THE COURT: If you would, I would ask each lawyer to

2 take the podium.

3 MS. PHILLIPS: Of course. Thank you, your Honor.

4 With respect to these documents, as we set forth in

5 our papers, we issued document requests in early 2014. These

6 documents were well within the scope of those requests.

7 In response, the defendants objected but did purport

8 that they would produce certain documents. It is our

9 understanding that they did not do so with respect to IKR or

10 Martash.

11 We then issued third document requests in 2015. They

12 also covered the documents that we are seeking. And those

13 were -- as a result of those, the documents were still not

14 produced.

15 Now, this is a case that involves a large number of

16 entities and a lot of issues. We did not fully --

17 THE COURT: Nevertheless --

18 MS. PHILLIPS: Understand --

19 THE COURT: Nevertheless, why didn't the government

20 challenge the defendants' failure to produce those documents

21 earlier?

22 MS. PHILLIPS: So, your Honor, we were not aware that

23 IKR or Martash had any involvement in the relevant transactions

24 whatsoever until the depositions of the three corporate

25 officers for the party defendants. In the midst of those three

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1 depositions, there were a number of material documents that

2 were produced literally in the course of those depositions. We

3 did have the opportunity to question the witnesses about those,

4 and we learned that a very important transaction involving the

5 transfer of loan agreements that are central to the case also

6 involved Martash. The loan agreements were transferred on to

7 Martash's books. So that was really the first we had heard of

8 that.

9 Your Honor, we can see that between mid October --

10 well, technically I think, discovery had already ended at that

11 point, and we do go in some length in our letter to describing

12 the really unorthodox nature of how discovery proceeded in this

13 case. But be that as it may, between October 15 and the

14 December trial date and then later the January trial date, we

15 did not make an issue of these documents. We were making an

16 issue of far more fundamental documents, like the defendants'

17 bank records and e-mails that the corporate officers had sent

18 to each other, none of which had been previously produced.

19 So we were sort of fighting fire. This wasn't a fire we got

20 to.

21 Nonetheless, we do believe that the defendants were --

22 they did violate the rules of discovery by not producing these

23 in response to our two sets of requests, and that's why we ask,

24 your Honor, at this time, particularly in light of the fact

25 that we believe producing them is not prejudicial, given the

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1 length of time we have before trial and the fact that we have

2 really limited the scope, I mean, we don't -- there could be a

3 lot more documents out there pertaining to IKR or Martash, but

4 we have limited it to just the corporate formation documents,

5 the financial statements, and documents that are pertinent to

6 the transactions, and we just don't believe that producing

7 those at this time is a prejudicial request of the defendants.

8 THE COURT: All right. Thank you.

9 Mr. Reed.

10 MR. REED: Your Honor, Ms. Phillips mentioned at one

11 point that those documents were not produced in violation of

12 rules of discovery, and that's simply not right. They made the

13 request, we objected, we were open and up front about our

14 objection, and they didn't challenge it.

15 THE COURT: All right, but aren't Martash and IKR

16 entities, aren't they shareholders?

17 MR. REED: There is a Martash entity that owns an

18 approximately 1 percent interest in the Prevezon entities; and

19 IKR, I believe, owns approximately five percent.

20 THE COURT: And so, as owners, why aren't they

21 therefore specifically referenced in the government's document

22 request that was dated two years ago, back in February of

23 2014?

24 MR. REED: Your Honor, well, they weren't specifically

25 referenced by name. There was a request in the phrase for

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1 documents from the defendants and all --

2 THE COURT: Owners.

3 MR. REED: -- owners, affiliates, shareholders.

4 THE COURT: And Martash and IKR are owners.

5 MR. REED: In a very small sense they are.

6 THE COURT: They are owners.

7 MR. REED: Yes, they own the shares that I believe

8 stated a minute ago.

9 THE COURT: So what is the volume or size of a

10 document production for those Martash and IKR documents?

11 MR. REED: Well, that's a problem, your Honor. I

12 don't know. It could be very small. It could be large. But

13 the problem is, we are dealing with overseas entities and

14 people who don't speak English; and, to go over there and

15 figure that out, is a burden. It's not as if it is a matter of

16 simply picking up the phone and calling our client down the

17 street and ask him to go in his file cabinet. If that were the

18 case -- and I think we made this clear in our response to other

19 requests -- if it was easy, we would do it. But this is a

20 burden where it's a matter of really having to deal with

21 entities overseas, with people who are not familiar with United

22 States discovery procedures, to make sure that we are doing, if

23 we are ordered to do it, the appropriately diligent search that

24 we are required, as counsel, to do. Of course we will do it if

25 your Honor directs it, but it is not simply a matter of, you

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1 know, making a couple of phone calls. It's just another task

2 that will have to be added to the long list of tasks that we

3 have to do before the May 15 trial date.

4 THE COURT: But certainly you can't argue that it

5 would be hard to locate the corporate formation documents for

6 these two entities, can you?

7 MR. REED: No, your Honor, I can't argue that.

8 THE COURT: Do you want to be heard further on this?

9 Because I think this dispute is easy for the court to resolve,

10 and I am ready to rule on it.

11 MR. REED: I don't have anything further from us.

12 THE COURT: All right.

13 With respect to the government's request for Martash

14 and IKR documents, based on what this court's gleaned from the

15 parties' letters, the government served document requests on

16 February 14, 2014, which broadly defined the term "defendants"

17 to include shareholders, owners, and beneficial owners, and

18 asked for "all documents relating to . . . entities having any

19 financial interest in or ownership share of any other

20 defendants" or all "audited or unaudited financial

21 statements."

22 These requests are phrased broadly enough to include

23 Martash- and IKR-related documents, which are entities with

24 shareholder ownership interests in the Prevezon entities. The

25 government's failure to specify the names Martash and IKR in

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1 these document requests does not mean that Martash- and

2 IKR-related documents were not requested.

3 Martash and IKR qualify as defendants as that term is

4 defined in the document request; and the specific categories of

5 documents requested -- corporate formation documents and

6 financial statements -- also fall within the ambit of the 2014

7 document requests.

8 And even after the depositions of certain Prevezon

9 officers made it apparent that Martash's role in the

10 transactions alleged in this action, the defendants didn't

11 produce the Martash or IKR documents.

12 Accordingly, because I find that this is part of the

13 defendants' continuing discovery obligations under Rule 26(e),

14 I am directing the defendants to produce those documents to the

15 government, and I will require you to produce them by March 7.

16 I will give you a couple of weeks. All right?

17 MR. REED: Thank you, your Honor.

18 May I make one clarification? There are actually two

19 Martash entities, and there has been some confusion in the

20 correspondence. I think the government is aware of this,

21 because it was testified to in deposition, but I want to make

22 sure we are all on the same page. There is a BVI company

23 called Martash International Holdings, then there is an

24 Israeli entity called Martash Holdings. The owner is the BVI

25 entity, so that's the one we will be producing the documents

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1 from.

2 THE COURT: The government is nodding its head in

3 agreement.

4 MR. REED: I saw that, and I hope it continues.

5 THE COURT: Let's turn to the second issue.

6 Ms. Phillips, is the government's request for

7 additional what I'll characterize or the government

8 characterizes as additional relevant documents?

9 MS. PHILLIPS: Thank you, your Honor.

10 As your Honor is aware, this case was stayed for a

11 year while there was an issue that went up on appeal. In the

12 course of that year, the criminal investigation, as to evince

13 that overlap with some of the events at issue in this case,

14 remained ongoing; and part of the efforts in furtherance of

15 that criminal investigation involved the requests for documents

16 overseas through the Mutual Legal Assistance Treaties, the

17 requests for domestic documents via grand jury subpoenas, and

18 in both instances those documents that were requested were bank

19 records.

20 In addition, there was a small number of documents

21 that were provided voluntarily from third-party sources, and

22 there were some documents that were attained via public

23 sources; but, just for the sake of organization, we put a Bates

24 stamp on them and made them part of a document production that

25 we made to the defendants a few weeks ago. We did that as part

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1 of our ongoing production obligations under Rule 26.

2 THE COURT: I need to get a couple of things clarified

3 first.

4 In the defendants' letter, they assert in a footnote

5 that the same assistant United States attorney who is

6 conducting the criminal investigation is also conducting the

7 prosecution of this forfeiture action.

8 First, is that true? And, if so, who is that

9 assistant?

10 MS. PHILLIPS: That is true. And that assistant is

11 Paul Monteleoni, who is here today. So to the extent your

12 Honor has any detailed questions about the criminal

13 investigation, I will certainly defer to Paul on those.

14 THE COURT: Second question, when we get into the

15 issue of these MLATs that were responded to, did the government

16 issue these MLATs, or requests for assistance, after the stay

17 was in place?

18 MS. PHILLIPS: Yes.

19 THE COURT: And approximately when did the government

20 do that and how many MLATs did they issue that are involved in

21 the documents that are here that are the subject of this case,

22 not the larger investigation, for obvious reasons.

23 MS. PHILLIPS: The MLATs that led to the documents

24 that were part of this production were produced in the spring

25 and summer of 2016. That was during the pendency of the stay.

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1 THE COURT: And when were the MLATs issued was my

2 first question, and then when were the responses received?

3 MS. PHILLIPS: So the MLATs were issued in the

4 spring -- I think I might need to defer to Mr. Monteleoni,

5 because it was part of the criminal investigation.

6 THE COURT: Please.

7 MR. MONTELEONI: Thank you, your Honor.

8 The MLATs were issued in the late spring and mostly

9 summer of 2016, and documents came in in the summer and fall of

10 2016, including some documents that came in in December; some

11 documents that came in immediately after Quinn Emanuel noticed

12 their appearances in this case, which we immediately turned

13 around and provided to the defendants; and a small portion of

14 the documents being produced actually were left over from

15 earlier MLATs that had been served in 2015, well before the

16 stay, but it took over a year to get them, because that's how

17 the process works sometimes.

18 THE COURT: And how many MLATs were issued in the

19 spring and summer of 2016 that relate to matters that are

20 involved in this forfeiture case?

21 MR. MONTELEONI: I believe it is five to seven.

22 Without a list in front of me, I don't want to be totally

23 definitive, but in that range.

24 THE COURT: All right. When the government received

25 responses to these MLATs, beginning in the summer and fall of

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1 2016, why didn't the government notify the defendant of that

2 fact?

3 MR. MONTELEONI: Well, your Honor, there are a few

4 issues.

5 First of all, in order to notify the defendant, it

6 would have to be done through counsel.

7 THE COURT: Obviously. I mean defendants' counsel.

8 MR. MONTELEONI: Right. But also the extant counsel

9 was the subject of a mandamus proceeding to disqualify on the

10 grounds that there was a strong argument, which the Second

11 Circuit agreed with, that the continued representation was

12 improper, indeed, justifying mandamus relief.

13 THE COURT: Did you notify Michael Mukasey, of

14 Debevoise, who was representing the defendant on the appeal?

15 MR. MONTELEONI: No, your Honor.

16 THE COURT: Let's get back to my question: Why

17 wouldn't you advise defense counsel that you were receiving

18 additional documents from five to seven different jurisdictions

19 bearing on this case?

20 MR. MONTELEONI: Well, it didn't seem to be relevant

21 to matters that hadn't been stayed. It seemed to be -- our

22 view was that the entire case had been stayed by an emergency

23 order of the Second Circuit and that discovery and discovery

24 communications were encompassed within that, so we did

25 certainly organize the materials so that we could produce them

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1 quite promptly upon the lifting of the stay, but we didn't view

2 further discovery communications with the other side as

3 something that should be taking place during the stay.

4 THE COURT: Did you provide those documents to your

5 expert, Mr. Rollins?

6 MR. MONTELEONI: Yes.

7 THE COURT: And did you provide them to him as you

8 received them?

9 MR. MONTELEONI: In most cases, yes.

10 THE COURT: So he was working with them beginning

11 sometime in the summer of 2016, right?

12 MR. MONTELEONI: That's true. He certainly has had a

13 lengthier amount of time on these documents, and we did that so

14 that he could provide his opinions, you know, immediately after

15 the stay was lifted, which he did. The report that he formed

16 was very voluminous. And if we had waited to provide him the

17 documents until the stay was lifted, then we wouldn't even be

18 here.

19 THE COURT: Right. You really would be back where

20 you were before the stay was granted by the Second Circuit,

21 right?

22 MR. MONTELEONI: With respect to the criminal case.

23 Now, a lot of what we have asked Mr. Rollins to do

24 hasn't just been to testify, but actually to investigate, and

25 that process of determining where the money actually went, it

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1 takes a lot of time and it generates leads, and those leads can

2 be followed up with -- followed up on, and that's what we were

3 doing. We certainly didn't think that we should introduce

4 additional delays by -- and, more broadly, these were certainly

5 relevant to this case, but they are also relevant to the

6 broader endeavor that we are engaged in of figuring out where

7 the money went and who was involved in its laundering.

8 THE COURT: Can you give me any sense of how many

9 hours Mr. Rollins has spent analyzing these documents in

10 preparation for his amended report in this case?

11 MR. MONTELEONI: I think a very considerable number.

12 I haven't been looking over those sheets in preparation for

13 this. I apologize. But I would point out that his task in

14 analyzing the documents and assessing where the money went and

15 then preparing a report about it is, in some ways, broader than

16 the task of responding to the theories that he laid out about

17 where the money went, which is a more concrete and focused

18 task, because it responds to a particular theory as opposed to

19 what he was doing involved developing what that theory would be

20 from a broader universe. However, it is certainly undeniable

21 he performed a great deal of work over a long period of time,

22 and that that contributed to our ability to produce the report

23 when we did.

24 THE COURT: If these documents are so important to the

25 case, why was the government ready to go to trial in January of

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1 2016?

2 MR. MONTELEONI: Well, the documents are certainly not

3 the sine qua non of the case where their exclusion would render

4 us unable to prove an essential element. However, due to the

5 sophistication of the money laundering network, part of the

6 government's proof requires the use of legal presumptions that

7 have been established by the Second Circuit and the other

8 circuits in various circumstances.

9 One of those circumstances that's relevant to the

10 application of these legal presumptions involves the degree of

11 coordination and interconnection between these entities.

12 That's relevant to determining whether money can be traced

13 even when a balance drops low in an account. It's part of a

14 broader scheme. And, indeed, the defense tracing expert agreed

15 with that.

16 So there is certainly some evidence that the

17 government was prepared to go to trial on and is prepared to go

18 to trial on, but the additional evidence of interconnection

19 that has been developed is very powerful and further supports

20 the government's use of these tracing principles. If excluded,

21 the government would still point to the voluminous evidence of

22 interconnection established from the landscape of documents

23 that existed before, but we believe that, since this is a truer

24 factual picture, if a more complex one, it's appropriate to

25 show that to the jury.

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1 THE COURT: The issue with respect to the additional

2 documents really dovetails, in my view, with the government's

3 request for the revised tracing report by Rollins. Let me sort

4 of bleed into that area for a moment.

5 Is there a change in the theory of the government's

6 expert from the initial report and the latest revised report?

7 MR. MONTELEONI: Only in expansion. No transfers and

8 no tracing that Rollins opined on in the original report is

9 withdrawn or removed; however, additional transfers that show

10 further degrees of interconnection and that show additional

11 transfers to a different significant recipient of the money are

12 added. So it is not a moving target so much as a growing

13 target, but it certainly has grown.

14 THE COURT: So do the new documents provide

15 fundamentally new information that alters the substance of his

16 report or is it simply adding entities that were used to effect

17 the transfer of funds?

18 MR. MONTELEONI: It is closer to the latter, with the

19 caveat that the number of entities and the degree of connection

20 between them affects the factual -- affects the picture for

21 potentially for the court's assessment of the proper jury

22 instructions and may affect the jury's assessment of whether to

23 deem certain money traced. So it is not just, Here is a

24 spreadsheet that has grown a little bigger. It is, Here is

25 additional evidence of the type of coordination that we are

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1 asking the jury to find, which they do have to find in order

2 for us to use certain theories.

3 THE COURT: It is really a very large expansion,

4 though, isn't it?

5 MR. MONTELEONI: That's true and, look, I am not

6 looking forward to making this -- to boiling it down to jury

7 components, but we have to take the network as we find it.

8 Absent a sort of artificial truncation of the transfers, we

9 have to sort of accurately represent the complexity of it. I

10 have looked at it and wished that we hadn't found extra stuff,

11 in a way; but, in another way, this is what happened, and it is

12 important, I think, that the jury know it.

13 THE COURT: I will just say that I was stunned when I

14 saw Exhibit 1 and Exhibit 2 that were attached to the

15 defendants' papers, those inscrutable charts.

16 What lawyer in his right mind would want to present

17 Exhibit 2 to a jury?

18 MR. MONTELEONI: Well, not me, and we don't -- though

19 that exhibit is a summary of his opinions, it's not something

20 that we ever envisioned showing to the jury in one go. We did

21 envision -- there are groupings and simplifications that can be

22 done that are part of the report. That's just, they obviously

23 attached the most complex one to give the court a sense of the

24 scope of the report, and that's exactly right. But we have a

25 much simpler distillation that we will then move through in a

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1 stepwise fashion and perhaps throw that slide up at some point,

2 but perhaps not. But certainly we are not going to ask the

3 jury to vote on that chart itself.

4 THE COURT: That slide reminds me of a comment by

5 General McChrystal, who once said, looking at a Power Point

6 slide, If we can understand this, we have won the war. Okay?

7 MR. MONTELEONI: That's a fair comment.

8 THE COURT: I can tell you, you are not going to win

9 the war with this slide.

10 The point is, I guess, with respect to the 47,000

11 additional documents, of which 12,000 the government believes

12 are relevant, it yields, if I am reducing this properly, it

13 takes Rollins' report from an analysis of 27 documents to 800

14 documents.

15 Do I have that roughly correct?

16 MR. MONTELEONI: I thought it was 73 to 800.

17 Although some of that 800 is just additional public source

18 documents.

19 One thing that I would -- it is a large expansion. I

20 will point out that some of the expansion involves matters that

21 I think will be appropriate, whatever happens with Mr. Rollins,

22 to summarize for the jury because it is based on documents that

23 were already produced.

24 THE COURT: But it goes from 27 entities to 102

25 entities --

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1 MR. MONTELEONI: Yes.

2 THE COURT: -- I am reminded by looking here.

3 MR. MONTELEONI: I might just add, there is one --

4 there is a small respect in which the additional documents

5 question does not overlap with the expert report question;

6 because, though small in volume, some of the pages of

7 additional documents aren't tracing related documents. There

8 are about 1300 pages of court documents that we believe are

9 almost entirely duplicative of documents that were previously

10 produced, but with higher image quality, and a couple hundred

11 pages of sundry things that are not tracing related.

12 THE COURT: I can't imagine that the defendant would

13 object to those 1200 documents that are more clearly viewable,

14 but let me just find out for one minute while we are on that

15 point.

16 Mr. Reed.

17 MR. REED: Your Honor, I can't say that we have

18 sussed them out yet, but if it is simply a matter of better

19 copies of what we already have, then no, we would have no

20 objection to that.

21 THE COURT: Right.

22 MR. MONTELEONI: I think there are a few hundred pages

23 that don't fall in either category.

24 MR. REED: Could you identify those for us -- not

25 right now -- but in a letter?

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1 MR. MONTELEONI: We will do that.

2 THE COURT: Spare your comments to counsel to when

3 this proceeding is over, all right? Just address your comments

4 to the court.

5 Anything further with respect to the documents or the

6 report?

7 MR. MONTELEONI: Not from the government, your Honor.

8 Thank you.

9 THE COURT: All right.

10 Mr. Reed.

11 MR. REED: I am just thinking where to start, since we

12 covered a number of what I was already going to do discuss.

13 I brought a large copy of the chart so that your Honor

14 could appreciate what we are dealing with here, but it sounds

15 like you have it and don't need it, but I can certainly put it

16 up for you and for you.

17 THE COURT: Part of its mystery is when it prints out

18 on 8 1/2 by 11.

19 MR. REED: Sure. If your Honor would like, I can hand

20 up the full-size copies of both, or we can leave it for another

21 day.

22 THE COURT: I will always take it, because I might

23 use it in some trial practice seminar that I give to young

24 lawyers.

25 MR. REED: With that spirit in mind, let me hand it

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1 up.

2 THE COURT: I call the creation of that kind of an

3 exhibit the product of too many lawyers involved in

4 arbitrations as opposed to jury trials, but in any event.

5 MR. REED: In any event, your Honor has hit largely on

6 the nub of this. They have produced not what is an amendment

7 of their report, but is a giant expansion of the report; and it

8 covers not only these 43,000 new documents, but their expert

9 has essentially revisited his earlier analysis to incorporate

10 this. This puts the defendants in a very difficult, if not

11 impossible, position if we are looking for a trial to occur on

12 May 15, because we most assuredly are.

13 As you sussed out through your questioning, their

14 expert had months to review this stuff to come up with this

15 analysis. We now have the same task, only we also have the

16 rest of getting the trial ready to do.

17 So we think to allow this in puts us in what is

18 largely an untenable position. And I should add that the

19 answer can't be -- or shouldn't be, I should say -- well, let's

20 delay the trial to let us do it, because we are dealing with

21 clients here who have had their assets restrained for three

22 years. It's time to go to trial and get that sorted out.

23 So when you ask the government, well, how did this

24 happen and why did this happen, what Mr. Monteleoni tells you

25 is, Well, after the stay was imposed, we continued our grand

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1 jury investigation.

2 Let me just knock out a straw man. Nobody contends

3 that grand jury materials can't be used in a civil case. They

4 make that point in their letter, and including the unauthorized

5 reply letter that they threw over the transom at 10:00 last

6 night. Nobody is arguing that.

7 We do have a serious question about whether the grand

8 jury is being used to circumvent the civil discovery process.

9 And I think the fact that they were using it to develop

10 evidence they knew would be relevant to this case during the

11 stray raises those questions.

12 Let me also be very clear -- because I know there has

13 been history on this with prior counsel -- no one is

14 questioning Mr. Monteleoni's integrity, but we think, as a

15 matter of practice, that might merit further examination.

16 The real issue, though, is does the mere fact that

17 they developed this information through a grand jury

18 examination entitle them to put it in here? And they say,

19 well, the jury needs to have the complete picture, and it would

20 be artificial to truncate the transactions.

21 Well, your Honor, discovery isn't sometimes only an

22 artificial process in that sense, because there is a time to

23 find what the facts are; and when that time is over, you go to

24 trial. And if, three weeks later, you get new evidence or we

25 are in the trial or after the trial you get new evidence,

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1 that's how it shakes out.

2 They were ready to go to trial last year on the record

3 that they had. That's what the result should be here.

4 Now, your Honor asked, is there fundamentally new

5 information or is it difficult information, and we would say

6 very much yes. Their theory has changed marginally, and I say

7 "marginally" because this is a case in which they don't have

8 any evidence connecting our clients to the fraud that allegedly

9 produced these --

10 THE COURT: Tell me how their theory is changing

11 marginally.

12 MR. REED: Their theory is changing marginally in the

13 way in which they are tracing the money. Their theory --

14 again, they have no evidence connecting us to the crime. They

15 have no evidence connecting us to the intermediate entities

16 through which the money flowed. At least we haven't seen it.

17 They haven't produced it, if it exists.

18 So their theory is, we can trace fraud proceeds -- I'm

19 sorry, theft proceeds. I keep saying fraud. I should say

20 theft. We can trace theft proceeds from the Russian treasury

21 through these hundred and something entities to you. That

22 requires us to look at each of those transactions. I will give

23 you an example of why.

24 There are two companies called Castlefront and

25 Megacom, through which we are alleged to have received about

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1 1.1 million dollars. Our expert has identified, in that

2 tracing chain, what amounts to a break where the balance in the

3 Castlefront and Megacom accounts went to zero before any of

4 what they allege to be tainted money came into those accounts

5 and then before outflows of what they alleged to be tainted

6 money went to us.

7 Now they have a legal arguments as to why that break

8 doesn't matter. We have a legal argument as to why it does.

9 But it is certainly an issue that will be presented at the

10 trial.

11 We now have to look through all of the rest of the

12 these transactions to see if there are similar breaks, to see

13 if there are similar bases upon which we can say that your

14 chain has a broken link, and that's going to be critical, as I

15 said, because that's all they have. They don't have any

16 evidence saying we knew any of this money was stolen, any of

17 this money was being laundered. They just know that we got it,

18 and they can trace it back to us. So if there is a broken link

19 in that chain, that's game over. That's why we will need to

20 spend a fair amount of time making sure we have analyzed it

21 thoroughly.

22 So if we are to do that properly, it is awfully hard

23 to see how we do it by May 15; and, as I said, the answer can't

24 be, well, let's push the trial off several months, because that

25 rewards them for basically not doing what they should have done

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1 earlier.

2 And that's again, to circle back, that's the one thing

3 we have not heard anybody explain. Why couldn't we have done

4 this earlier? They filed a complaint, and they had their case

5 agent testify, We have no evidence to support it, but we hope

6 to find some. Then they have two years to conduct discovery.

7 They claim in their letters that it was a chaotic process and

8 they didn't get a fair opportunity to do this and that, but

9 nobody ever went to Judge Griesa and said, your Honor, slow

10 down. We can't go to trial.

11 So we don't have any justification, as the case law

12 requires, as to why this discovery couldn't have been done in

13 the time allotted. All we have is, well, we happened to get

14 it, so we should be able to use it.

15 But the law doesn't support them in that. Fairness

16 doesn't support them in that. They should be made to go to

17 trial on the record that they had, and we are prepared to do

18 the same.

19 THE COURT: All right. Thank you.

20 Anything further on these points of the documents and

21 the revisions to the tracing report?

22 MS. PHILLIPS: On the points of the documents --

23 THE COURT: Sure, just if you would take the podium.

24 Thanks.

25 MS. PHILLIPS: On the points of the documents and

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1 revisions, no, your Honor.

2 The defense counsel made some other points, but we can

3 reserve responses to an appropriate time.

4 THE COURT: All right.

5 With respect to these two issues, I am going to

6 reserve decision. I expect that I will issue an order early

7 next week.

8 Let's turn to the government's request for a

9 handwriting expert.

10 MS. PHILLIPS: Thank you, your Honor.

11 I think it is helpful to start with some very

12 important context. The defendants' position regarding their

13 defensive strategy changed fundamentally -- well, excuse me.

14 We learned of the fundamental change when they responded to our

15 summary judgment motion in late November. Prior to that time,

16 and this is -- it is actually quite relevant to the issue of

17 the handwriting expert. Prior to that time --

18 THE COURT: You made that point in your papers, that

19 you only learned of it in the summary judgment context. When

20 would there have been a time when you would have learned of

21 that prior to summary judgment? Did you serve a request for

22 admission with respect to the signatures?

23 MS. PHILLIPS: Your Honor is correct that defense

24 counsel is not required to reveal their strategy to us.

25 However, here, they had publicly, in representations to the

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1 court, taken the opposite position.

2 In 2014, Hermitage Capital Management made a motion to

3 disqualify counsel; and, in doing that, they said, you know,

4 counsel was formerly our counsel. And the response from the

5 defendants was, We do not intend to accuse Hermitage or Bill

6 Browder of committing the Russian treasury fraud. We believe

7 he is innocent. Our clients are innocent. There is no

8 conflict. Things proceeded along that course, flowing from

9 that.

10 And then when they responded to the summary judgment

11 motion in late November, they said, in fact, Hermitage and Bill

12 Browder committed the Russian treasury fraud, and that is

13 central to this case. And that changed everything. It

14 inspired the new disqualification motion, which was ultimately

15 granted by the Circuit.

16 It was a fundamental shift, which, I mean, your Honor

17 is correct that they weren't required to tell us how they

18 intended to defend this case, but they expressly said that that

19 was not what they intended to do; and if they weren't going to

20 accuse Bill Browder and Hermitage Capital Management of

21 committing Russian treasury fraud, then they would never have

22 had an occasion to argue that those signatures were real. That

23 was part of the argument that they put in their brief, which

24 was new to us for the first time, because they had taken the

25 opposition position prior to that.

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1 And as soon as we received that, we sent the

2 signatures to this forensic document expert because, all of a

3 sudden, it was at issue where it had not been at issue before,

4 based upon their public representations to the court. And as

5 soon as we got that report back, we immediately gave it to them

6 and we offered up the expert for deposition -- this was in

7 January of 2016 -- and we offered them the opportunity to

8 retain their own expert.

9 There is no question that time was extremely short.

10 Time was short throughout this whole discovery process. Things

11 were being done at an expedited pace that I have certainly

12 never been a part of before, anything like that. And,

13 nonetheless, we were attempting to put in this expert

14 testimony, which we believed was extremely material to this new

15 defense strategy. And we now believe the same, and we have

16 made the same offer, that they can certainly depose Mr. Virgin,

17 that they can obtain their own expert. We believe there is

18 time to do that before May 13.

19 But we do think it is an important thing to tell the

20 jury. If they intend to say these signatures false, we believe

21 it is important that the jury hear an expert -- excuse me, that

22 they are real, we believe it is important that the jury hear

23 from an expert that they are not.

24 THE COURT: At the same time, though, the government

25 says in its papers that you have voluminous circumstantial

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1 evidence that the signatures are forgeries. Why shouldn't that

2 suffice?

3 MS. PHILLIPS: What we have, your Honor, is a lot of

4 people that will say, in the course of our business dealings,

5 these documents were never signed by us. They were never

6 signed by anyone at our direction. This was not a legitimate

7 transaction that took place.

8 We actually have no testimony about the physical

9 signatures themselves. And they intend to argue that these

10 signatories, whose testimony we have on deposition -- who, by

11 the way, their testimony was really nebulous at best -- but

12 they intend to argue that their testimony proves that they

13 actually signed these documents.

14 Again, as to the veracity of the signatures, this is

15 the evidence that the expert testimony will be the evidence.

16 THE COURT: Has your expert prepared a report?

17 MS. PHILLIPS: He has, your Honor, and it was produced

18 to the defendants last January of 2016.

19 THE COURT: Anything further on this point?

20 MS. PHILLIPS: Nothing further, your Honor. Thank

21 you.

22 THE COURT: Mr. Reed.

23 MR. REED: Thank you, your Honor.

24 Our argument here is simple. The government's

25 witnesses, who they presumably prepared prior to their

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1 deposition, who looked at these signatures and said, in sum,

2 we have no reason to doubt that we signed these, the

3 government claims some sort of surprise that they only found

4 out in summary judgment motions that the defense would argue

5 that or would use that testimony. But the testimony was there

6 as of the deposition date and presumably known to the

7 government, or should have been known to the government, before

8 the deposition.

9 THE COURT: But if the defendants are making the point

10 that the signatures are in fact authentic, then isn't signature

11 authenticity an issue that should properly be assessed by an

12 expert?

13 MR. REED: Your Honor, if it had been done properly, I

14 wouldn't have any truck with that.

15 But the argument, here, again, is there was a defined

16 time in which the parties could retain experts, submit expert

17 reports. Counsel premised their strategy on compliance with

18 those deadlines. There was no written -- there was no

19 handwriting expert at the time that prior counsel would have

20 and should have expected it. And so the government shouldn't

21 be permitted to do it now. It is no more complicated than

22 that.

23 THE COURT: But did this issue come up before

24 Judge Griesa?

25 MR. REED: This issue came up before Judge Griesa,

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1 but prior counsel had filed a motion in limine to exclude the

2 report, because it was submitted after the allotted time to

3 submit expert reports.

4 So, you are right, this is not like those other

5 documents in which we just got these. This was an outstanding

6 issue at the time Judge Griesa had the case. But the

7 outstanding issue was, should this report be preclude as having

8 been submitted out of time? And we are urging the court to

9 find that it should.

10 THE COURT: If the court were inclined to grant the

11 government's request, how much time would Prevezon need to

12 decide whether it was going to offer its own handwriting expert

13 and depose the government's expert?

14 MR. REED: I would say four weeks, your Honor.

15 THE COURT: Anything further on the handwriting expert

16 point?

17 MR. REED: No, thank you.

18 THE COURT: With respect to this issue, I am prepared

19 to rule.

20 The defendants put into issue the authenticity of two

21 signatures on corporate documents relating to the Russian

22 treasury fraud.

23 Of course the issue of whether a signature is real on

24 corporate documents in a case that alleges that sham

25 corporations laundered proceeds derived from a massive fraud in

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1 Russia is clearly relevant. And while the government

2 possesses, and I am quoting from their letter, "voluminous

3 circumstantial evidence and testimony" that the documents were

4 forged, aiding the jury in making a factual determination as to

5 the authenticity of the signatures is important, particularly

6 in this action, because that determination bears on whether

7 defendants used legitimate or sham entities.

8 The very purpose of expert testimony is to assist the

9 trier of the facts to understand, evaluate, and decide the

10 complex evidential materials in a case. Board of Education of

11 The Yonkers City School District v. CNA Insurance Co., 113 F.3d

12 654, 655 (S.D.N.Y. 1987); see, also, Federal Rule of Evidence

13 702.

14 The inquiry of whether an expert report will assist

15 the jury in deciding the issues before it is subsumed within

16 the broader relevance analysis governed by Rule 401. In

17 inquiring into the potential helpfulness of the proffered

18 expert testimony, the court can decide whether it concerns

19 matters requiring assistance to the kind of people expected to

20 sit on the jury. The evidence or testimony must assist the

21 jury to determine a fact in issue. See in re: Zyprexa Products

22 Liability Litigation, 489 F.Supp.2d 230, 282-83 (E.D.N.Y. June

23 11, 2007).

24 Here, the jury, in this court's view, would benefit

25 from expert testimony on whether the signatures at issue are

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1 authentic or forged. The authenticity of a signature on the

2 corporate documents of an alleged sham corporation is a factual

3 determination that the jury will have to make. While

4 circumstantial evidence can certainly help, an expert testimony

5 is likely to add clarity in helping the jury determine this

6 fact.

7 Further, this issue does not suffer from the

8 untimeliness argument that defendants accuse the government of

9 in other contexts here. This precise issue was left unresolved

10 last year before Judge Griesa before the action was stayed.

11 Accordingly, this court grants the government's

12 request.

13 Defense counsel is authorized to take the expert's

14 deposition, to offer an expert of their own; and, if they do

15 offer an expert of their own, to afford the government an

16 opportunity to depose that expert in advance of trial.

17 Let's turn to the last issue, the Latvian witness

18 statement.

19 Do you want to be heard on that?

20 MS. PHILLIPS: Thank you, your Honor.

21 Stanislavs Gorins, who is the Latvian witness at

22 issue here, was a director for four Estonian shell companies

23 that were part of the money laundering network. Through

24 cooperation with the Latvian government, access was obtained to

25 him in September of 2016, so that was during the pendency of

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1 the stay.

2 Mr. Monteleoni traveled to Latvia and interviewed

3 Mr. Gorins, and he testified in the course of that interview,

4 which was conducted by the Latvian police under oath, that the

5 documents that were used to form these companies, the

6 signatures on those document that are purported to be his

7 signatures were not. They were in fact forged.

8 We seek to introduce his testimony for this very

9 limited purpose, which is, to simply introduce that particular

10 statement, not for the truth of the statement, but simply for

11 the fact that it was made. Because, regardless of whether it

12 was true or not, it is evidence that these were not normally

13 functioning entities.

14 We have offered the defendants the opportunity to

15 depose Mr. Gorins. They can certainly travel to Latvia -- we

16 could also arrange it through a video deposition -- if they

17 chose to do so.

18 But our vision is not to use him broadly, only for

19 this one limited statement.

20 THE COURT: What's the purpose for which the

21 government is offering it?

22 MS. PHILLIPS: Well, your Honor, the entities that he

23 is the purported director of are part of the money laundering

24 network, and part of what we need to show is that these were

25 effectively -- or what we intend to show is that these were

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1 effectively shell corporations. These were not corporations

2 that were conducting normal business transactions such that the

3 money flowing through their bank accounts could be explained by

4 a legitimate purpose.

5 Mr. Gorins' testimony is material to that because, if

6 he were a businessman who was in Estonia, running Estonian

7 businesses, and conducting business, and money was flowing for

8 that reason, then, of course, that would be inconsistent with

9 the idea that the only purpose of these companies was money

10 laundering.

11 But offering a statement that in fact he wasn't even a

12 part of forming these entities, despite being purported to be

13 the director, shows that they were shell companies.

14 THE COURT: Can this director come and testify at the

15 trial?

16 MS. PHILLIPS: I believe that is unlikely, if not

17 impossible.

18 THE COURT: Can you enlighten me as to why?

19 MS. PHILLIPS: Again I will defer to my colleague, who

20 dealt with this last year.

21 THE COURT: Sure.

22 MR. MONTELEONI: Thank you, your Honor.

23 There are sort of a few nuances about Mr. Gorins'

24 particular role, in which entity he was the director of, which

25 papers he signed. But, essentially, they were the important

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1 papers that allowed four shell companies to transact their

2 business, and he denied doing that.

3 You know, we are not aware of authority to have the

4 Latvian government force him to come to the United States, and

5 he has not indicated a willingness. When he was asked, he said

6 that he would not travel to the United States, but he would be

7 willing to sit for testimony in Latvia, which we believe could

8 be accomplished either by a trip to Latvia or by video

9 conference.

10 THE COURT: I thought everybody liked to come to New

11 York.

12 MR. MONTELEONI: Well, Riga is very lovely in the

13 spring, I believe.

14 So we don't think that that is realistic. The video

15 deposition would be usable at trial under Rule 32, so the

16 equivalent of his trial testimony could be presented to the

17 jury. Indeed, some foreign witnesses will testify in that

18 fashion, based on the discovery that's already been conducted.

19 But, essentially, what we have been able to get is a

20 Latvian police interview, and we have optimism that we can

21 arrange a deposition, but only if it's in Latvia, because we

22 don't think he can be forced into the United States.

23 THE COURT: All right. Thank you.

24 Mr. Reed.

25 MR. REED: Let me first, I hope, dispense with the

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1 idea that just a witness statement could come in, because the

2 idea that it would not be admitted for the truth seems, to us,

3 simply to be wrong. The statement, presumably, would be he

4 forged his signatures on these documents. If that's not true,

5 it would certainly be a lot less relevance to the case. I

6 think even the government would concede.

7 The suggestion that, I guess, the government would

8 make was that if he was lying about forging the signatures,

9 that would itself be odd and probative of something, although I

10 don't know quite what. There could be any number of reasons

11 why he would claim to have forged something untruthfully to try

12 to disavow knowledge of some crime that could have nothing to

13 do with anything we are all talking about here today.

14 So particularly on the witness that they seem to be

15 identifying as a key witness, the idea that it would be just an

16 uncrossed hearsay statement in the court, I can't fathom the

17 basis for that.

18 So that brings us --

19 THE COURT: Isn't the government essentially saying

20 someone forged it, claiming it was his signature?

21 MR. REED: Yes. And he may well have reasons that

22 have nothing to do with this case to have signed it and now be

23 unwilling to admit that he signed it. I could speculate as to

24 why that might be, but I can also speculate, you know -- within

25 that speculation, there could be a hundred reasons that have

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1 nothing to do with this case. Maybe he was hiding assets from

2 his wife. Who knows?

3 So then the question is, should the government be

4 allowed to introduce this witness through a deposition in

5 Latvia requiring us to -- putting to us to the choice of either

6 taking several days out of our now less than three-month trial

7 period to prepare for and go to Latvia or to have what I think

8 everybody recognizes is the unpalatable option of taking a

9 video deposition, where we don't get to sit in the room with

10 the guy, we don't have the optics of looking at him and getting

11 a sense of who he is, being able to put documents in front of

12 him to see how he reads them. Nobody would prefer to do it

13 that way.

14 And then, on top of that, we have the same problem

15 that we do with the Rollins materials and the Rollins

16 documents, which is, why wasn't this done before? The

17 government still has not offered any reason why they couldn't

18 have found this witness before. There haven't been any

19 representations as to whether they even made any efforts to

20 find this witness before the discovery deadline expired. It's

21 another case of, well, we continued our criminal investigation

22 and we found it, so here it is. But, again, to reiterate

23 briefly what I mentioned earlier, the mere fact that they have

24 it through a criminal investigation doesn't make it fair or

25 reasonable that it gets to come into this civil case.

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1 So, for the reasons that we specify in our letter, as

2 well as those, we urge that this witness be excluded.

3 THE COURT: Anything further?

4 MS. PHILLIPS: Nothing further. Thank you, your

5 Honor.

6 THE COURT: All right. With respect to the

7 government's request to use the Latvian witness statement, this

8 court is going to deny that request for the following reasons:

9 Generally, if evidence is admissible pursuant to a

10 firmly rooted hearsay exception, it generally does not offend

11 the confrontation clause. Mitchell v. Hoke, 930 F.2d 1, 2 (2d

12 Cir. 1991). But the fact that evidence is within an exception

13 to the hearsay rule does not by itself make it admissible per

14 se. This court generally has discretion to exclude such

15 hearsay on other grounds, such as where the evidence's

16 probative value is substantially outweighed by the danger of

17 unfair prejudice. See Paolitto v. John Brown E & C, Inc., 151

18 F.3d 60, 64 (2d Cir. 1998).

19 Here, the government contends that a statement by

20 Stanislavs Gorins, a nominal director of one of the shell

21 companies that allegedly laundered funds from the Russian

22 treasury fraud, testified that his signature on the corporate

23 documents for four shell companies were forged. The government

24 seeks to admit this statement not for the truth of the matter

25 asserted, but because it is probative of something else,

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1 namely, that his disavowal of the signature's authenticity

2 bolsters the argument that the companies he served as director

3 were established under illegitimate pretenses.

4 But the purpose for which this out-of-court statement

5 is offered is not firmly rooted in the hearsay exceptions and,

6 in this court's view, the statement has a tenuous connection to

7 the purpose it seeks to serve. There are many reasons why

8 someone could say a signature is forged, one of which is what

9 the government seeks to offer it for. But because there are

10 many purposes that can be achieved through the use of such a

11 statement, there is a risk of confusion to the jury, and it

12 simply diminishes the probative value of the statement. As

13 defendants point out, the statement "those signatures are

14 forgeries," could suggest to the jury that they are sham

15 entities or it could also lead the jury to ponder all the

16 reasons why Mr. Gorins, as director of those entities, is

17 undermining their existence.

18 There are also alternative plausible means for the

19 government to establish that certain entities were sham

20 entities established through forged signatures without using a

21 weak, tenuous statement by one of the detectors. Here those

22 risks outweigh the probative value of this Latvian nominal

23 director's out-of-court statement and, in the exercise of my

24 discretion, I bar the admission of that statement at the trial

25 of this case.

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1 In any event, this witness, Mr. Gorins, was perhaps

2 not even known to the government at the time the government was

3 ready to go to trial in January of 2016.

4 So there will be no trips to Riga in the springtime

5 for a deposition.

6 All right. The only other issue that I have before me

7 at the moment involves a second deposition of Mr. Browder.

8 Is anyone present in the courtroom from Kobre & Kim?

9 No one is jumping to their feet.

10 Kobre & Kim submitted a letter seeking to make

11 additional arguments to the court. If they were here, I would

12 have heard them. Because they are not, I am going to enter an

13 order this afternoon directing Kobre & Kim to submit a letter

14 memorandum.

15 I think the way in which this should best proceed is

16 that defendant should submit a letter memorandum to the court

17 by next Tuesday as to why defendant needs a second deposition

18 of Mr. Browder, and then I am going to give Kobre & Kim until

19 next Thursday to respond to the government's letter and explain

20 why they believe that a second deposition is inappropriate.

21 For that purpose, I am going to deem Mr. Browder's attorneys to

22 have accepted service of a subpoena for a deposition.

23 So you can tee it up in a letter motion to me, and I

24 will take it on submission. And if the defendant has a

25 response to the third-party witness's letter, you can submit

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1 something next Friday.

2 I will issue a separate scheduling order after this

3 conference devoted to that, and I am instructing defense

4 counsel to notify Browder's attorneys of that schedule and what

5 the court has done here today to tee up the motion.

6 Is there anything else that the parties want to raise?

7 I hesitate to ask, but --

8 MS. PHILLIPS: Nothing further. Thank you, your

9 Honor.

10 THE COURT: Anything further?

11 MR. REED: Your Honor, just one minor matter.

12 We have a schedule right now that calls for us to put

13 in potentially dispositive motions on the 28th of February. My

14 request is that we push that from the Tuesday of that week,

15 which is the 28th, to the Friday. The government has no

16 objection.

17 THE COURT: Granted.

18 MR. REED: Okay.

19 THE COURT: Granted.

20 MR. REED: Thank you, your Honor.

21 THE COURT: All right.

22 MS. PHILLIPS: Your Honor, could we also ask that the

23 response date be pushed back?

24 THE COURT: Under the goose/gander rule, granted. I

25 will issue a separate schedule, new scheduling order on that so

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1 that it is clear on the docket, but I am not moving the oral

2 argument date unless something comes up that I have to deal

3 with. All right?

4 I want to commend the parties for the way in which

5 they have presented these disputes to the court. You all have

6 a long history with this litigation, and I thought that your

7 letters and arguments were very clear and helpful to the court.

8 So it's much appreciated, and hopefully we will continue to

9 move forward in that fashion.

10 Have a great weekend.

11 - - -

12

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14

15

16

17

18

19

20

21

22

23

24

25

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1 UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x

3 UNITED STATES OF AMERICA,

4 Plaintiff,

5 v. 13 CV 6326 (WHP)

6 PREVEZON HOLDINGS, ET AL.,

7 Defendants.

8 ------------------------------x
New York, N.Y.
9 April 5, 2017
10:34 a.m.
10
Before:
11
HON. WILLIAM H. PAULEY III,
12
District Judge
13
APPEARANCES
14
JOON H. KIM,
15 Acting United States Attorney for the
Southern District of New York
16 BY: PAUL M. MONTELEONI
CRISTINE I. PHILLIPS
17 TARA M. LA MORTE
Assistant United States Attorneys
18

19 QUINN EMANUEL URQUHART & SULLIVAN, LLP

Attorneys for Defendants
20 BY: KEVIN S. REED
ADAM M. ABENSOHN
21 FAITH E. GAY
RENITA SHARMA
22 CORY STRUBLE

23

24

25

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1 (In open court)

2 THE COURT: Good morning. Please be seated.

3 (Case called)

4 MR. MONTELEONI: Good morning, your Honor. Paul

5 Monteleoni for the government, and with me at counsel table are

6 my colleagues, Cristine Phillips and Tara LaMorte.

7 THE COURT: Good morning to you, Mr. Monteleoni.

8 MR. REED: Good morning, your Honor. Kevin Reed from

9 Quinn Emanuel for the defendants, here with my colleagues Adam

10 Abensohn, Faith Gay, Renita Sharma and Corey Struble.

11 THE COURT: Good morning to you, Mr. Reed.

12 All right. This is argument on the defendant's

13 motion. Do you want to be heard, Mr. Reed?

14 MR. REED: Your Honor, with your permission, we're

15 going to divide the argument between myself and Mr. Abensohn.

16 Mr. Abensohn is prepared to address the issues relating to the

17 SUAs, and I will speak to tracing.

18 THE COURT: That's fine. Let me say this to the

19 parties at the outset. There's been extensive briefing. I've

20 read it all. I think that it's appropriate for me to limit

21 each side to 30 minutes, and you're free to divide it how you

22 wish. All right?

23 MR. REED: Thank you, your Honor. We'll start with

24 Mr. Abensohn, if that's easier.

25 THE COURT: Great.

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1 MR. ABENSOHN: Good morning, your Honor. Adam

2 Abensohn for Prevezon.

3 We pointed out in our briefing, your Honor, that the

4 government's case agent acknowledged in his deposition that the

5 action was brought, the allegations were made, the theories

6 were asserted before any investigation. It was based on

7 hearsay accounts from Mr. Browder.

8 Now, I want to, in the way of context, explain why we

9 think that's important. We think it's important because, in

10 our view, what happened here is the government started with a

11 conclusion and they have been spending years trying to find a

12 justification. That plays out nowhere more clearly than with

13 respect to the SUA theories that they've advanced, and this

14 is --

15 THE COURT: Just at the outset, there are three

16 alleged SUAs in this case at this point in time, right?

17 MR. ABENSOHN: Technically, there's a fourth. They

18 also allege that money laundering itself is an SUA for money

19 laundering, but they acknowledge that they would be an SUA for

20 the laundering. So at the end of the day, yes, your Honor,

21 there are three.

22 THE COURT: So if this Court denies summary judgement

23 on even one of the alleged SUAs, the government would,

24 nevertheless, proceed to trial on the money laundering claim,

25 wouldn't it?

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1 MR. ABENSOHN: Depending on the outcome of the number

2 the in limine motions, your Honor, that would be true. I will

3 point out that over the course of this case, individual SUAs

4 have been stricken, where appropriate. We think that does

5 promote efficiency. Judge Griesa did that with respect to a

6 wire fraud claim.

7 And to the point of how there's been this three-year

8 search for a viable SUA, that claim got dropped. They dropped

9 the mail fraud claim. They added a fraud against the bank

10 claim as the two entities. It really has been sort of a

11 turning wheel.

12 The first of their SUAs that we discussed in the

13 briefing is this SUA concerning fraud against a foreign bank.

14 And on this one, I think it's useful to sort of start at the

15 high level because in all the briefing and all the citations

16 and everything else, it's easy to lose that there's a very

17 unnatural reading of this statute that the government wants the

18 Court to accept. The statute reaches "Fraud against a foreign

19 bank."

20 The government's theory in this case is that members

21 of what they refer to as "the organization" -- and they never

22 claim we're a part of it or affiliated with it in any way --

23 but their theory is that members of this organization filed

24 false tax claims with the Russian treasury and was paid money.

25 That's a fraud against the Russian treasury. That is not a

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1 fraud against any foreign bank, and again, that's accepting

2 their evidence in the way they describe it.

3 So how did they try to pivot, how do they try to turn

4 this corner and turn that fraud against the treasury into a

5 fraud against the bank.

6 THE COURT: What are the elements that the government

7 has to prove with this fraud against a foreign bank? Is it

8 general fraud, or does it tie to the bank fraud statute, or is

9 it something else?

10 MR. ABENSOHN: Well, your Honor, if anything, it would

11 require a greater showing than the bank fraud statute, but

12 we're happy to argue from the bank fraud statute because Shaw,

13 the Supreme Court case from last year, laid out what would be

14 required under that provision, and what it said, and I'm

15 quoting, is the scheme must be one to deceive the bank and

16 deprive it of something of value.

17 Elsewhere in the opinion, the court talked about the

18 defendant having to know that the bank held deposits and

19 misleading the bank in order to obtain those funds. So what

20 Shaw tells us and many cases before it, is what we would

21 naturally expect. In order to commit fraud against a bank, you

22 lie to that bank in order to get it to give you something.

23 That is simply not what happened here, on any reading of the

24 evidence, and certainly not on the evidence they're proffering.

25 The story they're trying to construct here is, well,

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1 the police came on site, they raided our offices, they took our

2 things. Months or years later we had to pay money in order to

3 recover the operations of the entities that were taken. Again,

4 to the natural reading point, I don't think there is anyone who

5 would be of the view that if they are raided, if their

6 materials are seized, if someone on premises is beaten in the

7 process, which is what their witnesses testify to, that that

8 entity has been the victim of a fraud.

9 That entity may have been the victim of a theft.

10 That's what Mr. Browder called it repeatedly in his deposition

11 a few weeks ago. That entity may have been the victim of a

12 robbery or an assault, but there's a specific requirement under

13 this statute, it has to be a fraud against a foreign bank, and

14 under any natural reading, that is simply not what that is.

15 Now, we featured Mr. Browder's testimony in that

16 regard in our briefing. There's other testimony in the record

17 to this point. Mr. Firestone, who was the head of the law firm

18 that was raided, testified that 20 or 25 police came on site,

19 put him and his colleagues in a conference room, went off and

20 took what they wanted.

21 Again, fraud under Shaw, under Laljie under other

22 cases we cite in our brief is lying to someone that they will

23 voluntarily give you something. That is simply not what this

24 is.

25 What the government is trying to do is to backfill

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1 that claim they brought three, four years ago with a theory

2 that just doesn't fit.

3 Your Honor, I'll move on to the second --

4 THE COURT: Before you do, this particular SUA, as

5 defined in the money laundering statute, is -- I'll quote

6 now -- fraud or any scheme or attempt to defraud by or against

7 a foreign bank.

8 So why isn't it enough to attempt to defraud a foreign

9 bank?

10 MR. ABENSOHN: There was no attempt to defraud a

11 foreign bank here, your Honor. Attempting to defraud means

12 lying to someone in the hopes they will give you something.

13 That's not what happened here either.

14 Again, these agents came on site -- crediting their

15 evidence, crediting Mr. Bradder's account, crediting

16 Mr. Firestone's account -- beat someone and took what they

17 wanted. That is not a scheme to defraud that entity. That is

18 a theft of materials possessed by that entity.

19 Also, your Honor, their witnesses testified that they

20 were never under the impression that these agents were there

21 for a proper purpose. They were never under the impression

22 that they were entitled to take anything.

23 A scheme to defraud is the same operative language as

24 was at issue in Shaw, and again, I've read the language from

25 Shaw. A scheme to deceive someone is to get them to give you

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1 something. That is simply not what happened vis-a-vis

2 Hermitage, and it certainly isn't what happened vis-a-vis these

3 HSBC entities that were a step or two steps removed. They were

4 the trustee, the manager and an investor in Hermitage.

5 At the time of this raid, your Honor, there's no

6 evidence that the members of the organization even knew those

7 banks existed in relation to Hermitage. The government has a

8 footnote in their brief saying, well, they would have learned

9 it later based on the materials they took. But at the time of

10 this raid, which is not a deception or an attempt at deception

11 in any event, there is zero evidence that they even knew HSBC

12 was on the radar. And Shaw, perhaps its most straight-line

13 ruling, is there has to be knowledge that what you're doing

14 could impair a bank. So this is simply not fraud against a

15 bank. It is any number of things, but it's not a SUA, your

16 Honor.

17 With respect to these the second of these theories,

18 and that's the transport of stolen property, first of all, we

19 argued at length that this is a domestic statute only. The

20 government never sought to refute it. I take that as a

21 concession. Counsel will correct me, obviously, if I'm wrong.

22 There's no question this is a domestic statute. It does not

23 reach extraterritorial transactions.

24 Now, in its brief, I think paragraph 150, the

25 government identifies four transfers underlying this SUA.

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1 Every one of those transfers, also undisputed, was by a foreign

2 entity, using its foreign bank account, to a foreign entity

3 into its foreign bank account. Also undisputed. These are

4 extraterritorial transactions.

5 THE COURT: But why shouldn't the Court assess the

6 presumption against extraterritoriality under the specific lens

7 of the charging statute?

8 So here, section 2314, the transportation of stolen

9 properties statute, the primary focus of which is on the

10 transportation of funds. Why doesn't that mean that

11 establishing a U.S. nexus, even through a correspondent bank,

12 might be easier to do because the use of such a correspondent

13 account makes up the crux of the charge here?

14 MR. ABENSOHN: Your Honor, respectfully, the focus of

15 the statute is not the transfer. The focus of the statute is

16 the knowing transfer of stolen funds. That is the only conduct

17 that can be reached as criminal, and the only people who are

18 purported to have had any knowledge here are people in Europe

19 and Asia, who acted with the purpose of moving money from a

20 foreign location to another foreign location.

21 There is no suggestion that the banks that used these

22 correspondent accounts to effectuate those transactions had any

23 knowledge that the funds were tainted -- again, assuming that

24 they were -- that they had any intent that would constitute

25 criminal conduct under the provision. This is no different

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1 from any number of cases, I think we cite about a half dozen in

2 our briefing, where the incidental event of a correspondent

3 transaction is not viewed as domestic conduct at all.

4 I think -- I apologize, it's either Morrison or RJR

5 who makes the point that in today's interconnected world,

6 almost inevitably, at some level, you would see something that

7 you could call domestic. But the question is, what is

8 fundamentally at issue under the statute? What's fundamentally

9 at issue under the statute is this very defendant, who acted

10 knowingly to transport illegal gains elsewhere.

11 The only people who are alleged to have had that

12 purpose are the people who moved money from places like Estonia

13 to places like Moldova. There is no evidence that anyone acted

14 with that intent vis-a-vis the United States.

15 Their own cited case, I think it's Licci, L-i-c-c-i,

16 says very clearly a correspondent transaction only constitutes

17 domestic activity if the wrongdoer is acting purposely,

18 purposely availing his or herself of a United States account.

19 Again, no evidence of that. In fact, the only thing the

20 government says to that effect, after acknowledging that

21 standard in their brief, they dropped a footnote saying, well,

22 there were so many of these correspondent transactions, they

23 must have known.

24 First of all, there weren't so many. Most of the

25 onces they point to were not related to the four transfers they

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1 have actually alleged as an SUA. But even assuming there were

2 hundreds of them, there is zero reason to think that an account

3 holder would have any conception as to their bank's

4 effectuating transactions in that way.

5 When I do a transfer with my bank, I don't know if

6 it's running through LA, Canada, Timbuktu or Moldova or

7 Estonia. And there's no reason that any wrongdoer in this case

8 could be assumed to have had that knowledge. Particularly in

9 the Second Circuit and other courts describe correspondent

10 transactions as transactions handled by a bank, basically an

11 administrative processing function, at their discretion to move

12 funds on behalf of the client. So we do view this as very

13 straight line.

14 Again, the concession that there has to be domestic,

15 the citation to Licci, which says any correspondent transaction

16 has to be purposeful, and the complete absence of evidence that

17 any such transaction was purposeful.

18 Your Honor, I'll move on to the remaining one, which

19 is the bribery of a public official and, here, there is just no

20 competent evidence to substantiate this claim. The government

21 says in their brief, in a sentence without citation to the

22 record, that they will, on numerous bases, show this payment.

23 I think it's telling that there's no citation to the record.

24 When you peel past that, what you can gather from the

25 tracing analysis is that they are depending on a series of

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1 account statements between the alleged treasury fraud and this

2 man, Mr. Stepanov, and in the middle of that chain there are

3 transfers between Russian bank accounts, Russian bank accounts

4 for which the government has no witness to certify the records

5 as genuine or authentic, Russian bank accounts where the

6 government has no certifications to authenticate the records as

7 genuine.

8 In fact, the government makes the point that they have

9 a pending motion on this in limine. They filed a 25-page brief

10 trying to come up with a basis to authenticate these records.

11 They begin that brief by acknowledging they don't meet the

12 requirements of rule 902 or 803. There is no competent

13 evidence demonstrating movement of tainted money to this man,

14 Mr. Stepanov. That's No. 1.

15 No. 2, let's assume a world where there was, what

16 their evidence is is that Mr. Stepanov, the ex-husband of the

17 tax official, Ms. Stepanova, received payments several months

18 to two years after the treasury probe. Again, crediting their

19 account and excusing the lack of competent evidence.

20 There's a saying, I'm going to get the language wrong,

21 there's a language that says don't visit the sins of the father

22 on the son. The government wants to visit the sins of the

23 ex-husband on the ex-wife. There's no reason to simply assume,

24 certainly to a preponderance standard, that payment to this man

25 months or years after the event is a bribe to an ex-wife in

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1 relation to things she did months or years earlier. It is a

2 bridge too far.

3 So, your Honor, I'll conclude where I start. This was

4 a case charged or alleged on hearsay from Mr. Bradder. It's a

5 case where the government has spent three years trading out and

6 trading in different theories of SUAs. The theories don't fit.

7 What they're describing, what their witnesses are describing

8 are not a fraud against a foreign bank. They are stuck with a

9 statute that reaches only domestic transactions, and they are

10 exactly where they started on this bribery claim, which is they

11 are relying strictly on hearsay and incompetent evidence in an

12 effort to prove their case.

13 On those grounds, your Honor, we do think summary

14 judgement is warranted, and I'll defer to the Court, of course,

15 as to whether you would like to hear the remainder of our

16 argument now as to tracing, or whether you would like to hear

17 full argument on the SUA vis-a-vis motion.

18 THE COURT: What's your pleasure Mr. Monteleoni?

19 MR. MONTELEONI: I'd be happy to respond on the SUA,

20 if that works for the Court.

21 THE COURT: That's fine.

22 MR. MONTELEONI: Thank you.

23 Thank you, your Honor. First, I just want to clarify

24 something. You know, it's not clear from Mr. Abensohn's

25 presentation, but in docket item 1, the original complaint

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1 filed on the case, it included the corruption offense and fraud

2 on a foreign bank as specified unlawful activities. Those were

3 always in the case. The shifting, the turning wheel that

4 they're talking about, what happened is in 2014, after we had

5 already filed the case, the Second Circuit decided a precedent

6 that ended up being unfavorable for our wire fraud specified

7 unlawful activity, and the judge ultimately dismissed that.

8 After that, we added transportation of stolen

9 property, and then the money laundering on money laundering

10 additional theory. During the factual investigation, we found

11 one additional way in which a foreign bank was defrauded. So

12 there has been a little built of evolution, but this idea of

13 sort of frantically backfilling a theory that we learned didn't

14 work out, is just not really what happened factually.

15 Regarding the fraud against a foreign bank offense.

16 So, first of all, the Court is exactly right, that the statute,

17 you know, reaches schemes and attempts to defraud that are by

18 or against a foreign bank. In fact, it doesn't just reach

19 those schemes. It reaches any offense involving those schemes.

20 So the Russian treasury fraud certainly involved a fraud

21 against the Russian treasury, but it also involved a fraud

22 against the foreign banks, HSBC, Guernsey Management and

23 Suisse.

24 The main way in which the deception was perpetrated,

25 we agree, that there does have to be some deception directed

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1 towards the bank, whether it succeeds or not. But the first

2 way was the pretenses that the officers seizing the materials

3 used. They didn't come in as burglars. They didn't come in as

4 robbers. If they had, if they had just come in under no

5 pretenses of authority, the responses that HSBC would have

6 taken to these actions would, naturally, be entirely different

7 and would very likely have prevented this scheme from taking

8 place.

9 The pretenses that they went under were that they were

10 confiscating materials to hold as evidence. Right? Those

11 pretenses were apparently credited by Hermitage. The next day

12 they wrote a letter saying that they believed that this was

13 related only to the one company, which was the stated target of

14 the raid. They thought that it could be cleared up.

15 And, yes, they did believe it was a form of

16 bureaucratic harassment, that there was impropriety in how it

17 was done and illegality, but what they didn't believe or

18 understand was that these materials were not going to be just

19 held in evidence. They were going to be conveyed through some

20 means to forgers, who would then effect an identity theft on

21 property that was owned by HSBC.

22 So these pretenses, they weren't just out there. They

23 actually were entirely successful in preventing the bank from

24 stopping the fraud until it had already taken place.

25 Additionally, there were other representations that

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1 were nakedly false, that were made to HSBC after it had --

2 after it had figured out a little bit of what was going on,

3 authorities said that the documents seized hadn't been given to

4 anyone. That was just false and that was directed at the bank

5 and that was material. Whether the bank would have ultimately

6 relied on it or not is not a part of the offense, as the Court

7 notes. It reaches attempts, and as the Neder case holds,

8 reliance isn't an element of criminal fraud, which we think is

9 an instructive precedent here, only materiality.

10 As long as it's material, if it had a natural tendency

11 to influence a decision maker, whether or not it is actually

12 capable of influencing them. So those flatout lies to HSBC

13 were also fraud against the foreign bank; though, of course,

14 that wasn't the entirety of the fraud scheme. This wasn't a

15 fraud scheme solely against a foreign bank. It was a fraud

16 involving a fraud or a scheme or attempted fraud against a

17 foreign bank. So that is an SUA, which we believe is properly

18 presented at trial.

19 Regarding the stolen property offense, unless the

20 Court has questions on the foreign bank offense, I'd like to

21 move on to extraterritoriality. As to that, as the Court

22 noted, in analyzing whether a statute is being given

23 extraterritorial effect in any particular instance, you look to

24 the focus of the statute. I think that the arguments that the

25 focus is on anything other than the transaction really don't

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1 hold water.

2 It's quite plainly a transaction-focused statute, and

3 I just want to breakdown something important about each of

4 these transactions. If you'll note, in our briefs we mention

5 two United States banks were involved in passing the wires

6 through the United States. So what that means is there was a

7 foreign to U.S. transfer to the first bank, then a U.S. to U.S.

8 transfer from the first to the second bank, then a U.S. to

9 foreign transfer by the second bank. So this quick series of

10 transactions all done in a day is plainly domestic.

11 With regard to the intent, you know, I think that, as

12 a general matter, the knowledge that is required by criminal

13 statutes usually doesn't extend to the jurisdictional --

14 portions of the jurisdictional elements. So for Hobbs Act you

15 have to intend to rob someone, but you don't need to understand

16 the ramifications of it on interstate commerce necessarily.

17 But even if the intent requirement did apply here, the evidence

18 is quite clear that these were very sophisticated money

19 launderers. The 40 transactions, that was just over a

20 three-day period that cleared through the U.S.

21 THE COURT: On the purposeful note, does the use of

22 the correspondent banks have to be?

23 MR. MONTELEONI: That's a great question because

24 defendants actually have introduced an ambiguity by talking

25 about the Licci case. There were two Licci cases decided by

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1 the Second Circuit. The purposeful availment language that

2 they cite is from the 2013 Licci case. That talks about the

3 New York long-arm statute, where you only have personal

4 jurisdiction for a civil suit in New York if they've

5 purposefully availed themselves.

6 Now, that's not the test for extraterritoriality. The

7 test for extraterritoriality comes in the 2016 Licci opinion,

8 and there, the question is, does it touch and concern the U.S.?

9 That is the sort of, does actions relevant to the statutes

10 focus, did they take place in the U.S.? That standard doesn't

11 talk about purposefulness.

12 Purposeful availment is just a New York long-arm

13 statute phrase that's inapposite here because it's not really

14 the inquiry before the Court. We do think, though, that

15 sophisticated money launderers who are doing dozens of

16 transactions a week in U.S. dollars have an understanding that

17 those dollars are cleared and involving the U.S. I don't know

18 if they know what district, but that's a reasonable inference.

19 But in any case, purposeful availment is really not the

20 standard before the Court here.

21 And then, unless the Court has other questions --

22 THE COURT: Yes. Does the defendant or the

23 defendant's bank need to use the corresponding bank

24 purposefully?

25 MR. MONTELEONI: Well, we think that the -- so we

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1 don't think that either of them have to use it purposefully in

2 the sense that the defendants do. We think that one person has

3 to cause the transfer knowing or being willfully blind to the

4 fact that it involved stolen property. But it could be anyone

5 who's involved in the transactions, and we do think that the

6 natural person -- that the natural people for that are

7 affiliated -- would be the people affiliated with the company,

8 the customers.

9 However, we think that just simply looking at the bank

10 accounts of those customers, the inference that they're going

11 to -- that it's going to be foreseeable to them that U.S. banks

12 are going to be involved in this volume of U.S. dollar-clearing

13 transactions, which they're clearly familiar with, is a

14 reasonable inference even if purposefulness was the inquiry.

15 THE COURT: All right. Do you want to move to the

16 foreign corruption?

17 MR. MONTELEONI: Moving on to the foreign corruption

18 offense. Defense counsel directed his remarks particularly to

19 the allegations of the kickback as to Vladen Stepanov. Now,

20 Vladen Stepanov is, in one sense, the ex-husband of Olga

21 Stepanova. Their source for that is a footnote in an

22 investigatory report that we have a motion in limine pending

23 about whether that should be admitted fully in evidence.

24 They, themselves, relied on that footnote about the

25 marital status of Vladen Stepanov, but if you expand the

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1 footnote and read everything that's in it, it's actually rather

2 complicated. They got a court order for divorce in 1992, but

3 they didn't actually give it affect by registering it until

4 2010. They also traveled together and resided together during

5 this time period, and that's all just rule of completeness

6 stuff on the material that the defendants themselves cited.

7 THE COURT: Does this foreign corruption SUA have to

8 be analyzed under Russian law?

9 MR. MONTELEONI: Whether or not there was a criminal

10 offense has to be analyzed under Russian law, but whether it

11 involves bribery of a public official or theft,

12 misappropriation or embezzlement of public funds by or on

13 behalf of a public official is just a matter of interpreting

14 the text in the money laundering statute.

15 And here, there's really no dispute that article 159

16 of the Russian Criminal Code was violated by the fraud. The

17 dispute is whether the particulars of the way in which it was

18 violated come within that language in the money laundering

19 statute or in the foreign bank language in the money laundering

20 statute. So we think that this is a U.S. law question about

21 events that took place in Russia.

22 So about the marital status, the defendants themselves

23 are citing a document that says their marital status actually,

24 status is more like it's complicated than divorced. And, you

25 know, in addition, we actually have the marital registration

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1 document, which is a foreign public document bearing a stamp.

2 We don't have a chain of custody authentication for it, but

3 when we offer it at trial, the jury will be able to make

4 comparison to nonpublic information on that. And under rule

5 9033, those documents can be deemed self-authenticating in the

6 absence of a certification, if there's opportunity to inspect

7 and a genuine question about their authenticity. We don't

8 really think there's a genuine questions about these facts

9 about their marital status.

10 THE COURT: This is all really subject to a motion in

11 limine, isn't it?

12 MR. MONTELEONI: Yes. Yes, that is.

13 Even if we were to assume for the purpose of this

14 motion that everything in that motion in limine was going to be

15 decided adversely to us, and Stepanov would have to be deemed

16 just the ex-husband of Stepanova, there's still ample evidence

17 both that that payment to the ex-husband was a kickback and

18 also that there's non-kickback evidence of corruption.

19 THE COURT: Assuming for a moment that the government

20 were to lose its motion in limine --

21 MR. MONTELEONI: That's correct.

22 THE COURT: -- how is a kickback to a Russian

23 official's ex-husband a benefit to the Russian official

24 herself?

25 MR. MONTELEONI: Well, it would require the jury to

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1 make the circumstantial inference that, though divorced, they

2 shared enough of a personal connection that the tax official

3 would enjoy some of the benefit. And some of the circumstances

4 would involve the fact that two of the tax official's deputies,

5 Elena Anisimova and Olga Tsareva, also received payments in

6 very close proximity from very similar -- from accounts that

7 are in the chain to Vladen Stepanov?

8 So that is two people who worked for the tax official.

9 Then there's also the extraordinarily suspicious circumstances

10 of what the tax official did. She received refund applications

11 on Friday, December 21st, and Monday, December 24th, Christmas

12 Eve, claiming over a hundred million U.S. dollars' worth in tax

13 refunds. The only documentation of these refund applications

14 are one-page letters, and she instantly approved those on

15 December 24th of 2007.

16 This is at a time when there had been criminal

17 complaints made to law enforcement authorities in Russia about

18 the companies, about the theft of the identities of the

19 companies that were requesting the refunds, and this comes in

20 the circumstance where the only reason that these companies

21 were even submitting their tax materials to Olga Stepanova's

22 own tax office is because once the companies were in the hands

23 of the fraudsters, they changed the registered address to bring

24 it within that territorial jurisdiction.

25 So there's really ample evidence that that isn't a

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1 series of coincidences. That is an obvious, purposeful setup

2 to get these facially insufficient applications into the hands

3 of someone who you know will approve them. And the payment to

4 the ex-husband and the obvious facts that you're not going to

5 do something like that for free, easily permit the

6 circumstantial inference that it was a kickback to Stepanov.

7 But even if there was no kickback, those circumstances

8 that I've just described about the tax official's role are

9 themselves evidence of embezzlement or misappropriation or

10 theft of public funds by or for the benefit of the public

11 official because Stepanova, as a public official, was

12 instrumental in this just really facially invalid instantaneous

13 approval of the refunds.

14 And then there's also evidence of the participation of

15 law enforcement in this, in that there are repeated

16 typographical errors in the materials the fraudsters used that

17 sort of show they had to be working off of the seized

18 electronic copies of the company charters that were in the

19 possession of Russian law enforcement. So that also would

20 involve fraud where a public official is participating in the

21 theft or embezzlement of public funds. So it is by a number of

22 people in that case, but including a public official. So we

23 think that there's ample evidence to bring this specified

24 unlawful activity to the jury as well.

25 THE COURT: All right. Thank you.

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1 MR. ABENSOHN: May I, your Honor?

2 THE COURT: For a moment, sure.

3 MR. ABENSOHN: Thank you, your Honor. I will try to

4 be targeted, your Honor, of course.

5 First, with respect to the fraud against a foreign

6 bank, I heard counsel acknowledge that it has to be a deception

7 directed against the bank. What he pointed to was this

8 pretense of the authorized raid. There are at least three

9 reasons that is not a deception directed against the bank.

10 First of all, the government never responded to my

11 point that they have no evidence that the people who conducted

12 this raid were even aware of HSBC's connection to Hermitage at

13 the time of that raid. Shaw says, deception, the person doing

14 the deceiving, has to know that it's directed to a bank. There

15 is no evidence of that, your Honor, even accepting the

16 representation that this was a, quote, unquote, deception.

17 No. 2, it was not a deception. Counsel talked about

18 Hermitage's people accepting the truth of this. In fact,

19 Mr. Firestone testified that the second he saw this warrant, he

20 believed it was not valid. Mr. Browder testified that he, too,

21 understood that it was not valid. And as far as the idea that

22 the police used this raid in order to lure them to voluntarily

23 give them materials, which is what Shaw calls fraud, also

24 contradicted by the testimony.

25 The testimony was clear that these officers did not

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1 come on site and say, hey, we're authorized, would you give us

2 X? What the testimony by Mr. Firestone and Mr. Bradder was was

3 that these officers came on site, put people in a room, beat

4 one of them, went off on their own and took what they wanted.

5 Again, we can be in the weeds and we can trade cases and record

6 cites, but on any natural understanding, when corrupt police go

7 on premises, beat people and take things, the people have not

8 been defrauded. They have been robbed, assaulted, thieved.

9 They have not been defrauded.

10 With respect to the transfer of stolen properties,

11 counsel said no one has to have the purpose of going through

12 the United States. Licci says the exact opposite. Licci says

13 it is not domestic unless there was a purposeful availment of

14 the United States. That is the law of the Second Circuit and,

15 logically, it must be a law.

16 When there's a raft of cases out there that reject the

17 notion that a correspondent transaction makes something

18 domestic, the underpinning for that is that an incidental

19 correspondent transaction, or in the language of the Turner

20 decision we cite, an incidental ricocheting through a

21 correspondent account does not create a domestic link. That is

22 Licci. That is a half dozen other cases that we cite in our

23 brief, your Honor.

24 As far as this idea that these are sophisticated

25 launderers and of course they knew, this is just mountains of

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1 speculation on speculation. They haven't identified one of

2 these supposed launderers. The only thing we know for sure is

3 that it wasn't us. The government has said repeatedly that we

4 were not the people behind these transfers out of Europe or

5 behind the tax fraud. That's all we knew for sure.

6 As far as the idea that there were these, you know,

7 James Bond villain types in Europe who knew that their banks

8 were using correspondent transfers is nonsense. Turner talks

9 about this too. Turner talks about banks doing this thousands

10 of times, sometimes to the U.S., sometimes somewhere else. The

11 Second Circuit case we cite points out that this is a decision

12 by a bank.

13 There's no reason to assume -- and make no mistake,

14 the government is asking the Court to assume -- that the people

15 who did this had any understanding, much less purpose, that

16 their transfers were going to be routed by their banks through

17 U.S. correspondent accounts.

18 With respect to a question your Honor raised, which

19 is, does Russian law apply? Counsel said it applies to the

20 first half, which is their crime. It doesn't apply to the

21 second half. We actually cite a case in our opening brief that

22 says it applies to the second half.

23 Respectfully, your Honor, the government has not even

24 made an effort at that showing, no Russian law expert, no

25 citation to Russian statute, no presentation at all saying

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1 that -- put aside U.S. law, no presentation at all that in view

2 of the Russian legal system, you have committed fraud against a

3 foreign bank when you violently raid their offices. No showing

4 at all.

5 Then your Honor asked the question, well, if the

6 government loses the in limine, how would you show that the

7 payment to the husband is a bribe to the ex-wife? Actually, if

8 the government loses the in limine, and I don't think they

9 would disagree with this, they can't show the payment. If the

10 government loses the in limine, the bank records that

11 purportedly show the progression of the tainted funds to

12 Mr. Stepanov aren't in and the payment isn't proven.

13 As far as all the other -- I apologize for being

14 pejorative, but all of the other dust that went in the air

15 about their relationship, if your Honor is wondering how this

16 is going to be proven, I was wondering too. There was this

17 mention that their status was complicated, as if we're in

18 Facebook territory.

19 We don't know these people. Neither one of them is a

20 witness. There is no witness in the case who knows either one

21 of them. What there is is this human rights report that talks

22 about them, which is just a patently hearsay document that will

23 not be admissible at trial. This entire discussion of their

24 relationship and whether they split in '92, like that report

25 says, or whether they stayed together through 2010, like this

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1 unauthenticated marriage certificate says, this is air. We

2 have no idea and the government has no competent evidence to

3 make up this claim, your Honor.

4 If there aren't further questions, I'll defer now to

5 Mr. Reed.

6 THE COURT: All right. Mr. Reed, let's turn to the

7 tracing.

8 MR. REED: Your Honor, it seems to be my lot here to

9 hand up charts, and so if that's all right, I'll hand up the

10 tracing map which is the operative one that you'll be working

11 off of here, if that's okay.

12 THE COURT: Sure.

13 MR. REED: Your Honor, two things are undisputed with

14 respect to the tracing issues in this case. First is the

15 government is relying entirely on legal assumptions for its

16 tracing case. It is relying on the Banco Cafetero assumptions,

17 and it is relying on what is referred to as the facilitation

18 principle, by which funds intentionally -- clean funds

19 intentionally commingled with dirty funds become subject to

20 forfeiture.

21 The second undisputed thing is that there is no

22 evidence whatsoever connecting any of the intermediate

23 companies in the tracing chain to the Russian treasury fraud.

24 No evidence that they were participants in that fraud. No

25 evidence that anybody connected with those companies was a

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1 participant in that fraud. No evidence that any of those

2 companies or anybody connected with them even knew about fraud.

3 What I'm referring to here are all the companies on

4 the chart I've handed you, which is the Exhibit A to the

5 government's -- to the report of the government's tracing

6 expert, Mr. Rollins, this is the map through which the

7 government purports to trace the proceeds, the 1.9 million of

8 proceeds from the Russian treasury fraud down to Prevezon at

9 the very bottom. You'll see that there are 27 companies

10 between the Russian treasury and Prevezon on this chart.

11 Crediting, for purposes of summary judgement, that the

12 top three who directly, according to the government's

13 allegations, received proceeds from the Russian treasury,

14 crediting that those may have had some knowledge of the Russian

15 treasury fraud, there is literally not a shred of evidence in

16 the record that any of the 24 companies below that, between --

17 leading to Prevezon, had any instance of being aware of or were

18 participating in the Russian treasury fraud. And I'm not even

19 counting the three to the side on the left when I talk about

20 that.

21 The consequence of those two things is that the

22 government's tracing analysis fails because the tracing

23 assumptions it depends on don't apply in the absence of some

24 evidence connecting the accounts through which it purports to

25 trace the funds to the wrongdoing that allegedly generated the

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1 proceeds being traced. We have challenged the government on

2 numerous occasions to point to a single case in which the

3 tracing assumptions were applied in that sort of circumstance.

4 Again, in the circumstance where the accounts through which the

5 money is being traced are not in any way connected to the

6 wrongdoing or the wrongdoers that generated the proceeds.

7 THE COURT: Is it the expert's job to include in his

8 analysis that Prevezon or people connected to Prevezon or

9 people involved in or connected to the Russian treasury fraud

10 knew and authorized the funds?

11 In other words, you seem to suggest in your argument

12 in your brief that the report is lame because it doesn't show

13 intent. How can an expert opine on intent?

14 MR. REED: He can't, your Honor, precisely, but that's

15 all the government has in this case. The expert, Mr. Rollins,

16 did an analysis in which he looked at the universe of

17 transactions involving these 27 companies, and a number of

18 other companies. He looked at all the transactions they

19 conducted during what the government identified is the relevant

20 time period.

21 Out of all of those transactions, thousands of them,

22 he identified a subset that he said looked like money

23 laundering, and for reasons we've described in the briefs and I

24 can get into, that alone is a problem because you can't

25 identify money laundering simply because it looks like money

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1 laundering without any evidence that somebody intended to

2 launder money.

3 THE COURT: But can't experts rely on things like

4 structure and characteristics of a transaction in making

5 assumptions?

6 MR. REED: Sure. They can, but what has to come into

7 the process at some point is evidence that the people

8 conducting the transactions, that appear in the expert's view

9 to look like money laundering actually intended to launder

10 money, and that's what the government lacks here.

11 Now, as we point out in our brief, the reason we say

12 that Mr. Rollins' report is lame, to use your word, is that he

13 not only says these transactions bear indicia of money

14 laundering, he then, on that basis alone, concludes that what's

15 being laundered are proceeds of the Russian treasury fraud.

16 And that's a link, as your Honor is pointing out, he's simply

17 not qualified to make.

18 The government's job is to make that link through

19 evidence to show that the people who are supposedly conducting

20 these transactions that look like money laundering intended to

21 launder the treasury fraud proceeds.

22 Now, that scenario typically comes up in -- the intent

23 question comes up in drug cases, where there's evidence that

24 money is laundered, and then the government supplements it with

25 evidence that the person doing the laundering was involved in

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1 the drug transaction, was a friend of the guy doing the drug

2 transaction, or had some basis to know and understand and

3 intend that what he was doing with these suspicious-looking

4 transactions was laundering drug proceeds.

5 But what we have here are a group of companies, where

6 we don't know the names of the people who run them, we don't

7 know what they do, we don't know what they thought. There's

8 simply no evidence that any of those folks intended to pass

9 proceeds of the Russian treasury fraud on down the chain.

10 That's the evidence the government doesn't have and, frankly,

11 can't have.

12 So essentially you're left with, as we point out in

13 our reply brief, you're left with a circumstance in which the

14 government's position here is to ask the Court, or a jury, to

15 simply deem $1.9 million of Russian treasury fraud proceeds to

16 have made their way from the treasury through 27 companies to

17 Prevezon without anybody intending for that to happen.

18 That simply doesn't make logical sense on a

19 superficial level, but when you look at the tracing assumptions

20 in Banco Cafetero and the subsequent cases, it doesn't make

21 sense from a legal perspective either. Because the reason for

22 those presumptions is to circumvent or thwart bad actors who

23 intentionally try to use good money for confusing transactions

24 to hide the nature of the criminal proceeds.

25 These tracing presumptions allow the government to cut

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1 through that and say, if we have proof that you have bad money

2 and you're tying to transact in it or you're trying to hide in

3 it, we're not going to put the government to the burden of

4 having to figure out which specific transaction you used to do

5 that. Once we know that you put bad money into your pipeline,

6 we're going to be able to take any transaction that you

7 conducted, speaking hypothetically, obviously -- I mean

8 hyperbolically. We'll be able to take any transaction that you

9 conducted and deem it money laundering.

10 But there's no logical reason for that to apply when

11 the persons doing the transactions aren't alleged, much less

12 aren't proven by evidence, to have known they were dealing with

13 the funds that are alleged to have been laundered or of the

14 crime that generated those funds. You can be left -- there's

15 simply just no meaningful sense in which proceeds of a crime

16 that pass through six layers or seven layers, as is the case

17 here, with companies having no connection to the crime, can be

18 meaningfully considered to be proceeds of that crime anymore.

19 A good example --

20 THE COURT: This branch of your motion, while styled

21 as summary judgement, struck me as really making arguments that

22 one would make in a motion in limine to exclude the report of

23 Rollins' testimony. But am I correct there's no motion in

24 limine that's been filed with respect to Rollins?

25 MR. REED: There's no motion in limine that's been

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1 filed with respect to Rollins, your Honor. The reason for that

2 is because the government's problem, as we view it, is bigger

3 than Rollins. They just simply have no evidence. Rollins, as

4 we demonstrated in our opening, Rollins can't provide the

5 evidence, as your Honor has pointed out. He can't provide to

6 evidence connecting these companies to the Russian treasury

7 fraud or suggesting they laundered it.

8 The government has never, at any point in the process,

9 proffered any other evidence that it has, and they stipulate

10 that an element of every claim they have to prove is that what

11 Prevezon laundered were proceeds of the Russian treasury fraud.

12 It is an element in every one of their claims to show that the

13 money that Prevezon laundered derived from the Russian treasury

14 fraud, and they just simply have no evidence of that.

15 And that's why we refer to the Rollins report as what

16 they have put forward as perhaps a basis to supply that

17 evidence. It can't, and they simply offered nothing else. So

18 there's a complete absence of evidence on a fundamental element

19 of each of their claims. That's why we styled it as a summary

20 judgement.

21 THE COURT: All right.

22 MR. REED: Now, if you look at the tracing chart, I

23 just want to provide an illustration and then I'll conclude

24 because I know your Honor has been patient with us. If you

25 look at StarMix, which is in the gray box of the chart on the

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1 left side. They allege, if you look at the arrow above

2 StarMix, the $25 million in Russian treasury proceeds go out --

3 I'm sorry, come into StarMix. Are you following where I am?

4 THE COURT: I am.

5 MR. REED: And then you'll see there's an arrow

6 indicating $225 million of proceeds come out. Now, the first

7 problem there is with the inflation of 25 million to 225

8 million. That's the government trying to apply the

9 facilitation principle, which says if you put $25 million of

10 proceeds into an account that holds other money and you

11 commingle it for the purpose of disguising the proceeds, then

12 the whole pot becomes tainted. That's a principle of law we

13 don't take issue with.

14 The problem, though, is the government, again, has no

15 evidence that StarMix intended to launder any money, much less

16 the Russian treasury fraud proceeds. So they have no basis to

17 inflate the 25 million to the 225 million.

18 So put the issue of whether the 25 can magically

19 become 225 aside. The other problem, and the one that really

20 goes to the main thrust of the argument here, is that during

21 the same period that the 225 million came out of StarMix, the

22 government's records show that 394 other million dollars came

23 out of that account and went to other parties.

24 Now, the government, using these assumptions, just

25 simply decides to deem the $225 million that went to Elenast in

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1 their tracing map as proceeds. And that, again, could make

2 sense if there was evidence that StarMix knew it was dealing in

3 tainted funds and the government would then be able to decide

4 which of the transactions involved the tainted funds.

5 But here, where there's no connection of StarMix to

6 the Russian treasury funds, there's simply no basis upon which,

7 no logical basis, no reasoned basis upon which the government

8 can simply assume that the proceeds were reflected in the $225

9 million, as opposed to the 394 other million dollars that went

10 out. And again, that's assuming there are proceeds at all.

11 It just goes to the point that I started with, which

12 is that by the time you get through seven layers of companies

13 having nothing to do with the crime, there's just no meaningful

14 sense in which any of it can be deemed to be proceeds, or no

15 justification for assuming, allowing the government to pick and

16 choose which transactions down this chain of unrelated monies

17 should be deemed fraud or proceeds.

18 That's the gist of it, your Honor. If you have any

19 further questions, I'm happy to address them.

20 THE COURT: Thank you, Mr. Reed.

21 Mr. Monteleoni?

22 MR. MONTELEONI: Thank you, your Honor. So we think

23 that the defense counsel has, I think, introduced a lot of

24 confusion here by painting a very strange and almost

25 unrecognizable picture of what the tracing principles are

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1 under. The defense theory, it's actually just basically

2 impossible to prove money laundering if you get money

3 launderers sophisticated enough to use seven layers because

4 there's no way of proving that the person on the bottom knew

5 the origin at the top.

6 So first of all, that would be a very odd policy, to

7 just give automatic immunity if you use seven shell companies

8 and, in fact, it's not the law. The law doesn't require the

9 launderer to know where the crime proceeds come from. It just

10 requires them to know that it came from some form of criminal

11 activity. It doesn't even need to know what form of criminal

12 activity. It just needs to know criminal intent, and that's

13 for the special highly strong money laundering principle.

14 Now, there is, in fact, actual evidence that meets

15 that burden with all of these challenged transactions. So with

16 StarMix in particular, he just picked that one. He just picked

17 that one, to briefly respond, the Russian audit, that

18 independent auditors conducted of Bank Krainy Sever, one of the

19 documents that we're looking to move in limine, which inspected

20 these transactions, concluded that the outgoing transactions,

21 including StarMix, out to Elenast bore the indicia of

22 questionable transactions that should have been reported under

23 Russian Central Bank Directive 161-T. So actually, these are

24 transactions that were patently suspicious to independent

25 investigators, these very particular transactions.

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1 Also, when you get down to looking at the accounts,

2 these are accounts that were just opened. No money came in,

3 and then, all of a sudden, on the same day, a transfer that we

4 can trace, because we have the bank records to the treasury

5 fraud, comes in, along with dozens of other transfers that we

6 can't trace because we don't have the sender's bank records.

7 But they all come in on the same day to a bank account that's

8 done nothing up until then and then they're aggregated and

9 pooled and sent out to a smaller number of recipients. That

10 was a pattern with StarMix and with the other companies on that

11 level.

12 There are different patterns at each level of the

13 analysis, as our expert John Rollins pointed out. So all of

14 this will, I think, give the jury sample circumstantial basis

15 to infer that at every level the persons operating these

16 transfers had the required mental state, which is not knowing

17 exactly where the money came from but knowing that it involved

18 money from some sort of crime.

19 But that's to get to the facilitation assumptions,

20 which allow -- which are highly powerful and are relevant here,

21 in some circumstances. But you actually don't even need those

22 in order to get all the way down to Bunicon to Elenast, right

23 below Russia, and to get $857,000 to Prevezon because as to

24 those, you can just use the Banco Cafetero tracing assumptions.

25 Defense counsel has, again and again, called those

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1 conditional in some way on having some other proof, like you

2 need to know who was intending to send the money where before

3 you can use the tracing assumption to figure out where the

4 money went. It doesn't make sense. If you have all the proof

5 that defense counsel said you needed to have, you wouldn't also

6 need the tracing assumption to identify the destination of the

7 transfer, and it's not consistent with Banco Cafetero says.

8 In their most recent letter, defense counsel actually

9 just made a factual error in describing what that case was.

10 They said that that's a case where the president of a bank

11 involved in drug dealing put deposits in accounts that his bank

12 maintained. It's not quite right.

13 The person, in Banco Cafetero who was charged with

14 knowledge of drug dealing was the president of First

15 Inter-Americas Bank, and he put First Inter-Americas Bank money

16 into accounts that were not in the name of First Inter-Americas

17 Bank, but into this other bank, Banco Cafetero. Banco Cafetero

18 had a bunch of different bank accounts at several different

19 banks, and the government used the tracing rules to follow the

20 money as it went from Banco Cafetero account to Banco Cafetero

21 account, at bank to bank. And then went to forfeit the

22 proceeds, not from First Inter-Americas Bank, not from the

23 person who was charged with being the drug dealer, but from the

24 bank that had received the money.

25 And the Second Circuit, you know, ratified the

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1 presumption of these tracing rules, not to just give a little

2 color on something we already had tons of independent evidence

3 of, but to establish where the traceable money went. And in so

4 doing, it sort of gave the first version of the -- of a set of

5 principles that very clearly can be used to trace funds in

6 conjunction.

7 There are multiple cases that say, you know, there's

8 not just like this one-step rule. You can use these

9 assumptions to follow the money as they go from account to

10 account, and as Banco Cafetero itself shows, it doesn't have to

11 be by the initial wrongdoer. They said, we see no reason why

12 the tracing rules should apply more differently in the account

13 where -- in a question of whether it's tracing funds from a

14 second account held at a third bank, than in the very simple

15 case.

16 So if you just put together the Banco Cafetero tracing

17 assumptions, you get a sufficient amount of funds to get 857 to

18 Prevezon, and then you get the other -- funds for the other 1.1

19 million to Castlefront and Megacom Transit, the ones which we

20 focused on in our papers because that's where the facilitation

21 assumptions are actually necessary. That's where, without the

22 facilitation assumptions, you can't trace the full amount of

23 the proceeds, and the reason you can't is because Castelfront

24 and Megacom had a practice of repeatedly flushing their

25 accounts down to very small balances and replenishing.

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1 As we lay out in our papers, there's innumerable

2 highly suspicious circumstances about this replenishing. One

3 of the replenishers had an account at a money laundering bank.

4 The three replenishers were sending to the same companies over

5 the same multi-week period when the companies are supposedly in

6 different industries. Those companies were sending to similar

7 recipients. The companies had residential addresses for

8 payment purposes, which were all suspicious. So really,

9 there's evidence to conclude for these companies, and also for

10 the other companies in the chain, that they're shell companies

11 conducting no real business. So the jury is going to have

12 ample basis to make the finding that, in fact, these were money

13 laundering.

14 And the one thing that I wanted to respond to that

15 defense has raised several times is this point that there's no

16 evidence of laundering intent. As the Court pointed out, you

17 can -- the expert can look to the circumstances of a

18 transaction, but also the circumstances of the transaction can

19 establish that laundering intent. The defendant's claim is

20 that, well, this Regalado Cuellar case said you can't get from

21 a transfer having a certain structure to having a laundering

22 purpose. That's exactly wrong.

23 There's a case that says -- that we cite in our brief

24 that says, under the right circumstances, evidence of a

25 concealing structure can show purpose. Yeah, it's listed at

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1 the bottom of Page 24 of our brief. So it is a totally

2 available legal inference to be drawn, and there are ample

3 facts which should be presented to the jury so that they will

4 get the chance to determine whether, in fact, to make that

5 inference.

6 THE COURT: All right. Thank you.

7 MR. REED: Sorry, I lost my place.

8 THE COURT: Take your time.

9 MR. REED: Your Honor, Mr. Monteleoni suggests that

10 our theory makes it impossible to prove money laundering

11 through layers of shell companies, and that's not all the

12 position we're urging. If you can connect the shell companies

13 to a wrongdoer, there's no issue. We are suggesting that where

14 the companies in the chain have no connection, no proveable

15 connection to any aspect of the crime that generated the

16 proceeds or the persons who committed those crimes, that's

17 where they run into problems.

18 If you look at this tracing chart, for all of the

19 evidence they have, they may as well substitute McDonald's and

20 Wal-Mart and Microsoft. They could be anybody. Now,

21 Mr. Monteleoni says, well, but there's evidence that these

22 companies engaged in suspicious transactions. There's two

23 responses to that. First, is assuming that were true, it

24 doesn't show that they were intending to launderer proceeds of

25 the Russian treasury fraud. There's no way to connect them to

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1 that.

2 Second, though, the Regalado Cuellar case says

3 precisely that you cannot, on the basis simply of how the

4 transactions look, conclude that they are money laundering.

5 The Sixth Circuit case that Mr. Monteleoni is referring to --

6 it begins with an F; I was looking for it. I can't recall --

7 picks up on a straight line from the Supreme Court case that

8 suggests -- that says that there may be inferences drawn in

9 certain contexts, but I urge you to read it. It doesn't stand

10 for the proposition that would undermine Cuellar's entire

11 holding, that you can prove money laundering solely by --

12 intent to money launder solely by reference to the structure of

13 the transaction.

14 In fact, that case came out just the opposite way. It

15 found the government's proof insufficient because it relied

16 solely on evidence of structuring and not intent. And Cuellar

17 itself, just to sort of illustrate it, Cuellar is a case in

18 which the defendant was charged with violating the money

19 laundering statute that prohibits you from transmitting money

20 in a manner intended to conceal its nature or its origin. The

21 defendant was transferring money in blocks, in plastic bags in

22 a hidden compartment in a car disguised with a wire to throw

23 off the scent. And the Court said that doesn't prove the

24 statute because how you transport money doesn't prove why you

25 transported the money. You need some other evidence.

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1 That's why, again, in these cases where there's drug

2 money involved, it's not only that it was put in a secret

3 compartment in a car with a trap, the dog hit on a drug smell

4 or there was other evidence connecting it to a drug

5 transaction. Here, there is literally zero connecting these

6 companies to any crime, much less any intent to launder the

7 proceeds of any crime.

8 And that break in the chain is critical because

9 Mr. Monteleoni's other point was that you don't need to know

10 the specific nature of the proceeds that you're laundering, and

11 he was referring here to Prevezon, and the fact that Prevezon

12 can be charged with laundering proceeds of the Russian treasury

13 fraud even if it didn't know specifically that that was the

14 crime that generated the proceeds.

15 But for Prevezon to be liable on these counts, they

16 still have to prove that they were proceeds of the Russian

17 treasury fraud. Whether or not Prevezon knew it, they still

18 have to prove that the money that Prevezon handled was

19 proceeds, and the only way they can prove that is if they can

20 trace the money through all these 27 companies, down to us, and

21 the reason they can't do that is because they can't connect

22 those companies to the fraud. Thank you, your Honor.

23 THE COURT: All right. Counsel, I want to thank you

24 for your arguments. Decision reserved. I would say, with all

25 of the in limine motions that are pending, I fixed briefing

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1 schedules on those motions, and I expect that the parties will

2 abide by the traditional motion practice of having a motion

3 paper, an opposition paper and a reply, and that we can bring

4 an end to the flurry of letters that follow reply papers and

5 come with great rapidity just before an oral argument.

6 So let's cut that out because the docket here is

7 already up in the 600s, and I don't need it. All right?

8 Anything further?

9 MR. ABENSOHN: Nothing from defense, your Honor.

10 MR. MONTELEONI: Yes, your Honor. There's one

11 scheduling matter where we've worked out with defense an

12 agreement, subject to the Court's approval, to change the

13 briefing for our opposition to a Daubert motion with respect to

14 our expert because of their expert's availability. We would

15 request that the new dates for us to respond to their Daubert

16 motion be April 26th and the reply on May 3rd. We understand

17 that that's agreeable to the defense, if it is to your Honor.

18 THE COURT: That's fine. Just submit a two-sentence

19 letter, and I'll memo endorse it.

20 MR. MONTELEONI: Thank you, your Honor.

21 THE COURT: All right? Thank you all. Have a good

22 afternoon.

23 MR. MONTELEONI: Thank you.

24 MR. ABENSOHN: Thank you.

25 (Adjourned)

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1 UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x

3 UNITED STATES OF AMERICA,

4 v. 13 CV 6326 (WHP)

5 PREVEZON HOLDINGS, ET AL,

6 Defendants. ARGUMENT

7 ------------------------------x

8 New York, N.Y.

May 3, 2017
9 5:17 p.m.

10
Before:
11
HON. WILLIAM H. PAULEY III,
12
District Judge
13

14 APPEARANCES

15
JOON H. KIM,
16 Acting United States Attorney for the
Southern District of New York
17 PAUL M. MONTELEONI
CRISTINE I. PHILLIPS
18 TARA M. LaMORTE
Assistant United States Attorneys
19
QUINN EMANUEL URQUHART & SULLIVAN
20 Attorneys for Defendants
BY: ADAM M. ABENSOHN
21 FAITH E. GAY
KEVIN S. REED
22 RENITA SHARMA
CORY STRUBLE
23 -AND-
NATALIA VESELNITSKAYA
24

25

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1 (Case called)

2 THE COURT: We have a large agenda this afternoon and

3 I appreciate counsel's accommodation to start at this hour,

4 given the fact that I have a jury trial that's ongoing at the

5 moment.

6 By my count, there are 14 motions in limine. I want

7 to move through all of them and resolve as many of them as I

8 can this afternoon so that the parties will be informed

9 regarding the trial in this case.

10 Second, and just by way of housekeeping, the jury

11 clerk informs me that there are a large number, at this moment,

12 of criminal cases scheduled for jury selection on May 15.

13 Civil cases by custom take a back seat to jury selection in

14 criminal cases.

15 My experience tells me and the advice of the jury

16 administrator -- who I trust very dearly -- tells me that we

17 all might be better off if we selected our jury on Tuesday, May

18 16, and started the trial on Tuesday, May 16. The jury

19 administrator assures me that I will have a fresh panel. I

20 would not move to Tuesday if I was going to get rejects from

21 Monday. But it will be a fresh and animated panel. So unless

22 things change materially, plan on jury selection on Tuesday,

23 May 16. We'll save ourselves a lot of aggravation, because

24 otherwise we'll be sitting around into the afternoon waiting to

25 get started.

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1 All right. So, as I say, we have a lot of motions in

2 limine. You can be assured that I have reviewed all of the

3 parties' submissions on these motions. I'll say no menial

4 task. Therefore, I want to move through them. You can advance

5 arguments that you think need to be amplified, but let's not

6 reinvent the wheel; you don't have to tell me what's in your

7 motion papers.

8 I'm going to turn first to Prevezon's motions in

9 limine. Let's start with motion in limine No. 1, evidence

10 gathered through the criminal investigation and the MLAT

11 process.

12 MR. ABENSOHN: Thank you, your Honor.

13 Adam Abensohn for Prevezon.

14 I will say, your Honor, this is the time of day that

15 I'm usually napping at my desk, so I'll do my best to stay up

16 for the Court.

17 Thirty-five years ago, your Honor, the Supreme Court

18 held that the government cannot use its grand jury powers for

19 purposes of obtaining evidence for use in a civil case. That

20 was the holding in United States v. Sells, which is cited

21 prominently in our papers.

22 The government spends a lot of time in its briefing

23 arguing about whether Sells remains good law, what the

24 effective rule change may or may not have been; but, at the end

25 of the day, the government acknowledges that the core holding

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1 of Sells continues to apply.

2 THE COURT: There's not any per se rule or categorical

3 rule, is there, that says the government may not use evidence

4 obtained from a grand jury investigation for a related civil

5 case?

6 MR. ABENSOHN: There is a categorical rule, your

7 Honor, and I'm quoting the government, that the government may

8 not use grand jury process for the sole or dominant purpose of

9 using the information in a civil forfeiture case.

10 THE COURT: Do you believe that the government's

11 criminal investigation is a sham?

12 MR. ABENSOHN: Your Honor, we don't have enough

13 insight to know outright if it's a sham, but we certainly know

14 that they have used grand jury process for the specific purpose

15 of selecting evidence in this case. There is numerous indicia

16 of it in the record, including a very straightforward

17 acknowledgment by the case agent, which I can read to your

18 Honor. This is Special Agent Hyman, deposed on October 6,

19 2015. He was asked the following question:

20 "Did you issue grand jury subpoenas in this case?

21 "A. Yes, we did."

22 Now, that's about as direct as it gets. The

23 government was doing exactly what it says it's not entitled to

24 do, which is to use grand jury process to collect evidence for

25 use in a civil forfeiture action.

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1 Now, there are other clear indicia of this all

2 throughout the government's briefing. I'm not going to go into

3 all of them for reasons your Honor has already alluded to,

4 given our agenda, but there's a few I think worth pointing out.

5 The government has this recurring theme, for instance,

6 that Agent Hyman didn't have enough time to prepare because of

7 gamesmanship by prior defense counsel that, in the government's

8 words, forced Judge Griesa to set an abbreviated schedule.

9 They raise that in their opposition numerous times; pages 2,

10 11, 12, 14.

11 Now, respectfully, that doesn't help the government's

12 position because what the government is doing, in essence, is

13 not denying that they used grand jury process for purposes of

14 this case, they are offering an explanation as to why they did

15 it. They are saying, in so many words, Judge Griesa put it to

16 us in terms of the schedule, and this was our best option in

17 the difficult circumstances and limited time that we had.

18 Under Sells, however, your Honor, the government did

19 not have that prerogative; they had the option that we had or

20 any other civil litigant had, which was to use the standard

21 tools of civil discovery or to seek appropriate relief from the

22 Court. They didn't do that. They took it into their own hands

23 and they used grand jury subpoenas to collect evidence for this

24 case.

25 There was something else that struck me in the

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1 government's brief.

2 THE COURT: But isn't the standard that it be the sole

3 and dominating purpose?

4 MR. ABENSOHN: I think the word that the government

5 uses is "primary." And we'll live with "primary" because these

6 grand jury subpoenas were issued in this case. That was Agent

7 Hyman's statement. And I found it interesting in the

8 opposition papers when the government referred to the stay

9 period. They said, Well, the fact that we were issuing

10 subpoenas during the stay period shows that we were acting

11 independent of this action.

12 This is one of those instances where, in a sense, we

13 were all in the room; we were here when we were arguing about

14 whether the government could use the materials it generated

15 during the stay period in this case. And while the government

16 says in its brief now that it was aware of the possibility it

17 wouldn't be able to and it was essentially offering them to us

18 as an afterthought in discovery and it wasn't its primary

19 purpose, your Honor saw the tracing chart that the government's

20 expert in this case had developed around this new grand jury

21 discovery. And your Honor heard Mr. Monteleoni saying a

22 massive number of hours and resources were devoted in

23 generating that report and doing that analysis.

24 So what occurred in the stay period, your Honor,

25 respectfully, is not indicative of the government working

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1 towards some other end; it is fully consistent with what Agent

2 Hyman stated on day one, which is grand jury subpoenas have

3 been getting issued in this case.

4 The other observation I'll make about the government's

5 brief is what it doesn't say. It does not describe any

6 ordinary civil discovery by the government vis-a-vis third

7 parties, with the exception of a single Rule 45 subpoena. This

8 is a case with evidence being collected from dozens of third

9 parties, including numerous domestic banks, not more than one

10 subpoena under Rule 45, your Honor, all the rest collected by

11 criminal investigative tools. That is directly contrary to

12 what the Supreme Court addressed in Sells.

13 I'll quote the case.

14 "If government litigators in civil matters enjoyed

15 unlimited access to grand jury material, there would be little

16 reason for them to resort to their usual more limited avenues

17 of investigation. To allow these agencies to circumvent their

18 usual methods of discovery would not only subvert the

19 limitations and procedural requirements built into those

20 methods, but would grant the government a virtual ex parte form

21 of discovery."

22 That is what we had been operating under in this case,

23 your Honor. The government has had virtual ex parte discovery,

24 a single Rule 45 subpoena.

25 THE COURT: Is the standard for reviewing the

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1 propriety of MLATs in civil proceeding the same as the standard

2 for reviewing the use of grand jury subpoenas?

3 MR. ABENSOHN: Your Honor, I would argue under the

4 language I've just read from Sells that it certainly has a lot

5 in common, because the ultimate holding in Sells, one of the

6 three prongs of the decision, is that the government cannot

7 avoid the civil rules of discovery and resort to criminal tools

8 of discovery and, thus, place themselves on an unequal playing

9 field.

10 With respect to the MLATs, that's exactly what's

11 happened. Here, the government relies a lot on the presumption

12 of regularity to their criminal investigative matters.

13 I've already talked about Agent Hyman's testimony.

14 Let me talk about how blatant the use of the MLATs were for

15 purposes of this civil case.

16 In the government's opposition, they say repeatedly --

17 I have it at pages 1 and 15 -- that they were using the MLATs

18 in support of their criminal investigation. I want to read now

19 from the only MLAT that we've had access to, and that was the

20 MLAT that the government submitted to Russia. This is the

21 second sentence of the MLAT request:

22 "The United States Attorney's Office for the Southern

23 District of New York is litigating an in rem

24 nonconviction-based forfeiture action seeking the assets of

25 Prevezon Holdings."

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1 So, again, in the brief we were doing this in support

2 of a criminal investigation. On the face of the MLAT, we're

3 doing this in support of a civil forfeiture action. Your

4 Honor, this goes to the heart of what Sells was concerned

5 about. The government has essentially spent this entire

6 three-year period gathering its information, collecting its

7 documents through criminal processes, and virtually none of its

8 time doing it through civil processes. That eliminates

9 transparency from the defense standpoint; it eliminates all

10 variety of protection we would have through the use of Rule 45

11 and standard civil discovery procedures.

12 I'll turn to another very blatant admission. The

13 government has a footnote in its brief where it says

14 government-to-government legal assistance requests are a more

15 efficient means of obtaining evidence than The Hague

16 Convention. Here, again, the government is not disagreeing

17 that they relied on criminal process, they are explaining why

18 they did it: Because it's more convenient. That's what Sells

19 tells the government it can't do. It can't take the easy route

20 when it's supposed to live by the same strictures of civil

21 discovery rules that we live by.

22 THE COURT: Let me hear from Mr. Monteleoni.

23 MR. ABENSOHN: Of course, your Honor.

24 THE COURT: Thank you.

25 MR. MONTELEONI: Thank you, your Honor.

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1 I'm happy to answer specific questions that the Court

2 has, but --

3 THE COURT: What evidence have you gathered outside of

4 the grand jury process?

5 MR. MONTELEONI: What evidence have we gathered

6 outside of the grand jury process? Most of our evidence came

7 from voluntary provision from various third parties, including

8 the witness whose identity has now been unsealed, Nikolai

9 Gorokhov, who voluntarily provided us with information, just as

10 various parties have voluntarily provided the defendants with

11 information. We've gotten that when the defendants have deemed

12 appropriate. Voluntary provision obviously is not a Rule 45

13 subpoena; it's not something that can be objected to; it's just

14 an additional means of gathering evidence that is entirely

15 permissible in a civil case. So that's really where most of

16 the additional evidence that we've gotten has come from.

17 Additionally, there have been government-to-government

18 requests. Some have been under treaties, some have been formal

19 requests to countries such as Moldova, with whom there is no

20 treaty. However, the governments are entirely within their

21 rights to provide information on the basis of reciprocity,

22 their own sovereign decisions.

23 I think that it's actually very telling that defense

24 counsel is seeking to preclude wide swaths of information

25 that's been gathered from government-to-government requests

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1 without any authority that actually addresses that.

2 Sells Engineering did not in any way address the MLAT

3 process; it actually didn't even create the rule that

4 defendants cited for, which is that the grand jury should not

5 be used for the sole or dominant purpose of other than

6 evaluating a proposed indictment.

7 What Sells Engineering concerned was the definition of

8 an attorney for the government and whether that included civil

9 attorneys within the Justice Department. That holding, the new

10 holding in Sells, was entirely superseded in civil forfeiture

11 cases by Section 3322(a) and FIRREA.

12 Sells doesn't have some broad principle that if

13 someone like Nikolai Gorokhov comes to us or if someone like

14 Leonid Petrov comes to the defendants, that they can't

15 voluntarily provide information.

16 It also doesn't stand for a principle that a sovereign

17 state, if faced with a request from the U.S. Government, cannot

18 decide whether or not to gather and provide that information.

19 Because that's what happens in each of the treaty requests and

20 in the nontreaty requests. There are terms of the treaties,

21 but the execution of them is left up to the sovereigns.

22 Whether a request is within the treaty or outside a treaty in

23 force or entirely outside of a treaty relationship, that's a

24 matter in between the sovereigns and it has to be resolved

25 sovereign-to-sovereign. To do otherwise would actually be to

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1 read in suppression terms into the treaties that sovereigns

2 have created.

3 THE COURT: Do the specific MLAT treaties between the

4 United States and the countries that received MLAT requests in

5 this action specify whether the information is requested and

6 produced for criminal or civil purposes?

7 MR. MONTELEONI: It depends a little bit based on the

8 instrument and also the interpretation of what constitutes

9 criminal. It depends on the receiving nation.

10 In rem forfeiture actions are under sort of long

11 tradition quasi-criminal proceedings. So some countries can

12 interpret criminal requests to apply to them, some countries

13 don't interpret criminal requests to apply to them, but have

14 separate forfeiture-specific treaties and some don't have

15 forfeiture-specific treaties and may provide it or not based on

16 whether they want to, either with or without a treaty.

17 What the treaties that are at issue here all have is

18 nonsuppression terms. So what the defendants are actually

19 asking for is just modifications to all of the treaties. And

20 as the Second Circuit held in Romi, that deprives the

21 contracting parties, the states, of the terms that they

22 bargained for. And to do that here on the basis really of no

23 law in particular, is entirely inappropriate.

24 So we think that it's actually very clear-cut that

25 certainly there are restrictions on when you can use the grand

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1 jury process, there are restrictions on when you can use other

2 forms of civil discovery; but there's not a general restriction

3 on getting something through proper means and then using it in

4 the case. And whether or not documents provided by foreign

5 sovereign were gotten through proper means is between the two

6 sovereigns. That's fundamental to the government-to-government

7 relationships. So there's no authority to disturb that; in

8 fact, the Second Circuit's ruling is to the contrary.

9 THE COURT: When did you begin issuing MLAT requests

10 to foreign countries in this case, before or after the Second

11 Circuit put the stay in place with respect to the

12 disqualification motion?

13 MR. MONTELEONI: The very first MLAT requests went out

14 shortly after the complaint and the restraining order made

15 public that we were taking action. That's where all of the

16 materials that are actually at issue here in this case are

17 from, are from MLAT requests that happened in the months

18 following the filing of the complaint and the restraining order

19 and the defendants becoming aware thereby of the investigation.

20 Additionally, once the stay was in place and certain

21 government personnel like me had a little bit more time, we did

22 additional requests to foreign sovereigns. We did additional

23 grand jury subpoenas. But the Court has already precluded all

24 of that just on grounds of coming outside of the discovery

25 period, so that's not at issue in this motion at all. It's

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1 really just to the MLATs that began to be filed once the

2 complaint was filed.

3 THE COURT: Anything further?

4 MR. MONTELEONI: No, your Honor, not on this motion.

5 THE COURT: All right.

6 Anything further?

7 MR. ABENSOHN: Briefly, your Honor?

8 THE COURT: You can take it right from there where

9 you're standing. Just keep your voice up in a stentorian way.

10 MR. ABENSOHN: I will do my best. And I will look up

11 "stentorian" after today's conference, your Honor.

12 First of all, the Court asked whether there are

13 provisions in the treaties requiring that they be for criminal

14 investigative purposes.

15 I'm reading from the U.S. treaty with Estonia. It's

16 Article 1, No. 1: "The parties shall provide mutual assistance

17 in accordance with the provisions of this treaty in connection

18 with the investigation, prosecution, and prevention of offenses

19 in proceedings related to criminal matters."

20 The treaties provide for the reciprocal provision of

21 material in support of criminal investigations, your Honor, not

22 civil forfeiture actions, as the government put on the face of

23 the MLAT requests that it was providing to these countries.

24 Mr. Monteleoni talked about how it's up to the

25 sovereign what information to share. As between the

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1 sovereigns, that may well be true. It may be up to the

2 sovereigns what information to share. But one sovereign, the

3 United States, has a separate obligation to a defendant in a

4 case. That's what Sells speaks to. The United States as a

5 sovereign has an obligation to play on a level field when it

6 comes to matters of civil discovery. That was the Court's

7 holding; that's the passage I read. Whatever any country was

8 permitted to do vis-à-vis the United States, the United States

9 was not permitted to end-run the rules of civil disclosure and

10 discovery by means of using criminal investigative tools.

11 Mr. Monteleoni told us the MLATs started going out

12 shortly after the complaint was filed. I will add that to the

13 list of clear indicia that these criminal tools were being used

14 for purposes of supporting this action.

15 Finally, Mr. Monteleoni started off assuring the Court

16 that most of the government's evidence was provided voluntarily

17 by third parties. I think that's great. It suggests an easy

18 solution here. Let's preclude the material that was wrongfully

19 obtained vis-à-vis grand jury and MLAT process, and apparently,

20 as the government sees it, it will still have plenty of

21 evidence left. We don't quite agree with that, but if that's

22 their assessment, we'd certainly invite as the appropriate

23 remedy the preclusion of this improperly obtained material.

24 Thank you, your Honor.

25 THE COURT: All right.

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1 Mr. Monteleoni, is there any reason that you could not

2 provide the Court with an affidavit laying out the various

3 purposes for which the grand jury process has served and is

4 currently being used?

5 MR. MONTELEONI: No, your Honor. I'd be happy to.

6 When would you like it?

7 THE COURT: When can you provide it?

8 MR. MONTELEONI: Juggling a number of things, would

9 Monday be too late?

10 THE COURT: No. It's fine.

11 MR. MONTELEONI: Thank you, your Honor.

12 THE COURT: Look, I think it's necessary for me to

13 rule on this now.

14 So Prevezon's motion to exclude evidence obtained

15 through the grand jury process is denied.

16 The law in the Second Circuit regarding the use of

17 grand jury materials in an action unrelated to a pending

18 indictment is simple: "It is improper for the government to

19 use the grand jury for the sole or dominant purpose of

20 preparing for trial." United States v. Leung, 40 F.3d 577, 581

21 (2d Cir. 1994).

22 Although this proposition applies mainly in situations

23 where post-indictment grand jury evidence is used at trial for

24 previously-filed charges, it applies with equal force when the

25 grand jury process is utilized to build evidence in a civil

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1 trial, especially where, as here, the underlying allegations

2 are substantially similar or may overlap with the possible

3 criminal case.

4 One of the principal risks associated with use of the

5 grand jury process is that it "threatens to subvert the

6 limitations applied outside the grand jury context on the

7 government's powers of discovery and investigation" in civil or

8 administrative settings. United States v. Sells Engineering,

9 Inc., 463 U.S. 418, 433 (1983).

10 But the Supreme Court in Sells did not categorically

11 prohibit evidence procured through the grand jury for use in a

12 civil case and the standard established by the Second Circuit.

13 The sole and dominating purpose of preparing for trial is not

14 inconsistent with Sells' admonishment. Indeed, absent that

15 improper purpose, "Evidence obtained pursuant to the grand jury

16 investigation may be offered at the trial on the initial

17 charges," or here, at a related civil forfeiture and money

18 laundering action. Leung, 40 F.3d at 581.

19 Because the presumption of regularity attaches to

20 grand jury proceedings, the defendant has the burden of

21 demonstrating that the government's use was improperly

22 motivated. Prevezon contends that a confluence of factors has

23 blurred and violated the line between the government's

24 litigation and this action and its criminal investigation.

25 Certain factors that the same AUSA is prosecuting this

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1 action and conducting the grand jury investigation, that the

2 government appeared to issue grand jury subpoenas in criminal

3 MLAT requests shortly after the Court set an expedited

4 discovery schedule, and the government's failure to exhaust

5 many of the civil discovery tools available to it formed the

6 basis for Prevezon's motion.

7 But these factors, standing together, do not overcome

8 the presumption of regularity in grand jury proceedings and do

9 not convincingly establish that the government's sole and

10 dominating purpose for using the grand jury process was to

11 prosecute this civil action.

12 The government began the grand jury proceeding in

13 early 2013, issued grand jury subpoenas and MLAT requests

14 beginning around the same period, and continued the criminal

15 investigation during the Second Circuit's stay in this action.

16 To be sure, the government could perhaps have better

17 managed the optics of its investigation. Assigning the same

18 prosecutor to run the investigation and litigating this action

19 obviously raises concerns. But the appearance and timing of

20 the issues relating to the government's use of the grand jury

21 process, without more, cannot surmount the presumption of

22 regularity. A court must "take at face value the government's

23 word that the dominant purpose of the grand jury proceedings is

24 proper." United States v. Meregildo 876 F. Supp. 2d 445, 449

25 (S.D.N.Y. 2012).

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1 The fact that the Second Circuit's stay effectively

2 removed the urgency of an imminent trial date, juxtaposed with

3 the government's continued grand jury investigation, eliminates

4 the concern that the government was improperly motivated to use

5 the expedited methods available to the grand jury to buttress

6 its evidence in this action.

7 However, in an abundance of caution and as a matter of

8 good practice, this Court, as I've already discussed with

9 Mr. Monteleoni, directs the government to submit an affidavit

10 explaining that the grand jury investigation was and is not

11 being conducted for the sole or dominant purpose of trial

12 preparation in this action. That affidavit should lay out the

13 various purposes for which the grand jury process has served

14 and is currently being used. United States v. Blech, 208

15 F.R.D. 65, 68 (S.D.N.Y. 2002).

16 Prevezon's motion to exclude evidence obtained through

17 the mutual legal assistance treaties fares no better and is

18 also denied.

19 First, the sole and dominant purpose standard

20 governing the government's use of the MLAT process is not the

21 same as its use of the grand jury process. "Nor should it be

22 extended to do so. The dominant purpose inquiry is a legal

23 standard that derives from the Court's special concern for the

24 grand jury... to ensure that the grand jury is not misused as a

25 device for trial preparation." United States v. Blech, 208

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1 F.R.D. at 68.

2 By contrast, the MLAT is designed to provide a

3 procedure for securing assistance in connection with

4 investigations or court proceedings. Blech, 208 F.R.D. at 68.

5 While Blech did not concern exactly the same issue

6 here, it is instructive to the extent that it distinguished the

7 risks that are traditionally associated with misuse of the

8 grand jury process from those associated with the MLAT process.

9 In Blech, while the treaty between Switzerland and the

10 United States -- much like the treaties at issue in this

11 action -- was styled as one dealing with "criminal matters,"

12 the DOJ issued MLAT requests on behalf of the SEC for the

13 purpose of aiding a civil investigation into the underlying

14 misconduct. This does not mean that the MLAT process can be

15 used exclusively in civil actions prosecuted by the government.

16 After all, MLATs are primarily a criminal discovery device.

17 But so long as there is some criminal investigatory basis

18 underpinning the MLAT request, the government may also use

19 evidence obtained from that process to aid its prosecution of

20 any related civil claims.

21 Let's turn to Prevezon's motion in limine No. 2,

22 relating to Sergei Magnitsky.

23 MR. MONTELEONI: Your Honor, before we move on to

24 that, can I ask a clarifying question about the affidavit?

25 THE COURT: Yes.

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1 MR. MONTELEONI: May I be permitted to submit it to

2 the Court under seal and subject to the confidentiality order?

3 THE COURT: Yes.

4 MR. MONTELEONI: Thank you, your Honor.

5 THE COURT: All right.

6 Turning to the Magnitsky motion.

7 MR. REED: Thank you, your Honor.

8 Kevin Reed for the defendants.

9 The government, in its second amended complaint,

10 alleges a number of things about Sergei Magnitsky. The

11 complaint lays out an inflammatory language about how

12 Mr. Magnitsky, an attorney for Hermitage, investigated the

13 Russian treasury fraud, how he filed complaints against Russian

14 officials for participating in this fraud, how he was

15 subsequently persecuted by those officials and caused to be

16 arrested by those officials, and then beaten in jail and

17 ultimately died there, according to the government's complaint.

18 They then detail how there was a worldwide outcry on the United

19 States' passage of the Magnitsky Act in response to that.

20 THE COURT: It's fortunate, isn't it, that we don't

21 send complaints into the jury room, like we do with

22 indictments.

23 MR. REED: Sure.

24 THE COURT: So let me get to the nub of this with you.

25 MR. REED: Sure.

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1 THE COURT: Why are the events and facts predating

2 Magnitsky's arrest not probative of the government's claims in

3 this case?

4 MR. REED: Your Honor, we lay this out in our brief

5 and I'll try and summarize it briefly for you.

6 The government's theory is that the fact that

7 government officials were involved in persecuting Magnitsky,

8 evidence is that they were trying to cover up the Russian

9 treasury fraud. The fact that they were trying to cover up the

10 Russian treasury fraud, in the government's theory, evidences

11 that they were involved in the Russian treasury fraud. The

12 fact that they were involved in the Russian treasury fraud

13 evidences, by the government's theory, that there must have

14 been bribes paid to some unspecified person which, therefore,

15 creates a foreign corruption SUA.

16 Now, as I recite it, I hope you can see what it is.

17 It is inference upon inference upon inference. So to the

18 extent it has any probative value at all, it's weak.

19 THE COURT: Magnitsky clearly played a role in

20 uncovering the Russian treasury fraud, didn't he? Aren't the

21 findings of his investigation part of the government's theory

22 here?

23 MR. REED: It may be part of the government's theory.

24 I think from the defendants' perspective, A, we dispute that

25 Mr. Magnitsky played a role in uncovering the fraud. Our

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1 theory of the case that we'll present at trial is that

2 Hermitage was involved in the fraud and that Mr. Magnitsky was

3 not so much involved in discovering it as in participating in

4 it. We think, as we lay out in our brief, that that creates a

5 trial within a trial that's not necessary, since we are not

6 alleged to have been involved in the fraud in the first place.

7 But, at the end of the day, the question comes down to

8 what does this add and what prejudice does it cause. As I

9 tried to go through, we think it adds very little because,

10 again, inference upon inference upon inference adds up to weak

11 proof, if at all. And, in fact, even the inferences don't

12 work, because the first line in that chain, that somehow the

13 fact that government officials tried to cover up the Russian

14 treasury fraud means that they were part of the Russian

15 treasury fraud, doesn't hold up to scrutiny, because people

16 cover up things for any number of reasons. They may be trying

17 to protect somebody, they may be afraid of somebody. It's not

18 evidence that they were involved, and it's certainly not

19 evidence of the three steps down the line that there was a

20 bribe paid to a government official. So it has, as we see it,

21 very weak probative force to begin with.

22 On the other side of that ledger, it has what we think

23 is very considerable prejudice, unfair prejudice, to the

24 defendants. Because the government acknowledges in their

25 opposition that putting in evidence that Magnitsky was beaten

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1 to death in jail, again, which we would dispute, but putting in

2 evidence of that would be prejudicial and they offer not --

3 THE COURT: You don't have to make that argument to

4 me. I'm convinced.

5 MR. REED: Okay.

6 The argument I will make, your Honor, is that that

7 concession, while appreciated, doesn't solve the problem.

8 Because what they propose to do is put in evidence that

9 Mr. Magnitsky investigated the fraud, that Mr. Magnitsky was

10 wrongly imprisoned on account of the fraud -- I'm sorry,

11 wrongly imprisoned on account of pursuing the fraud, and then

12 died in jail. And they propose not to tell the jury why he

13 died; they'll just let him speculate and wonder.

14 THE COURT: I understand your argument.

15 Let me hear from the government.

16 MR. REED: Thank you, your Honor.

17 MS. PHILLIPS: Your Honor, the jury in this case is

18 going to be asked to determine whether the Russian treasury

19 fraud was an offense that, among other things, involved the

20 misappropriation theft or embezzlement of public funds by or

21 for the benefit of a public official.

22 THE COURT: Why is Magnitsky's death in prison and

23 post-death prosecution important if you could demonstrate that

24 Russian officials wanted to cover up their fraud simply by

25 arresting Magnitsky?

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1 MS. PHILLIPS: Your Honor, just to be clear, what the

2 government is asking for is not to present evidence that

3 Mr. Magnitsky died in prison; it's simply to present evidence

4 that Mr. Magnitsky was posthumously prosecuted, which requires

5 acknowledging his death.

6 Now, we're not intending to put in evidence about the

7 cause of his death in any way or even necessarily the timing of

8 his death, but simply the fact that he was posthumously

9 prosecuted, which is unheard of in Russia.

10 THE COURT: Why is any of that relevant?

11 MS. PHILLIPS: His posthumous prosecution is further

12 evidence of the retaliation that was taken against him by the

13 Russian authorities, which is consistent with their other

14 actions in attempting to conceal the Russian treasury fraud and

15 to retaliate against him for filing the complaints, which they

16 did in the form of arresting him, but also in later prosecuting

17 him posthumously. It's part of the narrative.

18 Furthermore, your Honor --

19 THE COURT: A very prejudicial part of a narrative,

20 from the defendants' perspective, right?

21 MS. PHILLIPS: To be clear though, your Honor, if

22 defendants' concern about prejudice is the fact that

23 Mr. Magnitsky died in prison, that simply doesn't have to come

24 out. But the fact that the Russian authorities were

25 prosecuting him posthumously is part and parcel of the fact

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1 that he was arrested. He was arrested; he was put in jail.

2 What was the conclusion of that? The conclusion of that was

3 something that continued to be highly irregular, but not

4 necessarily prejudicial insofar as the cause of his death is

5 not going to be disclosed.

6 It's also highly relevant to the fact that William

7 Browder's prosecution, which went hand-in-hand with

8 Mr. Magnitsky's prosecution, was itself also highly

9 retaliatory. That's something that Mr. Browder, the

10 government's witness, will face considerable cross-examination

11 on presumably.

12 THE COURT: What's the probative value of showing the

13 jury the relationship between Magnitsky and Browder?

14 MS. PHILLIPS: Your Honor, Mr. Magnitsky is a critical

15 component of Mr. Browder's narrative. He, on behalf of the

16 Hermitage Foundation, uncovered the Russian treasury fraud. He

17 was retained by the Hermitage Foundation to determine whether

18 the tax allegations against Hermitage were real or whether they

19 were pretense for some other motivation. And, in fact, he

20 determined that they were pretense. He worked hand-in-hand --

21 THE COURT: That has nothing to do with Browder.

22 MS. PHILLIPS: Your Honor --

23 THE COURT: What Magnitsky did, he did, prior to his

24 arrest.

25 MS. PHILLIPS: Your Honor, the charges against

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1 Mr. Magnitsky for which he was posthumously prosecuted involved

2 the tax fraud of the Hermitage fund, the purported tax fraud as

3 alleged by the Russian authorities. Mr. Browder was prosecuted

4 right alongside Mr. Magnitsky for the same offense; they were

5 codefendants. Mr. Browder will certainly be cross-examined on

6 the validity of those charges against him. And the fact that

7 his codefendant was prosecuted posthumously is highly

8 suggestive that the Russian authorities had an ulterior motive

9 in prosecuting him.

10 THE COURT: All right. Anything further?

11 MS. PHILLIPS: No. Thank you, your Honor.

12 THE COURT: Thank you.

13 All right. Prevezon's motion to exclude evidence

14 pertaining to Magnitsky made principally under Rule 403 is

15 granted in part and denied in part.

16 Rule 403 provides that relevant evidence may be

17 excluded if its probative value is substantially outweighed by

18 the danger of unfair prejudice or confusion, among other risks.

19 This Court finds that some of the Magnitsky evidence is

20 relevant to the government's theory.

21 Magnitsky was an employed accountant of the firm whose

22 companies were allegedly stolen by the Russian criminal

23 organization. He played a critical role in uncovering the

24 alleged Russian treasury fraud. He alerted the Russian

25 authorities about his findings. He testified against certain

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1 Russian members of the organization in a Russian criminal case.

2 And he was arrested allegedly for tax-related crimes.

3 The probative value of that evidence is not outweighed

4 by any unfair prejudice or confusion. In fact, Magnitsky's

5 findings played a role in triggering the investigations that

6 eventually resulted in this civil action. And that evidence,

7 at least in part, forms the basis of the government's theory.

8 But there's no reason to reference Browder's close

9 relationship with Magnitsky or that Browder somehow felt a

10 moral obligation to Magnitsky. It's sufficient simply to show

11 that Magnitsky worked for Browder and Hermitage, and that

12 Magnitsky investigated the events and circumstances surrounding

13 the theft of Hermitage portfolio companies.

14 More importantly, the evidence pertaining to

15 Magnitsky's death in prison and posthumous prosecution presents

16 the real danger that a jury will unfairly attribute those

17 events to the defendants in this case.

18 Prevezon, while not a Russian entity, is owned by an

19 individual who is Russian; and the company stands accused in

20 this action of receiving laundered proceeds from the Russian

21 treasury fund. These two independent, unrelated allegations,

22 that is, Magnitsky's post-arrest events and Prevezon's

23 association with Russia, if introduced at trial, could distract

24 the jury with a John le Carré-like tale of international

25 intrigue instead of focusing on the real issues, unfairly

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1 prejudicing them with the notion that they must avenge

2 Magnitsky's death through a verdict against Prevezon.

3 Therefore, the evidence regarding Magnitsky's

4 investigation of the Russian treasury fraud and anything up to

5 his arrest is admissible. Moreover, Magnitsky's arrest is also

6 admissible because it's relevant to the government's theory

7 that Russian officials sought to cover up their alleged crimes

8 and silence the person who uncovered those crimes. However,

9 this Court excludes any evidence pertaining to Magnitsky after

10 his arrest, namely, his prolonged incarceration, death in

11 prison, and posthumous prosecution, on the basis that its

12 prejudicial effects substantially outweighs its probative

13 value.

14 Moreover, the government has noted in its briefing

15 that it does not intend to introduce any evidence regarding the

16 international community's reaction to Magnitsky's death,

17 including the United States' passage of the Magnitsky Act.

18 This Court agrees that such evidence should not be introduced

19 at trial.

20 Let's turn to Prevezon's motion in limine No. 3,

21 hearsay reports concerning the Russian treasury fraud, which,

22 as I understand it, is now narrowed to the report of the

23 Parliamentary Assembly of the Council of Europe.

24 Does anybody have anything to add to the arguments

25 they've advanced in their papers?

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1 MR. REED: Thank you, your Honor.

2 May I hand up just one document?

3 THE COURT: Yes. What is it?

4 MR. REED: It's in the record, your Honor, as Exhibit

5 2. I believe it's a declaration of Andreas Gross. 402-2.

6 Your Honor, in the spirit of being brief, I'll cut

7 right to the four-factor test.

8 Under this rule, 803(22), there is a four-factor test

9 that the court looks at to assess whether there is sufficient

10 trustworthiness, and I just want to quickly tick through them.

11 THE COURT: I really read all of this in the briefs.

12 I really don't need it.

13 MR. REED: Okay, your Honor.

14 Then let me just highlight the last factor, which is

15 the risk of an improper motivation or political influence. We

16 think that weighs heavily and strongly against the admission of

17 this document. If you look at the very first paragraph of

18 Mr. Gross's --

19 THE COURT: I agree.

20 MR. REED: Okay.

21 THE COURT: Let me hear from the government.

22 MR. REED: Thank you, your Honor.

23 THE COURT: I don't mean to be curt, but the fact is

24 that we have to make, as the poet said, concessions to the

25 mortality of man. And I got your arguments. Let's see if the

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1 government can disabuse me.

2 MR. REED: Sure.

3 The last thing I want is an opportunity to snatch

4 defeat from the jaws of --

5 THE COURT: Right.

6 MS. PHILLIPS: Your Honor, we believe that the report

7 does meet the 803(8) test, and that --

8 THE COURT: Even though the author of the report is

9 unwilling to stand behind it and submit to a deposition because

10 he'd be humiliated?

11 MS. PHILLIPS: To be clear, your Honor, that was,

12 first of all, hearsay, in and of itself, based upon a

13 conversation between counsel. But I can fill out the rest of

14 that, having spoken with his representatives.

15 THE COURT: But the report is replete, isn't it, with

16 Gross's opinions and personal evaluations of the witness's

17 credibility?

18 MS. PHILLIPS: It is, your Honor, but we only seek to

19 introduce it for very limited purposes.

20 THE COURT: The government always says that. Okay?

21 They always say that.

22 MS. PHILLIPS: The point is that today it would be

23 inappropriate to exclude it in its entirety. We're certainly

24 willing to come to the Court on a limited case-by-case basis.

25 THE COURT: I disagree.

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1 MS. PHILLIPS: Thank you, your Honor.

2 THE COURT: This Court grants Prevezon's motion to

3 exclude the Gross report primarily on the basis that the

4 report's principal focus is on a subject that this Court has

5 already excluded: The circumstances surrounding Magnitsky's

6 death. And it also, in my judgment, suffers from a lack of

7 trustworthiness, having read it.

8 These factors, taken together, present the risk that

9 the jury will be confused by the report's contents and opinions

10 and distracted from the real claims at issue. Of the four

11 factors that courts look to to determine the trustworthiness of

12 a public report, the factors regarding timeliness of the

13 investigation, whether the assembly or any other of its

14 subcommittees conducted a hearing, and possible motivational

15 problems weigh against finding that the report is trustworthy.

16 First, the parliamentary assembly commissioned this

17 report several years after the events in question. Even if

18 this Court measured the time from the primary event

19 investigated, Magnitsky's death in November of 2009, almost

20 three years elapsed before the assembly's legal affairs

21 committee passed its resolution appointing Gross as the

22 reporter in November 2012.

23 Second, there doesn't appear to have ever been an

24 actual hearing conducted following the dissemination of Gross's

25 report or any drafts of his report. While the government

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1 claims that members of the legal affairs committee voted to

2 adopt the draft resolution formed after Gross's investigation

3 without objection, there's no evidence that an actual hearing

4 with the appropriate procedural safeguards was actually

5 conducted.

6 Finally, the inception of this report appears to have

7 been predicated on a series of events that bring into question

8 certain motivational problems. The Gross report cites "earlier

9 work" of the assembly regarding Magnitsky's death. One of the

10 events that may have colored the investigation from the outset

11 is William Browder's interference with the assembly's work.

12 In June 2011, it appears that Browder "made an

13 intervention at a parliamentary seminar" at a meeting of the

14 committee that ultimately authorized Gross's involvement in

15 conducting his investigation.

16 Further, the Gross report is replete with statements

17 from witnesses that are sympathetic to Magnitsky and Browder,

18 among others. There's several individuals who were paid and

19 directed by Hermitage to investigate Magnitsky-related events

20 who were interviewed by Gross.

21 While Gross cites certain conversations he had with

22 Russian officials and the documents he received from them,

23 those references are eclipsed by the statements and opinions by

24 Browder, Hermitage, and other self-interested parties. By

25 Gross's own admission, he "regrets nevertheless" that he did

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1 not "speak directly with the persons most immediately concerned

2 by the allegations of criminal conspiracy," despite having

3 sought them out. That's the Gross report, paragraph 4.

4 That omission brings into doubt that Gross "heard both

5 sides of the story," a fact that renders his findings and

6 conclusions unreliable. In Re Parmalat Securities Litigation,

7 477 F. Supp. 2d 637, 641 (S.D.N.Y. 2007).

8 Most troubling is that the report's author, Andreas

9 Gross, refused to appear for deposition in this action, citing

10 humiliation as the reason. He appears unable to stand behind

11 and defend the findings and conclusions of his report, a

12 decision which only undermines the credibility and

13 trustworthiness of that report. His position, whatever its

14 genesis, has undermined the ability of Prevezon to challenge

15 his conclusions. See Parmalat Securities, 477 F. Supp. 2d 641.

16 In other words, the Gross report is some piece of work, and I

17 mean that in hyperbole.

18 Accordingly, Prevezon's motion to exclude the report

19 is granted.

20 Let's turn to Motion No. 4, witness interviews and

21 summaries.

22 I'll tell you that I don't need to hear argument here.

23 I think that the hearsay statements that are reflected in the

24 interview summaries or declarations may be considered by the

25 Court for appropriate purposes other than proving the truth of

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1 the matters asserted therein. This Court would limit its

2 consideration of this evidence to such nonhearsay purposes.

3 See Spratt v. Verizon Communications, Inc., 2014 WL 4704705 at

4 *4, note 4 (S.D.N.Y. September 17, 2014).

5 One of those purposes may be to prove notice or

6 knowledge of something such as Hermitage's act of filing a

7 complaint at the time its portfolio companies were stolen or

8 simply to "show the context within which the parties were

9 acting." Arista Records LLC v. Lime Group LLC, 784 F. Supp. 2d

10 at 398, 420 (S.D.N.Y. 2011).

11 At this juncture, however, because the government has

12 not specified what it intends to use these interview summaries

13 and declarations for, this Court denies Prevezon's motion

14 without prejudice to reapplying at a later time when the

15 government specifically seeks admission of the evidence for a

16 nonhearsay purpose. Precluding these summaries and

17 declarations at the outset, based on speculation of which

18 nonhearsay purpose the government might use these materials for

19 would be premature and unhelpful. So the parties are directed

20 to set these materials aside until the government seeks

21 permission to use them.

22 Let's turn to Motion No. 5, the Israeli money

23 laundering allegations.

24 MR. ABENSOHN: Thank you, your Honor.

25 Your Honor, bringing in past allegations in a separate

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1 unrelated matter is the paradigm for inadmissible evidence

2 under Rule 404. Since we're talking about allegations, and

3 only allegations that were resolved by settlement, we're also

4 in the paradigm under Rule 408, which precludes the admission

5 of settlements.

6 This is a straight line, in our view, your Honor.

7 This is exactly the sort of evidence the government should not

8 be permitted to introduce.

9 Now, I want to address the government's rationale or

10 its stated rationale. What it says is that Mr. Katsyv's past

11 experience, having had allegations made in Israel, put him on

12 notice that under United States law, he would have had an

13 obligation not to make misrepresentations to a bank.

14 There's a lot of problems with that. I want to start

15 with an overarching point which the Second Circuit has

16 emphasized. I'm reading from United States v. Gordon, 987 F.2d

17 902, 908:

18 "Rule 404(b) does not authorize the admission of any

19 and every sort of other-act evidence simply because a defendant

20 proffers an innocent explanation for the charged conduct."

21 As the Second Circuit has also said, and this is in a

22 case called McCallum, the courts are to be on the lookout for

23 propensity evidence in sheep's clothing.

24 With that in mind --

25 THE COURT: I got it. I love that quote.

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1 MR. ABENSOHN: We do too, your Honor.

2 With that in mind, that's what we are dealing with.

3 THE COURT: Let me hear from the government.

4 MR. ABENSOHN: Okay.

5 MS. LaMORTE: Good evening, your Honor.

6 I want to first start out by noting that the defense

7 is wrong that this is a settlement without an admission. But,

8 in any event, whether it is or isn't, the case law that we

9 cited in our brief provides for settlements with and without

10 admissions to be entered as 404(b) evidence in appropriate

11 circumstances, and that is including knowledge and intent.

12 Now, in this case --

13 THE COURT: But isn't the purpose for which the

14 government is offering this evidence, namely, knowledge about

15 the parameters of money laundering, isn't it so general that it

16 really bears on the completely mundane?

17 MS. LaMORTE: Let me say this, your Honor: I

18 understand your point as to providing false information to

19 banks as something that's wrong and you should not do. But

20 there's another --

21 THE COURT: You don't need this Israeli settlement to

22 demonstrate that. Everybody, including the jurors who are

23 going to be sitting in the jury box, are going to know that you

24 shouldn't be lying to your bank or financial institution,

25 right?

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1 MS. LaMORTE: That is correct.

2 However, let me add that the other element of this the

3 money laundering is really settlement is relevant to is that

4 banks rely upon the information provided by parties to a

5 transaction for purposes of fulfilling money laundering

6 allegations.

7 In this case, we have testimony from Mr. Katsyv that

8 says, A, it was not his responsibility to confirm the

9 information that UBS is receiving; and, B, that he relied on

10 UBS to figure out the cleanliness and the source of money that

11 was coming into the account.

12 So I would say, your Honor, that the fact that he

13 learned from the Israeli settlement that banks rely upon the

14 information submitted for money laundering purposes completely

15 bears on his testimony that, Well, it wasn't my responsibility;

16 it was that of UBS. No, it was his responsibility. And so in

17 that aspect, I think the link is very strong.

18 Now, as to prejudice, there is not unfair prejudice

19 here. Every 404(b) evidence can be considered prejudicial to

20 some extent; it's other wrongs, other crimes evidence, of

21 course. But the question is whether it's unfair. And in the

22 404(b) context, courts will look at how sensational this

23 prior-acts evidence is compared to the conduct that we have at

24 issue here.

25 We submit -- and I don't think that the defendants

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1 disputed this in their reply papers -- that the conduct at

2 issue in the Israeli settlement is not any more sensational

3 than the conduct that is at issue here.

4 So, your Honor, it is directly probative and it is not

5 unfairly prejudicial.

6 THE COURT: All right. Thank you, Ms. LaMorte.

7 I will acknowledge to the parties that this motion is

8 a closer case for the Court than some of the other motions.

9 Prevezon's motion to exclude evidence of the Israeli

10 settlement regarding money laundering charges is granted.

11 Although the government's intended use of the settlement does

12 not run afoul of Rule 408's prohibition, it does amount to

13 propensity evidence and, therefore, in my view, does not

14 qualify under Rule 404(b). It's also highly prejudicial and

15 runs the risk of distracting and confusing the jury under Rule

16 403.

17 Here, while Katsyv's experience and participation in

18 settling money laundering charges with Israeli authorities

19 could show his general knowledge and understanding of what type

20 of conduct violates money laundering laws, the issues regarding

21 Katsyv's knowledge are so general that a jury does not need to

22 see a settlement resolving Israeli charges from nearly a decade

23 ago to understand that.

24 There is a concern in this civil money laundering

25 action that a separate money laundering settlement could cast

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1 Prevezon's principal, Denis Katsyv, a money launderer, even

2 though the settlement involved no admission of liability or

3 guilt. And even if the settlement can properly be admitted for

4 many purposes, it is "propensity evidence in sheep's clothing"

5 and runs the risk of parading unsubstantiated innuendo before

6 the jury. United States v. Mostafa, 16 F. Supp. 3d 236, 253

7 (S.D.N.Y. 2014).

8 I'll say that in Mostafa, my colleague, Judge Forrest,

9 has a fine way with words.

10 Now, the purpose for which the government seeks to use

11 the settlement under 404, that it would show that Mr. Katsyv

12 was "aware of the laws against money laundering" is so general

13 that a jury can understand that concept without having to see

14 or know about the settlement. It's, as I've said, commonly

15 known that lying to one's bank is generally illegal or, at the

16 very least, improper.

17 Finally, the effect of introducing the settlement will

18 unduly prejudice and confuse the jury; it will only waste time

19 in a trial that's already expected to span more than four

20 weeks. Any probative value offered through the settlement is

21 substantially outweighed by the prejudice of painting Katsyv as

22 a money launderer.

23 Let's turn to Prevezon's Motion No. 6 relating to

24 preclusion of Dr. Louise Shelley.

25 MS. SHARMA: Thank you, your Honor.

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1 Renita Sharma for Prevezon.

2 I'd like to make two points primarily in favor of

3 excluding Dr. Shelley's testimony.

4 The first is that she improperly vouches for the

5 credibility of the government's factual allegations, in direct

6 contradiction of numerous Second Circuit cases.

7 The second reason is that her testimony is not helpful

8 to the trier of fact here. Nothing that she alleges to be

9 typical of Russian organized crime is outside the ken of the

10 average juror.

11 Now, to my first point that her testimony is merely

12 vouching --

13 THE COURT: But isn't corporate raiding in Russia the

14 so-called reiderstvo, isn't that something that the average

15 juror or even the average district judge may not be familiar

16 with?

17 MS. SHARMA: Your Honor, I would point you to the

18 government's brief in opposition at page 7, where they lay out

19 exactly what Dr. Shelley defines as the components of what she

20 calls reiderstvo.

21 She identifies primarily four factors that she

22 considers typical of Russian corporate raiding. They include,

23 No. 1, criminals might falsify court records or corporate

24 records; No. 2, that criminals might work together, even absent

25 a family relationship; No. 3, criminals might be motivated to

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1 work together because they have "common economic interests."

2 And criminals might commit crimes other than drug dealing or

3 prosecution.

4 Respectfully, your Honor, there's nothing specific to

5 Russia or corporate raiding about these facts. They are very

6 much within the understanding of a juror. And simply bundling

7 them together and saying because they happened in Russia they

8 are different does not meet the government's burden here to

9 show that this testimony is necessary for the jury.

10 THE COURT: All right. Thank you.

11 MS. PHILLIPS: Your Honor, in fact, the concept of

12 corporate raiding as it exists in Russia is not at all

13 intuitive to a U.S. audience. And to be perfectly honest, it

14 took the lawyers working for the government in this case some

15 time to wrap our heads around it. The fact that you can steal

16 a company, that that is possible, and the players involved in

17 that, that's something that while the average Russian may be

18 reading about it in the newspaper with great frequency, the

19 average American is not and, in fact, it's quite a foreign

20 concept.

21 The scope of Dr. Shelley's testimony in this case will

22 be quite limited. I'll just note, your Honor, that Dr. Shelley

23 gave very similar testimony just this week in a bankruptcy

24 matter in the Southern District in a case in which the debtor

25 alleges that he was the victim of corporate raiding. She

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1 testified for about 30 minutes; she laid out in general terms

2 the concept of reiderstvo, which I certainly would not be able

3 to pronounce if she hadn't taught me how. Her testimony was

4 very informative, but not at all specific to the facts of the

5 case. That's precisely what we propose that she do here. We

6 do think that her testimony will be very helpful to the jury.

7 THE COURT: All right. Thank you.

8 MS. PHILLIPS: Thank you.

9 THE COURT: Prevezon's motion to exclude testimony of

10 expert Louise Shelley is granted in part and denied in part.

11 "Expert testimony on the historical context,

12 operation, composition, and structure of criminal organizations

13 is generally admissible." See, e.g., United States v. Matera,

14 489 F.3d 115, 121 (2d Cir. 2007). "So long as it provides

15 information on subjects beyond the ken of the average juror."

16 United States v. Mejia, 543 F.3d 179, 191 (2d Cir. 2008).

17 Expert testimony is also admissible "on some occasions

18 to explain nonesoteric matters, when the defense seeks to

19 discredit the government's version of events as improbable

20 criminal behavior." United States v. Cruz, 981 F.2d 659, 664

21 (2d Cir. 1992). But expert testimony cannot be used solely to

22 bolster the credibility of the government's fact witnesses by

23 mirroring their version of the events. Cruz, 981 F.2d at 664.

24 That includes offering an account of a typical crime that

25 mirrors the specific facts provided by the government's

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1 witnesses. See United States v. Rijo, 508 Fed. Appx. 41, 45

2 (2d Cir. 2013).

3 Here, Dr. Shelley may testify generally about how

4 criminal organizations operate and function in Russia. This

5 Court finds that there are issues specific to criminal activity

6 in Russia, like corporate raiding, reiderstvo, the structures

7 of organized criminal groups that are uniquely beyond the ken

8 of the average juror. That includes offering general examples

9 of what corporate raiding in Russia looks like.

10 Her testimony can be used to counter whatever

11 assertions regarding the Russian criminal organization's

12 actions Prevezon may make to the contrary. But Dr. Shelley may

13 not, as she does her report, provide testimony regarding the

14 testimony of fact witnesses. She may not comment on the

15 specific allegations asserted by the second amended complaint,

16 nor may she opine on the legal validity of the government's

17 claims. She may not offer examples of Russian criminal

18 activity that precisely mirror the allegations in this action.

19 Finally, in its summation, I will not permit the

20 government to rely on Dr. Shelley's testimony to connect her

21 statements with the testimony provided by fact witnesses.

22 Let's turn to Prevezon's motion in limine No. 7,

23 evidence related to Nikolai Gorokhov.

24 MR. ABENSOHN: Thank you, your Honor.

25 THE COURT: Now, this motion is essentially also tied

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1 into the government's motion in limine No. 1.

2 MR. ABENSOHN: That's correct.

3 THE COURT: I'll entertain both at this juncture.

4 MR. ABENSOHN: Thank you, your Honor.

5 Indeed, the material that's the subject of each motion

6 is the same; it's the so-called Gorokhov material.

7 I want to start with a simple proposition and maybe to

8 contrast it with what the government argues in its brief.

9 The government says it has created complex grounds of

10 authentication. Let me bring it to something simple. The

11 rules of evidence are supposed to matter; they are rules. And

12 in very straight-line bases, the rules that the government

13 cites are not satisfied here. And I think I can demonstrate

14 that.

15 If your Honor will allow me, I have a few slides that

16 might help keep me oriented in this discussion that I'd like to

17 hand up to your Honor and provide to the government as well.

18 THE COURT: All right. Let's proceed.

19 MR. ABENSOHN: Thank you, your Honor.

20 THE COURT: Note my concern about Power Point at 6:30.

21 MR. ABENSOHN: I understand, your Honor.

22 Now, in its opening brief in its Motion No. 1, your

23 Honor, the government identifies two specific rules that it

24 proposes to bring in this Gorokhov material under. And I

25 should actually orient a bit further.

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1 There are two components of this Gorokhov material;

2 there are bank statements or purported bank statements within

3 the material, and then there is everything else. I want to

4 focus on the bank statements.

5 What the government invokes is 902(12), which is

6 applicable to foreign business records, and 803(8), which

7 applies to public reports. And then as a fallback in its

8 25-page brief, I think it devoted a page and-a-half at the end

9 to the residual exception. I submit -- and I think it will be

10 clear as we are talking -- that the tail is now wagging the

11 dog. The government is all in on the residual exception

12 because, frankly, there's no plausible argument to bring these

13 materials in either under 902(12) or 803(8).

14 I want to start with the language of the rule, and

15 that's the first slide, your Honor, that you have before you.

16 And 902(12) has essentially two critical components. By its

17 terms, it requires a certification signed in a manner that, if

18 falsely made, would subject the maker to a criminal penalty in

19 the country where the certification is signed. That's the

20 express requirement of 902(12). 902(12) otherwise incorporates

21 by reference 902(11), which, in turn, requires that the

22 certification demonstrate compliance with the business record

23 criteria under 803(6), which the Court is, of course, familiar

24 with.

25 So really two fundamental requirements: A

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1 certification that would expose the signer to criminal penalty

2 in Russia, and a certification adequate to confirm that the

3 records satisfied the business record criteria.

4 Now, I don't want to discuss this in a vacuum; I think

5 if we actually look at the paperwork the government is relying

6 on, this comes very becomes very clear. That's the third slide

7 your Honor has, or the third page. It's an example.

8 The government points to what it refers to as

9 transmittal paperwork. Just to orient the Court, apparently

10 what happened -- at least according to the government -- is

11 that its confidential informant photographed pages out of this

12 Russian criminal case file, including pages like the one your

13 Honor is looking at, which is marked 201-7D and 7DT, which is

14 the translation.

15 This is the size and sum of it, your Honor. This is

16 the "transmittal paperwork" that, according to the government,

17 and I'm reading from their brief, will easily permit a jury to

18 plainly conclude that who wrote this was under threat of

19 criminal sanction if the information were false. That is an

20 uncited statement and respectfully, your Honor, there's no

21 basis for it whatsoever. There's nothing here resembling an

22 affirmation; there's no language acknowledging any legal

23 obligation to be accurate or lawful; there's no Russian law

24 expert who has come before the Court to identify a provision of

25 law that would make a, quote/unquote, false statement in a

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1 transmittal document criminal. There's nothing. This is true

2 across these examples.

3 The next page, which is the 201-8CT, this one even

4 includes a portion of the translation that says it's illegible.

5 THE COURT: Isn't the larger question here whether it

6 should come in under the residual hearsay exception?

7 MR. ABENSOHN: Your Honor, ultimately that becomes the

8 question, because so clearly they haven't satisfied the

9 particular rules they are talking about. And the two

10 particular rules are this foreign records rule, where clearly

11 you don't have the certification subject to criminal penalty;

12 and, in fact, we have the Doyle quote on page 6, which says

13 explicitly without a presentation of a foreign law expert to

14 make that confirmation, you don't have it.

15 They also don't satisfy the public records exception,

16 among other reasons, your Honor, because -- and this also goes

17 to why the residual shouldn't apply. What they are essentially

18 saying on the public records exception is that tracing experts

19 working for the government in Russia used these documents and

20 therefore they have been implicitly adopted as true.

21 Now, sometimes it's easier to think about this in

22 terms of this courthouse. If we went down to the clerk's

23 office and pulled out a government expert report relying on

24 documents and said to your Honor these should be admitted

25 because a government agent relied on them, we would be

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1 summarily rejected. The idea that because a partisan

2 government agent in Russia made use of these documents in a

3 tracing report is all the more reason that this can't be relied

4 upon.

5 THE COURT: Can this Court take judicial notice to

6 authenticate the records, especially bank records?

7 MR. ABENSOHN: Respectfully, your Honor, no. If these

8 records can be authenticated simply because they are "bank

9 records," 803(6) ceases to have any meaning. Lawyers in this

10 courthouse who get certifications from banks like Citi and

11 JPMorgan Chase, where we might actually be able to assume

12 validity, would be very surprised to learn that you could look

13 at a record, like the one that appears on page 7 of this slide

14 deck and simply decide on its face that it is sufficiently

15 clear that it was generated near in time to a transaction by

16 someone with authority to do it and maintained as an ordinary

17 part of any bank's business. If the mere appearance of this

18 document, your Honor, is enough to satisfy that, there is

19 literally no constraint imposed by 803(6) whatsoever.

20 And I'll add, we've heard about Dr. Shelley. I have a

21 quote from her report on the eighth slide.

22 THE COURT: But isn't this a case where there's really

23 no other way to obtain these bank records?

24 MR. ABENSOHN: Respectfully, your Honor, the fact that

25 the government can only hope to prove its case with evidence

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1 that is not competent is not a reason that the government

2 should be permitted to use that evidence. My client has had

3 assets frozen now for three years. They've had their

4 reputations demolished. And here we are three-odd years into

5 this proceeding where the government is literally saying this

6 was found in a case file in Russia, incidentally, in a case

7 they consider corrupt and a coverup; therefore, can't we trust

8 the transactions reflected on the paperwork are accurate.

9 Your Honor, that is not how this is supposed to work.

10 The rules are supposed to matter. And when we consider these

11 Russian documents, these bank records, consider what Dr.

12 Shelley has had to say.

13 We quote from her report on this slide No. 8.

14 "The money that was allegedly stolen from the Russian

15 treasury could easily be moved through these minor banks of the

16 Russian banking sector because of the criminalization of

17 Russian banking and the absence of controls over the banking

18 sector."

19 So not only is this prosecution in Russia, in the

20 government's view, corrupt -- and incidentally, it's corrupt

21 including through the creation of other documents the

22 government considers forgeries and sham --

23 THE COURT: But even if there's a coverup, does that

24 mean that the underlying information can't be accurate and

25 authentic?

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1 MR. ABENSOHN: They come in under the residual

2 exception, your Honor, which is a rarely-applied exception.

3 The government has an affirmative burden to show that they are

4 particularized indicia of reliability. Clearly the fact that

5 these documents are sitting in a case file is not indicia of

6 reliability. And respectfully, your Honor, when these

7 documents are sitting in a case file in a court the government

8 deems corrupt, it is not indicia of reliability.

9 There is simply no basis in the world to assume that

10 these "minor banks," in Dr. Shelley's words, who are

11 controlled, in Dr. Shelley's view, by organized crime, are

12 generating reliable, genuine account statements that accurately

13 report transactions. It is pure speculation, your Honor. And

14 again, all they have in the end is the appearance of the

15 document itself. If that were enough, these rules simply would

16 not apply.

17 I think the case authority on this issue is really

18 important. Because after the government more or less abandons

19 803(8) and 902(12), they essentially say, Well, courts do this

20 all the time. This is standard.

21 THE COURT: Wouldn't Gorokhov have used these

22 documents on his own claims, on behalf of his own clients?

23 MR. ABENSOHN: I'm not sure I understand, your Honor.

24 THE COURT: Isn't this sort of a rare and exceptional

25 circumstance that the government is confounded with here?

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1 MR. ABENSOHN: Your Honor, the only thing that's

2 exceptional here is that the government is trying to put in

3 here say where the rules aren't satisfied.

4 We cite a case in our brief, Doyle, that essentially

5 says just because it's hard to do it, just because it's

6 difficult to comply with the rules, don't mean you bend the

7 rules. There is no 803(6) satisfaction here. There is no

8 certification by a foreign bank subject to a penalty under

9 perjury.

10 I'll also refer your Honor to the Lakah case which we

11 cite in our brief. The government says courts let this in all

12 the time. Doyle said you can't let in documents furnished to a

13 foreign government by a private actor without some additional

14 foundation. That's what these are. And then Lakah applied

15 that to bank records, foreign bank records, exactly what we are

16 dealing with.

17 I submit, your Honor, there's no air between what we

18 have here and what we had in Lakah. Contrary to that, there is

19 a fundamental difference between this case and those cases that

20 the government insists are exactly like this one.

21 THE COURT: Let me hear from the government.

22 First of all, Mr. Monteleoni, why are the Russian

23 investigative reports reliable here, but not elsewhere?

24 MR. MONTELEONI: Well, the findings that the bank

25 statements that are obtained reflect the account activities,

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1 the only finding that we are putting forward here as reliable,

2 that finding is overwhelmingly reliable. It's not just the

3 appearance of the documents, it's not just that the

4 investigators looked at them. It's that they corroborate with

5 each other. They corroborate with records that are from other

6 countries, more than one other country.

7 This is really just worlds apart from defense

8 counsel's description of it. Let's leave aside that the slide

9 deck doesn't include all of the paperwork that he's saying is

10 sort of the sum and substance of the authentication.

11 Defense counsel is absolutely right that rules matter.

12 There are countries that don't have flexible rules of evidence

13 that require everything to be certified, notarized, before it

14 can be admitted into evidence. The U.S. is not that system.

15 It has flexible means of authentication and it has the residual

16 hearsay exception.

17 There are also cases -- cases that we cite and that

18 they don't distinguish -- that actually use judicial notice of

19 things that, honestly, everyone here understands about the

20 nature of bank records, to fill in some of the context and let

21 the business records exception apply.

22 So it's absolutely correct that the rules matter. But

23 we have Turner, where bank records that appear to be bank

24 records and that are partly corroborated, are found in a safe.

25 That is the Third Circuit absolutely upholding them under the

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1 residual hearsay exception; this is not some alien outlier that

2 the government made up. That's a case. Donziger, also a case.

3 There is no way of finding these records to be less reliable

4 than those.

5 In Donziger, an account holder went to the bank, asked

6 for the statement and got it, and said, This is what I got.

7 And wasn't a bank employee, didn't talk about the bank's

8 practices. That was obviously reliable, even without tying it

9 out.

10 In Turner, the records were just found in a safe and

11 they tied out.

12 Here what you have is records from numerous different

13 accounts tying out to each other; 78 percent of the

14 transactions or so are corroborated. The ones that aren't

15 corroborated are just where they're transacting with people

16 whose records weren't obtained. That level of corroboration

17 between a number of different entities is extraordinary. It's

18 an obviously superior basis for actually concluding that these

19 are reliable than if there had been one piece of paper with a

20 certification from someone from the bank in any realistic

21 sense.

22 You also have investigators, whatever their overall

23 motives are, there's no way where even the investigators with

24 motivation problems that we believe exist, there's no reason to

25 think that there's any motivation for them to say that bank

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1 statements don't say what they say or that they are false. In

2 fact, they are corroborated by the audit report, the third of

3 the three investigative reports, which is from an entirely

4 different investigation, an investigation into the bank itself

5 that the money exited Russia from, was flagged by Russian

6 authorities for suspected money laundering. Authorities moved

7 in, froze the accounts.

8 The funds that went to Prevezon are some of the funds

9 that got out a day or two before that freeze came in. That

10 investigation that they did into the bank was not started about

11 the Russian treasury fraud; there's no indication that there's

12 anything wrong with their motivations. But it corroborates the

13 genuineness of the bank records that the other investigators

14 do.

15 So you have three different investigative reports from

16 two different investigations that corroborate numerous bank

17 records, which corroborate each other, which corroborate bank

18 records from other countries.

19 THE COURT: What proportion of the records can be

20 independently corroborated by admissible records the government

21 received from other sources?

22 MR. MONTELEONI: From other countries?

23 THE COURT: Yes.

24 MR. MONTELEONI: Other countries, only from the last

25 two accounts, the ones that actually were exit points from the

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1 country.

2 What you have though is a number of files within the

3 overall criminal case file, which plainly there is ample reason

4 for the jury to be able to tie out each of them to a separate

5 bank. They are sealed with separate bank seals. Whether or

6 not their certification meets any standard of certification,

7 there's no getting around the fact that these are multiple

8 different -- that there's ample evidence for a jury to conclude

9 there's multiple different institutions that are sealing,

10 binding, tying documents.

11 The thing that defense counsel submitted as the

12 transmittal isn't really the transmittal, it's just the seal.

13 But the seal is they tie the pieces of paper physically

14 together, seal it, and submit it to a Russian criminal

15 investigator. That happened from multiple different

16 institutions, I want to say about like six to eight Russian

17 banks. The records corroborate each other. And some portion

18 of it, the portion that leaves Russia, corroborates records

19 that we got from other countries.

20 All in all, it's really overwhelming compared to

21 Donziger or compared to Turner. And there are numerous cases

22 which we cite in the end of our reply brief where uncertified

23 bank records are applied all the time without any indicia that

24 there's this level of reliability.

25 THE COURT: If the so-called attested and seized

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1 records were excluded as hearsay, do you believe that you'd

2 still be able to prevail at trial?

3 MR. MONTELEONI: Well, we would have other evidence,

4 but the grounds for putting that in, for having that

5 admissible, are less strong than for having this admissible.

6 So we have other evidence. We think that that other evidence

7 would also meet the hearsay standard and be admissible.

8 But if the Court finds that these aren't admissible,

9 then the Court isn't going to find that those weren't. So that

10 probably would drastically limit, if not eliminate, our ability

11 to proceed with the case.

12 THE COURT: All right. Anything further?

13 MR. MONTELEONI: I would also point that -- no.

14 Nothing, unless the Court has other questions. Thanks.

15 MR. ABENSOHN: May I, your Honor, respond?

16 THE COURT: Briefly.

17 MR. ABENSOHN: Thank you.

18 Your Honor, to me, there's a telltale sign in the

19 government's presentation. I wrote down, as Mr. Monteleoni was

20 talking, "plainly," "ample," "obvious," "overwhelming," "no

21 getting over."

22 Your Honor, there's nothing ample here.

23 First of all, Mr. Monteleoni said I hadn't provided

24 the Court with all the documents. That's because there's tons

25 of them, Judge. The government is essentially trying to prove

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1 up this massive portion of its case with hundreds of pages of

2 unauthenticated bank records, your Honor.

3 The second point I'll make has to do with what the

4 case law says.

5 First of all, Mr. Monteleoni relies heavily on Turner

6 in the Third Circuit, which I'll address; but he ignores Doyle

7 and he ignores Lakah.

8 What Doyle says is: "It would be a major step

9 judicially to forge a new hybrid exception to the hearsay rule

10 by combining these two distinct varieties of admissible

11 hearsay."

12 The court was talking about the government having

13 failed to satisfy the public reports exception and the business

14 records exception.

15 Same scenario here.

16 And it goes on to say it would be an abuse of

17 discretion to try and marry those two in order to get to the

18 residual.

19 The court in Lakah, same circumstance, foreign bank

20 records, says Doyle is controlling, and excludes them.

21 Now, Turner and Donziger, I heard Mr. Monteleoni say

22 there's no way to distinguish Donziger. The court in Donziger

23 cited the following testimony. I'm quoting. I don't have the

24 page number, I apologize. But it quotes a question from the

25 attorney:

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1 "If you could please take a look at each of these,

2 Mr. Guerrero, are each of those documents a monthly bank

3 statement that you received from your bank concerning your bank

4 account?

5 "A. Yes, sir, they are.

6 "Q. Do you recognize them to be true and accurate copies of

7 your bank statements?

8 "A. Yes.

9 "Q. Are those documents that you turned over to Chevron in

10 connection with this litigation?

11 "A. Yes."

12 Your Honor, there is a massive distinction between

13 this case and the government's cited cases.

14 The other cases that were referred to, cases like

15 Strattinger, again, you had a bank custodian say: "The records

16 were of a type normally maintained in the ordinary course of

17 the bank's business."

18 In Karm, another case they cite: "The bank provided

19 the records pursuant to a treaty, and government officials

20 cooperated in turning them over."

21 Strickland. An account holder verified the validity

22 of the accounts.

23 All you have here in comparison to those cases is the

24 document was sitting in a foreign court file. That is all you

25 have here, your Honor.

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1 THE COURT: All right. I think I got it.

2 MR. ABENSOHN: If I can move on to the point about

3 corroboration. And I think this is important.

4 He says -- I forget the exact number -- 78 percent are

5 corroborated. But when your Honor asked the question, we view

6 it as the right question, how many are corroborated with

7 authenticated documents, I think it becomes fewer than ten

8 percent. And frankly, more importantly, only one bank out of

9 seven can be corroborated on that basis, even assuming it's a

10 sufficient form of corroboration.

11 Now, if someone came in here with documents from

12 Citibank, JPMorgan Chase, and another bank, and presented

13 sufficient authentication as to the JPMorgan documents, that's

14 not a basis to admit the Citibank documents. So even if this

15 corroboration theory worked where there was corroboration with

16 nonGorokhov materials, it doesn't work as to fully seven out of

17 these eight banks, your Honor.

18 And then finally, Mr. Monteleoni talked about how they

19 were supported by an audit report.

20 One more point I'll make about corroboration.

21 Mr. Monteleoni relies heavily on Turner. Turner actually

22 speaks to this issue. In Turner, one of the important

23 considerations was that, in the court's words, there was

24 corroboration -- many of the documents were corroborated with

25 domestic bank records. That was one of the multiple criteria

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1 that the court in Turner ticked off, as well as the fact that

2 the documents were found in the possession of the account

3 holder. Those are two fundamental differences with what we

4 have here, your Honor.

5 If you are finding a bank account statement in a

6 person's own home, that is a pretty good indication that it's

7 their bank statement reflecting their account activity. If

8 that bank statement corroborates with domestic authenticated

9 records, that might be a pretty good indication too. We don't

10 have that here. What we have is Lakah.

11 Finally, your Honor, Mr. Monteleoni talked about the

12 audit report. This is more of the same problem. If we walked

13 downstairs and got a tracing report from a government expert,

14 that is not authentication. If that were authentication, we

15 wouldn't be having this motion and we wouldn't be having this

16 argument. The government's agents here have relied on these

17 records.

18 THE COURT: I got it.

19 MR. ABENSOHN: If that's what we are up against, your

20 Honor, then these rules don't apply. And, again, I'll agree

21 with Mr. Monteleoni, the rules matter. And if they matter

22 here, our application should be granted, respectfully, your

23 Honor.

24 THE COURT: All right.

25 On this motion, on Prevezon's motion No. 7 and the

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1 government's motion in limine No. 1, I am reserving. I'll

2 issue an order by the beginning of next week.

3 On the government's motion in limine No. 2, concerning

4 evidence and arguments on the asset-tracing law, I agree with

5 Prevezon that this motion is premature and that it may be

6 rendered moot by any decision on Prevezon's summary judgment

7 motion. So I'm reserving judgment on this motion because it's

8 tied to the summary judgment motion. I'm also working on that

9 and I'm going to get that out next week. But, as you can see,

10 I've been busy.

11 Now, the government's motion in limine No. 3 regarding

12 the money laundering expert, Daniel Alpert, does the government

13 want to be heard very briefly?

14 MS. LaMORTE: Very briefly, your Honor.

15 First of all, I realize it's late in the day, but I

16 just want to clarify that Mr. Alpert is not a money laundering

17 expert; he is the defense's real estate expert.

18 THE COURT: You're right.

19 MS. LaMORTE: Sorry. I just wanted to clarify.

20 This is very simple, your Honor; it's very

21 straightforward.

22 THE COURT: What really is the issue that the

23 government takes exception to with his testimony?

24 MS. LaMORTE: Sure.

25 Your Honor, he testifies that the foundation of his

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1 opinion is the "law, custom, and practice" in Russia. He also

2 testified repeatedly at his deposition he is not an expert on

3 Russian transactions.

4 So on the one hand, it is okay for him to say that you

5 have to take into account the place a transaction occurs to

6 determine its commercial reasonableness; but he can't then go

7 on to say, By the way, I think these Russian transactions are

8 reasonable, when he has no experience in Russia.

9 That is basically the nub of the argument, your Honor.

10 THE COURT: I got it.

11 MS. LaMORTE: Got it.

12 MR. ABENSOHN: Thank you, your Honor.

13 The government's expert, Mr. Alpert, is not a Russia

14 expert either. He's looking at these Russian transactions and

15 saying they have red flags for -- Belston, I'm sorry, and

16 saying they have red flags for money laundering. So there's an

17 equivalency issue here for us, your Honor.

18 THE COURT: That sounds like you're invoking the

19 goose/gander rule.

20 MR. ABENSOHN: I'm a fan of the goose/gander rule on

21 this issue in particular, your Honor.

22 THE COURT: I am too, but I don't see how this expert

23 can be opining on Russian matters.

24 MR. ABENSOHN: Your Honor, he is not going to be

25 opining on Russian law. That is not why we've proffered him.

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1 THE COURT: Okay. Right. Because I can assure you

2 he's not, because I'm prepared to rule on this in limine

3 motion, so we can move on.

4 MR. ABENSOHN: If I can at least briefly make clear

5 what we would propose that he testify about.

6 He's an expert on real estate investment; 35 years

7 experience.

8 THE COURT: In the United States.

9 MR. ABENSOHN: In the United States.

10 THE COURT: That's what he's going to testify about.

11 MR. ABENSOHN: And we're happy if he does, your Honor,

12 because he can identify in a number of respects that these

13 transactions were perfectly typical and were not "red flags" on

14 the grounds that the government's expert will be suggesting.

15 THE COURT: All right.

16 The government's motion is granted in part and denied

17 in part.

18 Both parties acknowledge that Alpert has been

19 designated as Prevezon's real estate investment expert and that

20 Prevezon separately retained a money laundering expert.

21 This Court concludes that Alpert is insufficiently

22 qualified to opine on money laundering issues based on the

23 limited experience he's had as a compliance officer of an

24 investment bank. Alpert's testimony must be cabined to his

25 area of expertise: Financial services and real estate

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1 investment in the United States.

2 This Court precludes Alpert's testimony or opinion to

3 the extent it concerns policy consequences that he believes

4 will result from the standards the government seeks to impose

5 in this case and the disposition of this action or Prevezon's

6 liability in connection with the money laundering allegations

7 or Russian business dealings or anything to do with the Russian

8 markets. These categories of opinion should be left to

9 Prevezon's money laundering expert.

10 However, to the extent that certain money laundering

11 issues arise as ancillary issues to Alpert's opinion on what

12 real estate investors reasonably should expect or are aware of

13 in a typical New York or U.S.-based real estate transaction

14 such as the risk factors they consider in their due diligence,

15 I'll permit Alpert to provide such testimony.

16 Let's turn to the government's motion in limine No. 4.

17 MR. ABENSOHN: Your Honor, may I briefly?

18 If it's acceptable to the Court, an earlier ruling may

19 have a bearing on our position with respect to this motion and

20 we would ask perhaps five minutes to consult with our client.

21 THE COURT: On No. 4?

22 MR. ABENSOHN: Yes, your Honor.

23 THE COURT: All right.

24 It's probably a good time. We'll take a

25 five-minute -- but literally --

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1 MR. ABENSOHN: Understood, your Honor.

2 THE COURT: -- five minutes. Okay?

3 (Recess)

4 THE COURT: Mr. Abensohn.

5 MR. ABENSOHN: Yes, your Honor.

6 I hope I have the motion numbers right, because I

7 don't want to say this with regard to the wrong motion. But

8 with respect to the issues surrounding Mr. Lurie, in light of

9 your Honor's ruling that Mr. Magnitsky's imprisonment and

10 related issues is not in the case, we would not anticipate

11 presenting him as a witness.

12 THE COURT: All right. Good.

13 Motion in limine No. 5. This concerns evidence of the

14 in absentia conviction.

15 MS. LaMORTE: Yes, your Honor.

16 THE COURT: Go ahead, Ms. LaMorte.

17 MS. LaMORTE: Your Honor, we are moving to exclude

18 Mr. Browder's conviction for tax evasion in 2013 in Russia.

19 We've put forward substantial evidence that it was a political

20 persecution and therefore does not meet the reliability

21 standards for a foreign conviction to come into evidence under

22 Rule 803(22) of the Federal Rules of Evidence.

23 THE COURT: Why can't Prevezon use the existence of

24 the conviction for nonhearsay purposes?

25 MS. LaMORTE: They can use it. We don't contest, for

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1 example, your Honor, that if they wanted to use it to show

2 bias, for example, they can do that. But what they can't do is

3 use it to draw any inferences that are based on the reliability

4 of the judgment. So, for example, they can't use it for the

5 truth, they can't -- you're going to interrupt me because

6 you're on the same wavelength as me.

7 THE COURT: I got it.

8 MS. LaMORTE: All right, your Honor.

9 Unless you have any questions.

10 THE COURT: Thank you.

11 Go ahead, Mr. Reed.

12 MR. REED: Thank you, your Honor.

13 There are essentially two arguments advanced against

14 the conviction, which, it should be clear, falls within the

15 literal terms of the rule insofar as it's a conviction for an

16 offense punishable by more than one year.

17 The first is that it was a political prosecution.

18 That, we say, is irrelevant. The motive behind the prosecution

19 doesn't tell you anything about the reliability. There are

20 people who would have said that the prosecution against our

21 clients here is political. And if we came to you with that

22 complaint, you would say that's not germane.

23 THE COURT: Why shouldn't an in absentia conviction be

24 treated as sort of the equivalent of a nolo contendere?

25 MR. REED: Your Honor, A, Mr. Browder had notice of

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1 the conviction; and if he wanted to resist it or fight it, he

2 could have -- I'm sorry, of the charge.

3 THE COURT: Was there an actual trial in Russia?

4 MR. REED: He was convicted in absentia after a trial,

5 yes.

6 THE COURT: What kind of evidence was provided to

7 prove Browder's guilt in the Russian action?

8 MR. REED: Your Honor, I believe it was primarily

9 documentary. I don't have the catalog at my fingertips. We

10 can certainly provide them to you.

11 But our point on this is really that to the extent

12 they want to argue that an in absentia conviction is somehow

13 less reliable, for them to make that argument to the jury, they

14 don't have a case that tells you that under this rule we are

15 not permitted to use it. What they have is a case that says

16 you can't use it for extradition purposes. And extradition is

17 an entirely different kettle of fish insofar as it comes with a

18 threat of a deprivation of liberty.

19 THE COURT: What were the due process aspects of the

20 Russian trial that would, in the words of the courts, signify a

21 hallmark of civilized juris prudence?

22 MR. REED: Your Honor, I guess I would fall back to

23 the burden. I'm not going to stand here, given our other

24 positions in the case, and defend the due process of the

25 Russian justice system. On the other hand, it's not my burden

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1 to do so; it's theirs if they want to exclude a conviction. It

2 falls within the literal scope of the rule.

3 THE COURT: Thank you, Mr. Reed.

4 The government's motion to preclude use of the

5 absentia conviction is granted in part and denied in part.

6 Prevezon is precluded from using the conviction for

7 all purposes under Rule 803(22). While courts do not

8 distinguish domestic and foreign convictions for purposes of

9 Rule 803, a foreign conviction must be assessed with greater

10 scrutiny to ensure that it was the product of "civilized juris

11 prudence."

12 At least one court in this circuit has framed that

13 phrase as referring to "some minimum due process" to reflect

14 "many of the basic rights that accused persons have in American

15 courts also are applicable to defendants in" the Russian

16 courts. Strauss v. Credit Lyonnais, 925 F. Supp. 2d at 448.

17 Here, interpole publicly refused on multiple occasions

18 to honor Russian's request to arrest and extradite Browder on

19 the basis that such requests were politically motivated.

20 Furthermore, the conviction at issue was entered in absentia,

21 which means that the parties did not engage in an adversarial

22 process. Even if Russian courts and trials guaranteed some

23 forms of due process, those procedural safeguards were never

24 utilized because Browder never appeared. That Browder chose

25 not to appear is immaterial to the fact that the conviction was

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1 entered based on only one side's story. Indeed, although the

2 case law is virtually nonexistent on how courts have treated in

3 absentia convictions under Rule 803, such convictions are akin

4 to criminal charges in the extradition context. See In Re

5 Extradition of Ferriolo, 126 F. Supp. 3d, 1297, 1300 (M.D.

6 Florida 2015); and In Re Ribaudo, 2004 WL 213021 at *4 (

7 S.D.N.Y. February 3, 2004).

8 And the rationale behind that determination is similar

9 to what this Court has already expressed. The adversarial

10 process was not engaged and there were no due process

11 protections that are apparent to this Court.

12 However, this Court finds that the in absentia

13 conviction may be used for nonhearsay purposes. It's entirely

14 appropriate for Prevezon to counter Browder's testimony by

15 seeking to undermine his credibility. Here, even if the

16 conviction is in absentia, the underlying tax evasion charges

17 involved allegations of fraud and dishonesty, claims that go to

18 the heart of a witness's character for truthfulness. And that

19 Browder purposely chose not to address or confront these

20 charges may be an additional way for Prevezon to undercut

21 Browder's testimony.

22 Furthermore, the conviction may serve another

23 nonhearsay purpose, which is motive. Prevezon may explore that

24 issue when cross-examining Browder, especially since Browder

25 has played an outsized role as a nonparty on the sidelines from

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1 the inception of this litigation. The government is free to

2 explain the circumstances surrounding the Russian charges and

3 to mitigate the effect of this evidence.

4 Because the jury will be instructed to consider the in

5 absentia conviction not for its validity, but for these other

6 purposes I've described, the parties are directed to provide

7 this Court with a draft of a limiting instruction that it can

8 approve for use at the close of trial.

9 Let's turn next to the government's motion in limine

10 No. 6 regarding the government's motives, legal theories, and

11 pre-discovery evidence.

12 MR. MONTELEONI: Thank you, your Honor.

13 The defendants have indicated many times that they

14 would like to essentially spend most of their time trying to

15 put the government on trial by making the case not about who

16 did what in Russia or who did what when the funds came to them

17 and in New York, but who did what in the U.S. Attorney's

18 Office.

19 THE COURT: I would say just one thing. This is not a

20 criminal case. So unlike what we instruct jurors in a criminal

21 case, that the government is not on trial, in a certain sense

22 the government is on trial here.

23 MR. MONTELEONI: The government's evidence is

24 absolutely on trial here.

25 THE COURT: Right.

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1 MR. MONTELEONI: That is exactly right.

2 However, that's the government's evidence at trial.

3 The government's evidence early in the discovery

4 process, what they had before they had sort of pulled

5 everything together, is no part of any claim and it's no part

6 of any defense.

7 THE COURT: I understand that.

8 MR. MONTELEONI: So therefore that should be

9 precluded.

10 The government's changing legal theories in the

11 complaint, those are no part of any claim or defense; in fact,

12 they would confuse the jury. Any factual changes, the small

13 amendments that we made to facts, we certainly have no

14 objection to them bringing them out if they want to.

15 But we think that anything that goes to what the

16 government is presenting now at trial, that can be tested. But

17 what the government knew earlier and when did they know it is

18 just not a proper subject, so we would ask that it be

19 precluded.

20 THE COURT: Thank you.

21 Go ahead, Mr. Abensohn.

22 MR. ABENSOHN: I know obviously that your Honor has

23 been through the papers. I'd recommend in particular the

24 excerpts from Agent Hyman's deposition.

25 I think when you read Agent Hyman's deposition, it's

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1 very clear what the real purpose of this government application

2 is. It's to prevent us from going after a witness who

3 performed horribly. That is not a basis to keep out testimony.

4 Now, as far as what is still in play and still

5 current, what the government basically says is, Well, that was

6 then; it's water under the bridge. We've since corroborated

7 him with all variety of evidence and, therefore, it's no longer

8 in play.

9 Respectfully, your Honor, we have a different view as

10 to how this all transpired. We think that this investigation

11 was tainted at its outset by simply accepting what Mr. Browder

12 had to say without meaningful investigation, and that it has

13 colored everything since.

14 The Second Circuit has addressed that scenario in a

15 case called Watson v. Green, where it observed that by

16 accepting someone's account early, it had the effect or could

17 have had the effect of causing the investigators not to focus

18 on other possible scenarios. That's certainly our view of what

19 happened here.

20 Mr. Browder, among other things, had notice of these

21 cases that he says he had no notice of; among other things, his

22 company's reserve for litigation fees in relation to this

23 raiding before they supposedly knew about it; among other

24 things, he had the tax fraud, which the agent blithely said he

25 was unconcerned about and hadn't considered.

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1 In our view, there was a decision at the outset to

2 credit someone who was popular in the media and had a

3 sympathetic story to tell and it colored everything that

4 followed.

5 Now, there's other ways that his testimony remains

6 valid and current. He testified that they didn't have

7 authenticated bank records and he understood they should go out

8 and get them. Well, that's still live. If your Honor were to

9 permit those records to come in -- and for reasons I described,

10 we strongly think they shouldn't -- we certainly ought to have

11 a crack at the case agent for having more or less said that

12 that's the type of evidence the government should have.

13 So the problem continues. The problem was born at

14 that time and it continues.

15 THE COURT: I think I understand your argument.

16 MR. ABENSOHN: Thank you, your Honor.

17 THE COURT: All right.

18 This Court grants in part and denies in part the

19 government's motion.

20 Two of the objectionable topics the government seeks

21 to exclude, namely, evidence of the government's motive in

22 bringing this action and evidence regarding the addition or

23 removal of certain legal theories in the amended complaints are

24 simply irrelevant to this action and will distract the jury

25 from its job in evaluating the facts.

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1 However, the third topic, sufficiency of the

2 government's pre-suit investigation, is a fair topic on which

3 evidence may be introduced.

4 The investigation is the process through which the

5 government collected the necessary evidence to build its case

6 and ultimately file this action. If there are holes and

7 vulnerabilities in that process, Prevezon is entitled to expose

8 them. The government, of course, may counter Prevezon's

9 narrative with proof of its own to show the jury that it's

10 bolstered its case with stronger forms of evidence over time.

11 This Court reserves decision on the use of Agent

12 Hyman's deposition testimony pertaining to the sufficiency and

13 quality of the government's investigation until relevant

14 portions of the testimony have been designated. I will say,

15 however, that the government's argument regarding the

16 "haphazard circumstances" surrounding Agent Hyman's deposition

17 is not particularly persuasive. This Court will not excuse any

18 adverse testimony provided by Agent Hyman simply on that

19 ground.

20 Finally, the government's motion in limine No. 7, by

21 letter two weeks ago, the government informed me that it would

22 take no further action with regard to this motion. So is it

23 appropriate for the Court to say that the motion is denied

24 without prejudice as moot?

25 MS. PHILLIPS: Yes, your Honor.

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1 THE COURT: Good.

2 Well, we've made it through all 14 motions in just

3 over two hours.

4 Now, I'll get you a decision on Prevezon's Motion No.

5 7 and the government's Motion No. 1, which are interlocked. I

6 just want to think a little bit more about what's been said.

7 I want you folks, in light of all of these rulings, to

8 be thinking closely about how much time we are going to need to

9 try the case.

10 I think I've told you, and so perhaps I'm reiterating

11 something I've told you previously, we will try the case from

12 10 a.m. until 5 p.m., with a one-hour luncheon recess between 1

13 and 2, and a short mid-morning and mid-afternoon break. We'll

14 try the case four days a week, unless I find that we're really

15 lagging, and then we may try the case at least for half a day

16 on Friday.

17 But I want to get a better sense from you, before we

18 get real close to the trial date, as to what you think you

19 need. I'm going to ask you to confer and submit -- you'll

20 submit a letter to me next week, let's say by Wednesday, so

21 that by then you will have had my decision on the other in

22 limine motions, so that we can get a real sense of where we are

23 in terms of the trial of the case.

24 I hesitate to ask, but are there any issues that

25 counsel want to raise before we recess for the evening?

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1 MR. MONTELEONI: Very briefly, your Honor, with the

2 Court's indulgence.

3 The pretrial order that the parties submitted left

4 open a dispute between the parties about whether two witnesses

5 would be coming in live, as one party wanted, or through

6 deposition, as the other wanted. I think that we agreed that

7 they could testify by deposition, but as long as there was a

8 few additional days to do the designations, which already

9 happened. So we have designations that the parties have agreed

10 are timely. So we want to know whether you'd like us to submit

11 another order or how we should bring those to your attention.

12 Also we'd like to know if you intend to schedule a pretrial

13 conference.

14 THE COURT: I will schedule a pretrial conference. I

15 actually thought that I had, but obviously I haven't.

16 So I see that there's a Prevezon technology

17 walk-through at 2 o'clock on May 11th. Why don't we get

18 together at 2:30 on May 11th, since most of you will be here

19 anyway. All right?

20 Anything from the defendant?

21 MR. REED: Your Honor, one more issue.

22 It concerns Mr. Petrov.

23 THE COURT: Just, if you would, take the podium.

24 It's getting late. I've been on the bench since 9:30

25 this morning, with about 40 minutes off the bench at lunchtime.

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1 That's it.

2 MR. REED: That's a heck of a day.

3 THE COURT: I'm flagging.

4 So what's the issue?

5 MR. REED: The issue, your Honor, concerns Mr. Petrov,

6 who was a key witness insofar as he is the person that the

7 defendants have identified as the source of the money here.

8 We had long been concerned that Mr. Petrov wouldn't be

9 able to come to the United States because he has an ailing

10 mother that he's responsible for. We recently found out that

11 he would be able to come; he would be able to make

12 arrangements.

13 We asked the government for parole documents and a

14 safe passage letter. We were told by the government that they

15 would do their best to arrange parole, even though it's

16 somewhat short notice. We were also told that they would not

17 give him a safe passage letter.

18 Not surprisingly, Mr. Petrov has said, Well, if that's

19 the case, I'm not going to leave my mother on the off chance

20 that I come here and I get arrested and she's stuck in Russia

21 with nobody to care for her.

22 So I raise this really, I guess, to ask the Court's

23 help. I don't know that the Court has the authority or the

24 ability to say to the government, You must issue a safe passage

25 letter. My understanding is previously in the case, Judge

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1 Griesa made a strong recommendation to that effect with respect

2 to Mr. Krit and Mr. Litvak and Mr. Katsyv.

3 If your Honor were so inclined, we would appreciate a

4 similar recommendation. This is a key witness. Both parties

5 have designated him as relevant. He really gets to the nub of

6 it. Without him here, I think our backup would be having him

7 testify by a live video link from Russia, which would involve a

8 nine-hour time difference, so it would be late in the day for

9 him. We'd be through an interpreter and through a video. I

10 just don't think the jury would get the full benefit of the

11 witness that way.

12 So my understanding is the government has said to us,

13 as I would expect, they have no plans to arrest him; we

14 shouldn't take this as a signal one way or another. I can't

15 believe they do have an actual plan to arrest him at this

16 juncture. So we would just ask for the Court's help or at

17 least guidance to try and basically work this out so we can get

18 this very important witness here in a way it will be most

19 advantageous to the jury.

20 THE COURT: Mr. Monteleoni?

21 MR. MONTELEONI: Yes, your Honor.

22 We didn't say that we had no plans to arrest him; we

23 didn't say we had plans to arrest him.

24 The issue is that for sort of obvious policy reasons,

25 we have to be extraordinarily sparing in when we make

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1 statements about what we will or won't do with respect to any

2 type of criminal action with respect to any person, whether

3 it's that we will or we won't. So there's, I think, a very

4 strong policy against the issuing of these letters absent

5 extraordinary circumstances.

6 We made the determination that with respect to the

7 actual parties to the case, back in 2015, that circumstances

8 existed. That wasn't something that Judge Griesa asked us to

9 do; that was something that we offered. He was sympathetic to

10 the idea of trying to issue some type of order, but when we

11 explained that that would sort of implicate our prerogatives,

12 that we would have to fight against it and it could be averted

13 by what we had been proposing to do, which was offer the

14 letter. He accepted that as an adequate assurance for, again,

15 the parties to the case.

16 We have passed the request along that they made

17 previously for this letter. And again, to be clear, what this

18 letter is, it would be a statement of the intentions of the

19 chief of the criminal division with respect to what might

20 happen to him while he was in the country or traveling.

21 THE COURT: Is that the chief of the criminal division

22 of the Southern District or of the Department of Justice?

23 MR. MONTELEONI: Sorry, of the Southern District.

24 Coupled with a statement of whether or not we were aware of any

25 other bodies as plans. But we can't bind or speak for anyone

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1 other than this office.

2 So that request was made; it was considered within our

3 office. We really can't though be in a situation where anytime

4 that a witness asked for this type of thing because they are

5 feeling uncomfortable or for whatever reason that they have,

6 that we will do so. So I think that there are reasons why,

7 which don't have to do with what our plans are or aren't with

8 respect to him or with anyone. There are systematic reasons, I

9 think, why that determination was made.

10 We are working on providing the parole paperwork. We

11 think that testimony through video link or through his

12 deposition, which is also permissible under Rule 32, is

13 certainly available; so it's not that the fact-finders will be

14 deprived of his evidence. But that's the position that we've

15 explained.

16 THE COURT: All right.

17 Look, I'm sure that every trial judge's preference is

18 to have a live witness in the courtroom, especially for the

19 assessment of credibility.

20 I would welcome it if something could be worked out

21 that he's here. I'm not going to tread on the authority of the

22 Executive Branch to make its own decisions and I'm respectful

23 of the separation of powers. But it would be nice to have him

24 here.

25 Alternatively, if we are going to proceed by video

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1 hookup, with the time differences, I would certainly segment

2 his testimony so that we'd interrupt other witnesses and have

3 his videoconferencing coming in at an early part of the day

4 here so that it wouldn't be that late there. But I can't see

5 having a witness testifying at 4 o'clock here, when it's 1

6 o'clock in the morning there. That's for cable news reporters,

7 not witnesses.

8 Anything else?

9 MR. MONTELEONI: Just with respect to those additional

10 deposition designations, would you like us to submit a new

11 pretrial order?

12 THE COURT: You know what? In the end, it's probably

13 best to just submit a new order so that it's all in one place.

14 It's probably not too much effort, right?

15 MR. MONTELEONI: Yes, that would be fine.

16 THE COURT: Okay.

17 All right. Anything else?

18 MR. REED: No, your Honor. Thank you for your time.

19 THE COURT: Thank you for yours.

20 I'll see you all next week.

21 Have a great evening.

22 * * *

23

24

25

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1 UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x

3 UNITED STATES OF AMERICA,

4 Plaintiff,

5 v. 13 Civ. 6326 (WHP)

6 PREVEZON HOLDINGS, et al.,

7 Defendants.

8 ------------------------------x
New York, N.Y.
9 May 11, 2017
2:35 p.m.
10
Before:
11
HON. WILLIAM H. PAULEY III,
12
District Judge
13
APPEARANCES
14
JOON H. KIM
15 Acting United States Attorney for the
Southern District of New York
16 PAUL MONTELEONI
CRISTINE PHILLIPS
17 TARA LA MORTE
Assistant United States Attorneys
18
QUINN EMANUEL URQUHART & SULLIVAN
19 Attorneys for Defendants
BY: KEVIN S. REED
20 FAITH E. GAY
ADAM M. ABENSOHN
21 RENITA SHARMA
CORY STRUBLE
22

23

24

25

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1 (Case called)

2 MR. MONTELONI: Good afternoon, your Honor, Paul

3 Monteloni for the government. With me at counsel table are my

4 colleagues, Cristy Phillips and Tara La Morte.

5 THE COURT: Good afternoon.

6 MR. REED: Good afternoon, your Honor, Kevin Reed,

7 Quinn Emanuel for the defendants. Here with my colleagues

8 Faith Gay Adam Abensohn, Renita Sharma, and our client, Dennis

9 Katsyv.

10 THE COURT: We have a number of matters to address. I

11 would like to begin first with the motion in limine concerning

12 the Virgin handwriting expert. I have reviewed the memoranda

13 submitted on the motion. Do counsel wish to be heard?

14 Mr. Reed.

15 MR. REED: Your Honor, I think the papers are fairly

16 comprehensive and I'm happy to answer any questions.

17 Otherwise, we will stand on the argument.

18 THE COURT: Anything from the government.

19 MS. PHILLIPS: The same for the government. We are

20 happy to answer questions. Otherwise, nothing.

21 THE COURT: Let me rule on that motion.

22 This Court grants in part and denies in part

23 Prevezon's request to preclude the government's forensic

24 document expert, George Virgin, from testifying at trial. Rule

25 702 governs the admissibility of qualified expert testimony

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1 allowing testimony that will help the trier of facts to

2 understand evidence or to determine a fact in issue. Under

3 Rule 702, this Court must serve as a gatekeeper for evidence

4 and is responsible for ensuring that an expert's testimony both

5 rests on reliable foundation and is relevant to the task at

6 hand. Scott v. Chipotle Mexican Grill, Inc., 315 F.R.D. 33, 42

7 (S.D.N.Y. 2016)(citing, of course, Daubert v. Merrell Dow

8 Pharms., Inc., 509 U.S. 579, 597 (1993)).

9 Prevezon relies largely on a recent opinion authored

10 by Judge Rakoff in Almeciga v. Center for Investigative

11 Reporting, Inc., 185, F.Supp. 3d 401 (S.D.N.Y. 2016). Judge

12 Rakoff's opinion is thoughtful and assesses an area of

13 expertise that has long been admitted based on its "historical

14 pedigree." But while Judge Rakoff found that the particular

15 expertise in Almegica should be precluded under 702, most

16 courts across the country and here in the Second Circuit have

17 declined to exclude the testimony of a handwriting expert based

18 on a finding that forensic document examination does not pass

19 the Daubert standard. A.V. By Versace, Inc. v. Gianni Versace

20 S.p.A., 446 F.Supp.2d 252, 267, n. 14 (S.D.N.Y. 2006). At

21 most, the issue of its admissibility and reliability is an open

22 one in the Second Circuit. United States v. Adeyi, 165 F.App'x

23 944, 945 (2d Cir. 2006).

24 Without going into whether Virgin's expertise

25 qualifies specifically under Daubert or Kumho Tire, this Court

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1 concludes that his testimony would be helpful to the jury. And

2 that's because determining the authenticity of these two

3 directors' signatures is a material fact to establishing

4 whether one of the Russian Treasury Fraud's objectives, theft

5 and reregistration of the portfolio companies, was achieved.

6 The jury will find it helpful to hear Virgin's testimony as

7 well as anything to the contrary through Prevezon's own witness

8 to make a factual determination regarding the authenticity of

9 the directors' signatures. And the assistance of Virgin's

10 expertise will provide to the jury outweighs the risk that such

11 testimony would obfuscate the issues in this case, confuse the

12 jury, or amount to a waste of time. But Virgin's testimony

13 must be limited to informing the jury about what one should

14 look for in identifying forgery or the differences between an

15 authentic signature and a forged signature. He may not provide

16 an opinion or conclusion on authorship or testify as to the

17 precise levels of confidence in his opinions as to genuineness.

18 United States v. Rutherford, 104 F.Supp.2d 1190, 1192 (D. Neb.

19 2000). This will be consistent with my practice of not

20 qualifying an expert before the jury. I don't make product

21 endorsements, so I don't tell jurors that someone has been

22 qualified as an expert. I'll tell jurors that I'm permitting

23 the testimony because it may be helpful to the jury in

24 determining the issue of fact and here, from what I read in all

25 of these motion papers, both proposed experts can offer a good

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1 deal to the jury about what they should look for in comparing

2 signatures. But ultimately that's a fact question for the

3 jury.

4 One of the troubling aspects of Virgin's report is

5 that he qualifies his opinion based on the "limitations of

6 non-original evidence and less than naturally prepared

7 signatures." He acknowledges that the signatures submitted for

8 examination are not original writings. And because of that, he

9 was unable to perform a detailed examination of pen movement;

10 the copying process can obscure detail and is subject to

11 manipulation, alterations, tracings, etc. Those are his words.

12 But these are issues that Prevezon may raise on

13 cross-examination as they relate to Virgin's methods, his

14 analysis, and the reliability of the materials he used. And

15 those supposed vulnerabilities go to the weight of his

16 testimony, not its admissibility. See Orix v. Financial

17 Services, Inc., 2006 WL 587483 at *19 (S.D.N.Y., Mar. 8, 2006).

18 That constitutes the Court's ruling on the motion in

19 limine.

20 I want to turn next to the trial date.

21 MR. REED: Your Honor, before you go on, to make sure

22 I understand your Honor's ruling, and I'll obviously review the

23 transcript, but is the nub of it that Mr. Virgin will not be

24 permitted to offer an opinion as to whether or not the

25 signature is likely genuine or not?

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1 THE COURT: That is correct.

2 MR. REED: You will simply advise the jury, because

3 you are making that determination, here are things that you

4 should consider?

5 THE COURT: Right. Here is what I look for, here is

6 what I would suggest you look for in evaluating whether the

7 signatures are forgeries.

8 MR. REED: Thank you, your Honor.

9 MS. PHILLIPS: Your Honor, if I can ask you an

10 additional clarifying question. In telling the jury what he

11 would look for, is he allowed to speak to the individual

12 signatures at issue here, or just signatures generally? In

13 other words, can he say on this character --

14 THE COURT: I'll think about that, but I would think

15 he could look at the signature in order to describe -- the

16 testimony just can't float in a vacuum of abstract principles

17 that later the jury is going to be confounded with. So I would

18 expect that both witnesses are going to be showing and

19 discussing the signatures in their testimony.

20 MS. PHILLIPS: Thank you, your Honor.

21 MS. GAY: Your Honor, do you mind if the interpreters

22 move up into the box?

23 THE COURT: Not at all. Please.

24 MS. GAY: Thank you.

25 THE COURT: With respect to the trial date, unless

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1 something changes shortly, we are going to start on Tuesday,

2 May 16. There are still too many trials, criminal trials, set

3 for Monday. If one of them falls off, and it might in the next

4 hour, we can proceed on Monday. I'll put up an order on the

5 docket by the close of business today. Right now we will be

6 proceeding on Tuesday, May 16, with jury selection and trial.

7 MR. MONTELONI: Your Honor, may I be heard on that

8 briefly?

9 THE COURT: Yes.

10 MR. MONTELONI: It would be very difficult for the

11 government to begin on Monday now. We have a number of

12 international witnesses. They have made travel plans at this

13 point. And we are very close to Monday.

14 THE COURT: I wouldn't worry about it. Because even

15 if we are able to start on Monday, we are going to select a

16 jury, we are going to make opening statements. And jurors,

17 having suddenly been impaneled and finding themselves in a

18 longer-term commitment, might enjoy the opportunity to go home

19 a little early on the first day.

20 MR. MONTELONI: Thank you, your Honor.

21 THE COURT: With respect to jury selection itself, my

22 initial thought, subject to your views, is to impanel a jury of

23 10 people to hear and determine this case, to obtain from you a

24 stipulation to a unanimous jury of as few as six, meaning if at

25 the end of the trial we have nine jurors who are deliberating,

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1 they are all deliberate and their verdict must be unanimous.

2 But if we have lost folks along the way, so long as we have six

3 jurors at the end and their verdict is unanimous, that the

4 parties agree, that will constitute the verdict in this case.

5 Is this proposal acceptable to the parties or do they have

6 another suggestion?

7 MR. MONTELONI: It's fine with the government, your

8 Honor.

9 MS. GAY: Your Honor, we need a minute to talk with

10 our client, if we may.

11 THE COURT: Go ahead.

12 MS. GAY: Your Honor, I think we are fine with the

13 eventual resolution down to six. I think we would think, with

14 the case being this long, with it gaining publicity, with the

15 sensitive issues that seem to have gotten more sensitive in the

16 last week or so, we would like to maybe start off with 12 and

17 then certainly winnow down to six if we can. We would like to

18 try to do that.

19 THE COURT: Any objection to that?

20 MR. MONTELONI: We already thought that this trial

21 could and should be tried to eight jurors. We don't think we

22 have to go all the way to 12. I think that a cushion of four

23 jurors over the course of a three to four-week trial seems

24 ample.

25 THE COURT: If it's three to four weeks, I agree with

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1 you. But in your submission, in your voir dire submission it

2 said four to six and that frightened me.

3 MR. MONTELONI: We are obviously still trying to

4 compare and map things out to days. It seems to me currently

5 likely that it would be in the three to four-week range because

6 I think that the government's case will likely take about 13 or

7 so trial days. But a lot of it is going to overlap with the

8 defendants' case because each side will be calling sort of the

9 same witnesses concurrently during the plaintiff's case.

10 THE COURT: We are only going to call witnesses once.

11 MR. MONTELONI: Exactly.

12 THE COURT: Whoever calls the witness, the party

13 crossing the witness, their initial cross-examination will not

14 be limited to the scope of direct. They can -- it will be wide

15 open. It will only be beginning with redirect and recross that

16 the scope of the inquiry will be narrowed.

17 MR. MONTELONI: Exactly, your Honor. Our current

18 estimates, based on that understanding of how we will be going

19 forward, make it seem more like a three to four-week trial. I

20 certainly don't want to pretend to be a fortune teller, though.

21 Obviously things can happen. But four jurors extra beyond a

22 quorum certainly seems like an ample cushion.

23 MS. GAY: Your Honor, I don't think we are far apart.

24 We are assuming they are going to go for about four weeks. We

25 think we will go some past that. We are all interested in

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1 efficiency. We think jurors like it better if we are

2 efficient. So there is no question about that.

3 It doesn't really take into account that it is a

4 sensitive case. There are going to be people who may or may

5 not become uncomfortable for one reason or the other. We would

6 very much like to advocate, if you have a four week trial plus

7 us, a week, week and a half, that we start with 12 and fall to

8 eight.

9 THE COURT: I am going to make it a Solomonic

10 resolution. 11. We will pick 11. I will qualify 19 so that

11 each side will have four peremptory challenges. The

12 peremptories will be exercised in four rounds with the

13 government going first in the first round and the defendant

14 going first in the second round and then alternating. If a

15 peremptory isn't exercised in a given round, it's deemed lost.

16 But subsequent peremptories in subsequent rounds are not

17 forfeited. And if not all of the peremptories are exercised,

18 then the lowest seeded 11 jurors of the 19 whom I qualified

19 will comprise the jury.

20 Any questions about how voir dire will proceed?

21 MS. GAY: Yes, your Honor. Do you put people in the

22 box?

23 THE COURT: I do. We will put 18 in the box and we

24 will probably find another chair so that someone isn't sitting

25 alone on a bench out in the courtroom. The optics of that are

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1 not right. We will get another chair in there for that

2 purpose: You will know before you have to exercise any

3 peremptories that I have satisfied myself that all 19 are

4 qualified to serve and that any challenges for cause have been

5 exercised already. It won't be one of those nightmarish

6 scenarios where you exercise a peremptory to find a vacancy

7 that brings someone out of the venire that is scarier than the

8 person you just sent packing.

9 Remember those days, Ms. Gay?

10 MS. GAY: Yes, your Honor. I was quaking while you

11 were speaking.

12 Do you strike and fill? You qualify everybody. Do

13 you actually move people?

14 THE COURT: No, not during selection. I used to

15 select juries. And myself as a lawyer and the judges who did

16 that would drive every lawyer crazy because you're constantly

17 trying to move your charts and keep track of people. No. If

18 we strike somebody, we will fill that seat. Once you are

19 exercising your peremptories, nobody is going to be moving. We

20 will be doing that in the robing room.

21 MS. GAY: You'll excuse us for asking in an excess of

22 caution.

23 THE COURT: It's all right.

24 I thought in your joint voir dire that your proposed

25 summary of the case was too long for the Court to get involved

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1 in. I have drafted something. I will read it to you and I

2 will endeavor to circulate a copy. This is what I propose to

3 tell the jury.

4 This is a civil asset forfeiture case. It is not a

5 criminal case. The United States of America is the plaintiff.

6 The defendants are Prevezon Holdings Limited; Prevezon

7 Alexander, LLC; Prevezon Soho USA, LLC; Prevezon Seven USA,

8 LLC; Prevezon Pine USA, LLC; Prevezon 1711 USA, LLC; Prevezon

9 1810, LLC; Prevezon 2009 USA, LLC; Prevezon 2011 USA, LLC,

10 Ferencoi Investments, Ltd.; and Kolevins, Ltd.

11 A forfeiture case is unlike other lawsuits you may be

12 familiar with because some of the defendants are parcels of

13 real estate or money in bank accounts. More specifically, the

14 government claims that a condominium unit located at 20 Pine

15 Street in lower Manhattan and various bank accounts should be

16 forfeited to the United States because they represent proceeds

17 of crimes committed overseas in the Russian Federation. To

18 forfeit a property means to divest the current owner of its

19 ownership in the property and place ownership in the hands of

20 the government.

21 The government also claims that the defendants were

22 involved in laundering monies derived from those crimes in the

23 Russian Federation that found their way to the United States,

24 in other words, money laundering, and are subject to civil

25 penalties. The federal money laundering statute makes it

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1 unlawful in certain circumstances to conduct or attempt to

2 conduct a financial transaction, such as buying real estate or

3 depositing monies into an account that represent the proceeds

4 of some form of unlawful activity.

5 In this case some of the unlawful activities include

6 an offense against a foreign nation involving: 1, bribery of a

7 public official; 2, fraud against a foreign bank; 3,

8 transportation of stolen property; and 4, money laundering.

9 The parties opposing forfeiture are the claimants. A

10 claimant is a person with an interest in the property who

11 contests the forfeiture. None of the claimants are defendants

12 in this case nor have they been charged with any crimes. The

13 issue for you to decide will be whether the defendant

14 properties were involved in transactions to launder the

15 proceeds of the crime committed in the Russian Federation;

16 namely, a tax fraud involving the Russian treasury.

17 If anyone has a comment that jumps to your mind now, I

18 would appreciate it, but I'll circulate this summary to you.

19 MR. MONTELONI: Your Honor, one point is that we think

20 that the description of the first specified unlawful activity

21 of bribery of a public official, that's only a part of that

22 statutory language. It's bribery or the misappropriation of

23 theft or embezzlement of public funds by or for a benefit of a

24 public official. Not that the jury necessarily has to hear all

25 of the statutory language, but we wouldn't want it to hear just

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1 part and think that that's all it was, so I would request some

2 more general language, such as bribery or theft by a public

3 official, or something along those lines.

4 THE COURT: I just found it hard to swallow the whole

5 statement. Bribery or theft?

6 MR. MONTELONI: Yes. I think for voir dire purposes,

7 that's fine. The more details will come later.

8 May I have a moment to consult with cocounsel?

9 THE COURT: Yes.

10 MR. MONTELONI: We wanted to just take a closer look

11 at the language on knowledge, if you'll be sending that around.

12 THE COURT: I will.

13 MS. GAY: Judge, with respect to us, we would like to

14 take a look at it. We wouldn't mind if we could perhaps add in

15 an alleged here and there and --

16 THE COURT: I have no problem with that.

17 MS. GAY: And on the other piece of it to somehow make

18 clear that we are not involved in the Russian crimes, which the

19 government has never contended we were. We will look at the

20 language and suggest something.

21 THE COURT: That's fine.

22 I also wanted to share with you my thoughts regarding

23 the questions that are specific to the allegations in this

24 case. And some of my questions are a little broader than what

25 you've suggested and others are a little more specific. I

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1 would like to review that with you for a moment.

2 I would first tell the jurors that, obviously, this

3 case involves defendants and claimants who are Russian. So the

4 first inquiry would be whether any of the jurors are of Russian

5 descent. After doing that, do any jurors speak or read

6 Russian, and if they do, then, as you've suggested, the

7 questions about translations and interpreters.

8 Then I would ask whether anyone has visited or resided

9 in the Russian Federation or the former Soviet Union.

10 And then say to them now, essentially, recently there

11 has been a lot of news about Russia and Vladimir Putin. Is

12 there anyone who believes they couldn't keep what they have

13 read, seen, or heard about Russia separate from what they will

14 see and hear in this courtroom? Is there anyone who believes

15 that what they have heard about Russia will interfere with

16 their ability to decide this case based solely on the evidence

17 or the lack of evidence presented in the courtroom? Then I

18 would describe to them that some of the conduct at issue

19 involves the government of the Russian Federation.

20 And is there anything that any juror knows about the

21 government of the Russian Federation that might interfere with

22 their ability to be fair? Then I would inform them that the

23 defendants and claimants in this case are Russian businesses

24 and Russian citizens and do any of them have feltings about

25 people or businesses from Russia that might affect their

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1 ability to be fair and impartial.

2 I would then pick up on your proposed question about

3 opinions, positive or negative, about Russians owning

4 residential real estate in New York or views about Vladimir

5 Putin that might affect their ability to sit.

6 I would ask them whether they have any familiarity

7 with the Magnitsky Act and whether anyone is familiar with

8 sanctions that the United States has imposed on Russian

9 citizens. And do they have any opinions about the civil

10 forfeiture laws of the United States and the government's

11 ability to seize assets that might interfere with their ability

12 to be fair and impartial here.

13 Then a general question about whether they have read,

14 seen, or heard any news stories regarding money laundering that

15 they think might affect their ability to be fair and impartial.

16 I thought it probably appropriate to at least touch on

17 the Magnitsky law here. I hesitate and have not asked and I

18 see that you didn't propose that I ask whether any juror has

19 viewed any of the 60 Minutes pieces, among others, that have

20 been broadcast relating to Magnitsky and Browder, etc. Is

21 there a view about that?

22 MS. GAY: Yes, your Honor. Our view is, they will

23 Google it immediately and we would prefer it not be asked.

24 It's one of the reasons we both steered to a questionnaire and

25 steered even father away from that, so we prefer that it not be

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1 asked.

2 THE COURT: I won't ask about the 60 Minutes pieces.

3 Magnitsky's name is going to come up during the course of the

4 trial, isn't it?

5 MS. GAY: Seems that way, your Honor.

6 THE COURT: Wouldn't it be better to know who might

7 have an issue with that before we start?

8 MS. PHILLIPS: Your Honor, just to point this out, the

9 parties submitted, it was drafted by the defendants, a juror

10 questionnaire and the government consented to the questions.

11 That's actually one of them.

12 THE COURT: I am not using a jury questionnaire.

13 MS. PHILLIPS: That's fine. My only point was that

14 the parties had agreed on some level that that should be

15 brought up.

16 THE COURT: Jury questionnaires generally don't work.

17 If they are going to be used, the real reason to use them is

18 just to test people's availability for the duration of the

19 trial. I am certainly not going to have people fill out a

20 questionnaire in the middle of voir dire.

21 MS. GAY: Your Honor, if you are not going to use the

22 questionnaire, which we understand, our feeling for the defense

23 is that we would rather have that question subsumed and we

24 think we will get to it and the other more general questions

25 about Russia. And for us it seems prejudicial in front of the

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1 entire panel to bring out and sort of tempt them to go Google

2 the Magnitsky Act.

3 THE COURT: I'll think about that. If that's the

4 defendants' request --

5 MS. GAY: It is, your Honor.

6 THE COURT: -- I'll be inclined to grant it.

7 Are there any questions about how voir dire is going

8 to proceed?

9 Obviously, at various times we will be at the side

10 bar. If we get into any juror who has something sensitive,

11 it's going to be right up at the side bar. And I share the

12 concern about polluting the entire venire and I'll be watching

13 for it as jurors are speaking. On some of these questions if I

14 get a yes answer, I am not going to hear the reason for the

15 answer in open court. I am going to bring that individual up

16 to the side bar.

17 I think that you should reach some understanding as to

18 how many people are going to come up to the side bar for those

19 discussions. I think it should be limited to two or three from

20 each side at the most. There is enough for a juror to come up

21 to the side bar without having a crowd.

22 You will have also a chance then, if you want me to

23 pose some further question based upon what you are hearing,

24 either to the panel as a whole or to an individual juror, you

25 will just raise it with me at the side bar.

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1 And during the course of voir dire, if you believe you

2 have reason to make a challenge for cause, when you are up at

3 the side bar on some other issue, feel free to raise it and

4 I'll address it then. Because if I agree with you, we can get

5 rid of that juror early and put someone else in the seat.

6 Any other questions on voir dire?

7 Before we get to the joint pretrial order, a couple of

8 pet peeves. If you have an objection, please stand and say you

9 have an objection. Refrain from speaking objections. You can

10 give me a rule or a word or two. If I'm not understanding what

11 the basis for your objection is, I am going to bring you up to

12 the side bar. If you want to publish an exhibit to the jury,

13 ask permission from the Court so that there is a record

14 created.

15 Any exhibit, even those to which the parties are

16 stipulating, must be offered by a party. I'll ask whether

17 there is any objection and then it will be received in

18 evidence. And there will be no wholesale dumping of exhibits

19 into the record. Any exhibit that's being received in evidence

20 should be referenced by at least one witness at some point in

21 the trial.

22 Finally, everyone should be seated when the oath is

23 being administered to a witness. Don't go to the podium ready

24 to launch into your examination until the witness has been

25 sworn, seated, and then I'll invite you to inquire.

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1 I'm sure there are others that I have forgotten, but I

2 am trying to make things easier.

3 MR. MONTELONI: Your Honor, may I ask for

4 clarification of one of those pet peeves. With respect to the

5 publishing of exhibits, there will be several times when we

6 will be asking a witness to compare one document to another and

7 we might ask to sort of switch between what gets published to

8 the jury quickly. Only the first time?

9 THE COURT: Only the first time.

10 MR. MONTELONI: Thank you, your Honor.

11 THE COURT: I got this exquisite joint pretrial order.

12 But, among other things, I'm trying to figure out how I am

13 supposed to rule on deposition objections. My thought would be

14 that it would be helpful to you if the Court ruled on

15 objections in advance of the deposition being played.

16 But I'm really not sure how that's going to work. Let

17 me give you an example. I turned to the first deposition

18 transcript, Ms. Alexandrou, and then I turned to the

19 defendants' first objection. The first objection is at page 81

20 of the transcript and the objection is that the questions being

21 posed for five lines were asked and answered. Not a very

22 powerful objection, but of course in order for me to rule on

23 that objection I then had to go back and start reading the

24 transcript to discover that at pages 8 and 9, very similar

25 questions had been asked of the witness.

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1 I guess my point is, even if you are correct and on

2 this objection you are, it's a total waste of time, especially

3 my time.

4 Then I turned to the second objection in the

5 transcript, and that's at page 93, at line 5. And it purports

6 to be a hearsay objection, except that line 5 is the end of a

7 witness' answer. Lines 6 and 7 are a question asking the

8 witness asking to look at what's been marked as Government

9 Exhibit 5, and the following lines that are objected to is the

10 court reporter's note as to what some record is. Then when I

11 go to look at Exhibit 5, it's nowhere here. I can't find it.

12 It's very difficult for me to rule on a hearsay objection

13 that's in the ether.

14 I'll just give you one more. And the one more is the

15 very next objection in the very first deposition in this joint

16 pretrial order. The third objection is page 94, line 18 to 21.

17 As I understand it from the big code of objections that you

18 gave me, the objections are no personal knowledge and not

19 authenticated. These particular lines, 18 to 21, reflect a

20 question, sort of looking at Government Exhibit 4. Does that

21 form reflect a power of attorney?

22 Then I go to the exhibit list under B1 of the joint

23 pretrial order to find out what Exhibit 4 is, and it's merely

24 described as Glendora and Kone documents which were used as

25 exhibits to the deposition. It's completely circular and

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1 unhelpful. These are just the first three objections and it

2 took me 20 minutes to figure that out.

3 We are not going to proceed that way. If you can't

4 come up with something better, we are going to have to sit and

5 do it on the record. And the time that it takes to do that is

6 going to cut into your trial time. It's not going to extend

7 the trial time. I don't know how you think I am supposed to

8 rule on these objections in advance. And you are going to have

9 to tell me what recordings you intend to play in what order so

10 we can start to tee them up. And then you should pack a lunch

11 because we are going to start on this on Monday.

12 I can't rule this way. Somewhere I'm sure there is a

13 color-coded glossary. But I don't know what the different

14 colors in the highlighting represent. I thought I had seen it

15 someplace in an earlier joint pretrial order, but I can't find

16 it now. There is yellow, green, there is purple, there is

17 light, there is sky blue, there is Tiffany blue. I don't know

18 what all these colors are.

19 Who can at least tell me what the colors are?

20 MS. SHARMA: Your Honor, I can. If you look on the

21 front page of each transcript, there is a code on the bottom.

22 THE COURT: I'm looking at Yianna Alexandrou. I don't

23 see any code.

24 MS. SHARMA: I apologize.

25 THE COURT: I see a cover page and then it starts on

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1 page 5 with the text.

2 MS. SHARMA: I apologize, your Honor. It must have

3 fallen off in the version we submitted.

4 THE COURT: In dark yellow, light yellow, very dark

5 blue. I just don't know what it all means.

6 MR. MONTELONI: Your Honor, might I propose, the

7 parties can confer and we might be able to provide submissions

8 that reflect the order for each witness that we will be playing

9 these in and actually attach the exhibits themselves, because I

10 think that very few of the depositions are highly document

11 intensive.

12 THE COURT: That would be a big help.

13 MR. MONTELONI: When would you like us to submit that

14 to you?

15 THE COURT: When do you think you are going to start

16 playing? I would love to get some tomorrow so I could do some

17 over the weekend.

18 MR. MONTELONI: For depositions that we might start

19 playing early in the first week we will get you our orders

20 tomorrow.

21 THE COURT: Newsflash. I have just been informed that

22 we can begin our jury selection and trial on Monday because the

23 criminal case pled, so that's good.

24 Quite frankly, even assuming that all of this

25 testimony is played, a lot of it, while it's a lot of pages,

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1 there is not a lot of highlighted testimony that's actually

2 going to be played in a number of the depositions. So it seems

3 to me that a lot of this is going to proceed perhaps quicker

4 than you thought.

5 MR. MONTELONI: We have been thinking that the

6 deposition portions are not going to be extremely lengthy

7 except perhaps with a few of the Prevezon personnel. I think

8 that the examinations and cross-examinations are going to be

9 the bulk of the time.

10 THE COURT: To the extent that video depositions

11 involved Russian interpreters, I take it that you'll be in a

12 position to edit out all of the Russian interpreting so that we

13 will just hear the question and answer.

14 MR. MONTELONI: That's not certainly how we propose to

15 do it. I can inquire. I think sometimes there is information

16 conveyed by the way a witness can say something, even in a

17 foreign language, regarding demeanor and everything. It might

18 be a little confusing to the jury to just hear a question and

19 the interpreter's response.

20 THE COURT: Fair point.

21 MS. GAY: Your Honor, we took a look at trying to do

22 it that way to try to speed things along. It gives a weird

23 impression.

24 THE COURT: It's a fair point.

25 Are there any other questions that you want to raise?

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2 A letter came in about 50 minutes before this

3 conference started. It's raising another issue. I've only had

4 a moment to glance at it. I think I'd like to hear for a

5 moment from both sides about it. I'm not sure that I can rule

6 on it right now.

7 Mr. Abensohn.

8 MR. ABENSOHN: Thank you, your Honor. Certainly we

9 weren't expecting or urging the Court to resolve it here and

10 now.

11 THE COURT: But I'm glad you've raised it.

12 MR. ABENSOHN: I appreciate that, your Honor. We got

13 a letter from the government, I think, two evenings ago within

14 a couple of hours after the Court's order on the government's

15 motion in limine No. 1 where the government essentially said on

16 the back of that order they were going to seek to move in

17 additional materials under the residual exception.

18 The core of our complaint in the letter is that as to

19 those materials the indicia the Court relied upon in its order

20 are largely nonexistent, so we view this as attempting to

21 bootstrap and, in our view, certainly extended the outer limits

22 of the residual and, respectfully, your Honor, we think perhaps

23 it goes beyond the outer limits, but obviously I am not trying

24 to relitigate that. We think it goes beyond the Court's order.

25 It goes beyond the parameters that the Court set with the use

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1 of the residual here and essentially amounts to a wholesale

2 effort to move in massive portions of the government's case

3 without any recognized exception under the hearsay rules.

4 THE COURT: Where do those documents come from?

5 MR. MONTELONI: Thank you, your Honor. I had wanted

6 to talk to the Court today about how to tee things up before

7 the letter came in. I was expecting to and I would request the

8 opportunity to submit a letter.

9 There are several sets of documents. All are from

10 abroad. And the first set is just a few other documents that

11 are part of the seized records but that I didn't cite by

12 exhibit number in the original motion due to the time that we

13 were compiling the exhibit lists.

14 THE COURT: Do those documents come from the criminal

15 case file photograph by Gorokhov?

16 MR. MONTELONI: Yes, those first ones do. The other

17 ones come from different governments that provided us documents

18 directly, physically handed them to U.S. Government

19 representatives in almost all cases. But because they

20 collected them using their own procedures, they didn't always

21 provide the certifications that we had asked for.

22 And so upon reviewing the Court's order rejecting the

23 public records and the sort of rejecting the use of certain

24 contexts to fill in business record certifications that weren't

25 explicit, we concluded that we couldn't rely on those

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1 certifications or we weren't going to seek to, so we promptly

2 provided notice to the defendants and intend to tee this up to

3 the Court by a letter motion.

4 Essentially, we don't control how other governments

5 talk to their banks and what they get. We can only ask. And

6 so law enforcement agencies in Moldova, Lithuania, Latvia, and

7 Estonia each provided us records that they represented to us

8 that they had obtained from the bank as a part of an

9 investigation that they conducted at our request and gave to

10 us.

11 What they didn't give to us was the particular piece

12 of paper that we wanted, but these are all corroborated by not

13 just each other, but by domestic bank records in most

14 instances.

15 And the final category is the defendants' own bank

16 records, which they should produced to us in discovery but did

17 not. And we obtained some of their records from the Swiss bank

18 UBS through the means of someone who is not a custodian who is

19 not going to be a witness. Those records also corroborate

20 various authenticated bank records. We think that the context

21 is a little bit different. We think that the case for

22 admission is much stronger and it was less of a complex

23 question because a lot of the indicia of reliability here. But

24 we want to get a chance to present that to you in a letter

25 category by category where we will lay all that out.

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1 THE COURT: Why did the government wait to just before

2 trial to raise the issue of offering at least the latter

3 documents that you just described?

4 MR. MONTELONI: The defendants' own bank records? It

5 is possible that previous defense counsel didn't object to

6 them. There are certainly some objections that previous

7 counsel didn't make to their own records that current counsel

8 did. I might be wrong. If I am wrong, then that was an

9 oversight.

10 THE COURT: I think you should save it for a letter.

11 Get me a letter by tomorrow.

12 MR. MONTELONI: Absolutely, your Honor.

13 THE COURT: Yes, Mr. Abensohn.

14 MR. ABENSOHN: Your Honor, I hesitate to ask if it

15 would be helpful to the Court, but we have two binders with

16 these materials. We did not present them as an attachment or

17 appendix to the filing, which is really just the letter, and I

18 think just a short letter from the government to us. I have

19 these available if your Honor wants them.

20 THE COURT: Given this dispute, I will take them.

21 MR. ABENSOHN: I should add, having heard the

22 government's comments, among our problems with this traunch of

23 material is a notice issue. We find it, frankly, troubling

24 that the government made its presentation in in limine 1 and

25 did not include these materials, which we consider more

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1 farfetched than the ones they presented to your Honor. And now

2 they are trying to piggyback on the Court's order to go even

3 further into residual territory, in our view. So that is among

4 our concerns here, but I will provide these certainly to the

5 Court.

6 THE COURT: Thank you.

7 Is there anything further that either party wants to

8 raise before we recess for the afternoon?

9 MR. MONTELONI: Yes, your Honor. One or two

10 questions. We understand that the Court doesn't want a witness

11 to be called twice. We were wondering if there is potentially

12 a carve-out for a particular summary witness. We had a thought

13 that some documents could be read by a paralegal in our office

14 once and then at another time that same paralegal could take

15 the stand, as opposed to calling multiple people. We know that

16 that's an exception to the Court's practices.

17 THE COURT: That would be fine. Any objection to that

18 from the defense?

19 MS. GAY: No, your Honor.

20 MR. MONTELONI: Thank you.

21 We also wanted to inquire of the Court's practices

22 about closing arguments. I don't know if this is the ordinary

23 way in which you do it in these type of cases. We think in

24 light of the complexity of the case that the government is

25 making summation first and then a brief time-limited rebuttal

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1 makes sense, given the likelihood of complex issues that might

2 require clarification.

3 THE COURT: That's a ways off. We can discuss that

4 during the course of the trial. It is my practice to fix time

5 limits for both opening statements and closing arguments so

6 that there is some balance and one party isn't filibustering

7 the jury.

8 In that regard, with respect to opening statements,

9 who is going to give the opening statement for the government

10 and how much time are you requesting?

11 MS. PHILLIPS: Your Honor, I'll be giving the opening

12 statement for the government and I would ask for 35 minutes.

13 THE COURT: And for the defendant.

14 MS. GAY: Your Honor, it will be me. I think we would

15 ask for about the equivalent amount of time.

16 THE COURT: 35 minutes. That's fine.

17 MS. GAY: May we ask your Honor, if we are going to

18 use slides or demonstratives for opening, perhaps we can

19 resolve any concerns about those during jury selection on

20 Monday.

21 THE COURT: Certainly. We can actually resolve it

22 before we bring the jury up because they will have to see a

23 film and we will all be here ready to go at 9:45 or so. Bring

24 your demonstratives. Because you will be giving your opening

25 statements, I hope, in the early afternoon.

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1 MS. GAY: I understand. May I raise one other issue

2 if the government is finished with their list?

3 MR. MONTELONI: Absolutely.

4 MS. GAY: This is just in an excess of caution, your

5 Honor. As you can imagine, we parsed your careful decisions

6 this week sentence by sentence, both us and our clients.

7 One issue that I just wanted to make sure that the

8 government understood as we were getting close to opening, with

9 regard to our argument on the bank SUA where we made an

10 argument about fraud versus theft, we took the government at

11 their word or at their proof in terms of making that argument.

12 We didn't mean to suggest, and I don't think anyone

13 thinks this, that we are saying that Prevezon or any of the

14 entities that we represent has any knowledge of Hermitage, has

15 any knowledge of the bank fraud, of the alleged theft, or

16 anything that Hermitage might have done.

17 To that extent, I just want to be clear for the record

18 that we are making that argument, again, assuming the

19 government's case, and we will not be taking a position that we

20 know anything about Hermitage. I didn't want the government or

21 the Court to feel otherwise. I think it's an obvious point.

22 But we are getting close to openings. I just wanted to be sure

23 of that.

24 THE COURT: Anything else?

25 MR. REED: One last logistical issue, your Honor.

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1 Mr. Katsyv will need an interpreter to testify. Unless your

2 Honor objects, it would be our plan for us to use our own

3 interpreters. It is my understanding that in civil cases we

4 are not required to use the Court's interpreters, and

5 Mr. Katsyv will be more comfortable and will give better

6 testimony from somebody who is used to his speech patterns.

7 MR. MONTELONI: Your Honor, we object. The person who

8 we understand to be the defendants' --

9 MR. REED: It would be two. It would be Anatoly and

10 one other. Anatoly Samochoronov is an individual who is a

11 Russian and English speaker who has accompanied defendants to

12 previous depositions and we think is really a member of the

13 defense team in a way that is not appropriate to be providing

14 the principal interpretation. He has apparently been engaged

15 in lobbying efforts that seem to have some connection to at

16 least the defendants' lawyers in Washington, and he has also

17 had arguments with the official certified interpreters at the

18 time of depositions, all of which is his right. We are not

19 saying that it's not, but we think that's not appropriate to be

20 the actual interpreter. We think that we should use a neutral

21 court-certified interpreter.

22 THE COURT: Mr. Reed.

23 MR. REED: Your Honor, first, Mr. Samochoronov is a

24 certified interpreter in this courthouse. Second, he will be,

25 as I think all interpreters would, he will be swearing an oath

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1 to interpret faithfully according to the law. The fact that

2 he's been in prior depositions I don't think characterizes him

3 as a member of the defense team. He's a member of the defense

4 team --

5 THE COURT: He's no more a member of the defense team

6 than the interpreters who come in from the U.S. Attorney's

7 Office with a cooperator who they spent weeks across the street

8 reviewing and preparing their testimony. I got your point.

9 He is certified in this court?

10 MR. REED: He is, your Honor.

11 MR. MONTELONI: We understand, he is the officer of a

12 nongovernmental organization founded along with one of defense

13 lawyers. It's a little different from our interpreters.

14 THE COURT: But he is certified by the chief

15 interpreter for the Southern District of New York, and this is

16 not a criminal case. I am going to overrule the government's

17 objection.

18 MR. MONTELONI: Thank you, your Honor.

19 THE COURT: Anything else?

20 MR. ABENSOHN: Your Honor, I would ask perhaps after

21 your Honor leaves the bench, we may have a couple of pages of

22 work product in the binders I handed up.

23 THE COURT: Do you think only a couple?

24 MR. ABENSOHN: I'm sorry. Most of it is the

25 government's exhibits, but I do have a couple of pages to

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1 remove, your Honor.

2 THE COURT: We are going to start on Monday, May 15.

3 I won't need to make any corrective order on the docket for

4 those who are following the case. And I'll wish you all a good

5 weekend, but I know it won't be a relaxing one.

6 MR. MONTELONI: Thank you, your Honor. One or two

7 last clarifying questions. We understand correctly that we

8 will not proceed to our first witness on Monday?

9 THE COURT: You are telling me you really don't have

10 one. Yes. If you had someone you wanted to call to get

11 started, that would be just fine, but I'm not going to press

12 you on that.

13 MR. MONTELONI: Thank you, your Honor. We appreciate

14 it.

15 And what time are we starting in the courtroom?

16 THE COURT: I said 9:45, but we will make it 10:00.

17 Be here at 9:45. If you are all here, we can take up any

18 issues relating to demonstratives. I would expect that we can

19 have a jury up here by about 10:30, 20 to 11.

20 I'm sure something will develop over the weekend. It

21 always does. I'll look forward to getting your letter in

22 response to Mr. Abensohn's letter.

23 Who are going to be the witnesses that the government

24 is going to call on Tuesday?

25 MR. MONTELONI: Right now we think it will just be

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1 Jamison Firestone. It is possible, depending on how long his

2 testimony takes, we might move to potentially play the first

3 video deposition would probably be our next anticipated move,

4 which would be the deposition of Nikolai Gorokhov, the

5 individual who copied the documents.

6 THE COURT: I'll expect that each day everybody is

7 going to work together, notifying each other of the witnesses

8 who are coming up. You really should be thinking about what

9 the batting order is for next week so that defense counsel can

10 prepare. I'll impose the same requirement on defense counsel

11 when they are calling witnesses so that everybody is on notice.

12 MR. MONTELONI: Yes, your Honor. Understanding, I

13 think, that we will be making whatever last-minute changes we

14 need to in order to make sure we always have witnesses ready.

15 THE COURT: It's always in good faith and always

16 subject to the exigencies. Trials are unpredictable. I know

17 that.

18 One thing. Once we start with witnesses on Tuesday,

19 don't run out of witnesses. Don't tell me somebody is flying

20 in tomorrow, tonight. They are on the midnight to Moscow.

21 Remember that song, Midnight in Moscow? They are flying in.

22 Don't tell me that. Have the witnesses here, ready to go.

23 MR. MONTELONI: Thank you, your Honor. Two further

24 questions. One following up on that. We may at times, in

25 order to keep the flow, ask to potentially interrupt a witness

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1 if there are scheduling reasons.

2 THE COURT: I expect everybody to work together on

3 that and we regularly can interrupt one witness for another's

4 testimony. Sometimes if we are in the midst of a very heated

5 cross-examination, it may not be fair to interrupt for a

6 witness. There has to be some balance there, too. I'll

7 explain it all to the jury that it's lawyers working together

8 to present the case efficiently.

9 MR. MONTELONI: Thank you.

10 Finally, do you have a preference, if issues arise,

11 that we want to raise with the Court? Do you have a preference

12 whether that's the beginning of the trial day, the end of the

13 trial day, or some other way?

14 THE COURT: I like to have it before the beginning of

15 the trial day. You can send letters at any time. I may be

16 asleep, but others are watching. And then I can hear all about

17 it early in the morning and we can be ready to deal with it. I

18 much prefer getting a letter alerting me to any issue than

19 having a surprise. The Federal Rules of Civil Procedure abhor

20 surprises. So do I.

21 MR. MONTELONI: Thank you, your Honor.

22 THE COURT: Anything else?

23 MS. GAY: Nothing further, your Honor. Thank you.

24 THE COURT: Those are the magic words.

25 Have a great afternoon.

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