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Cristina C. Arguedas (CA Bar 87787)Ted W. Cassman (CA Bar 98932)Raphael M. Goldman (CA Bar 229261)Arguedas, Cassman & Headley, LLP803 Hearst AvenueBerkeley, CA 94710Telephone: (510) 845-3000Facsimile: (510) 845-3003
John M. O’Quinn (SBN 15296000)The O’Quinn Law Firm2300 Lyric Centre Building440 LouisianaHouston, Texas 77002Telephone: (713) 223-1000 Facsimile: (713) 223-0103
Lloyd E. Kelley (SBN 11203180)Lloyd E. Kelley & Associates2726 Bissonnet, Suite 240PMB #12Houston, Texas 77005Telephone: (281) 492-7766Facsimile: (281) 652-5973
Tammy Tran (SBN 20186400)Pete Mai (SBN 24029702)Of counsel: David Tang (SBN 24014483)The Tammy Tran Law Firm2915 FanninHouston, Texas 77002Telephone: (713) 655-0737Facsimile: (713) 655-0823
Attorneys for Petitioner Jamie Olis
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
UNITED STATES OF AMERICA
v.
JAMIE OLIS, et al.
H-03-CR-217
MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF JAMIE OLIS’ MOTION
TO SET ASIDE HIS CONVICTION PURSUANT TO 28 U.S.C. § 2255
i
TABLE OF CONTENTS
TABLE OF AUTHORITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
FACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1. Project Alpha.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2. The Indictment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3. The Trial. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
a. The USAO’s New Prosecution Theory. . . . . . . . . . . . . . . . . . . . . 10
b. Linked Tear-ups and Outside Hedges. . . . . . . . . . . . . . . . . . . . . 12
c. The Alleged Conspiracy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
d. Andersen’s Contingent Fee with ICA. . . . . . . . . . . . . . . . . . . . . . 20
e. The Aftermath.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
f. Government’s Heavy Reliance on Incorrect Loss Testimony. . . . 22
4. Sentencing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5. The Appeal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6. Resentencing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7. The Yates Trial. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARGUMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
I. TIMELINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
II. STANDARD OF REVIEW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
III. THE USAO’S INTERFERENCE WITH OLIS’ ACCESS TO FUNDING VIOLATED
HIS FIFTH AND SIXTH AMENDMENT RIGHTS TO PRESENT THE DEFENSE
ii
OF HIS CHOICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
A. Facts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
1. Dynegy Was Legally Obligated – And Intended – To Fund Olis’
Defense to the Criminal Charges. . . . . . . . . . . . . . . . . . . . . . . . . 33
2. The Government’s Pressured Dynegy to Cooperate as Defined in
the Holder and Thompson Memoranda. . . . . . . . . . . . . . . . . . . . 36
3. Dynegy Capitulated to Government Pressure, Reneging on Its
Obligation to Fund Olis’ Defense. . . . . . . . . . . . . . . . . . . . . . . . . 39
B. Due Process Violation.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
1. Strict Scrutiny. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
2. Shocks the Conscience. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
C. Sixth Amendment Right to Use Own Funds for Defense. . . . . . . . . . . . 51
D. Prejudice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
1. Absence of Witnesses to Counter Evidence of Purported Loss. . 54
a. The Government’s Reliance on Heil. . . . . . . . . . . . . . . . . 54
b. Countering Heil’s Testimony Was Vitally Important. . . . . . 55
c. Expert Testimony Would Have Entirely Discredited Heil’s
Conclusions and Refuted the Government’s Arguments. . 58
d. Testimony by a Stock Analyst Would Have Bolstered the
Expert’s Criticism. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
e. Lack of Defense Funding Precluded Raising These
Challenges to Heil’s Testimony. . . . . . . . . . . . . . . . . . . . . 63
iii
2. Absence of an Accounting Expert to Discredit Hecker. . . . . . . . . 63
a. Outside Hedges and Tear-Ups Did Not Violate GAAP. . . 64
b. Andersen Was Not Independent. . . . . . . . . . . . . . . . . . . . 65
3. General Inability to Prepare. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
IV. THE GOVERNMENT CONSTRUCTIVELY AMENDED THE INDICTMENT IN
VIOLATION OF OLIS’ FIFTH AMENDMENT RIGHTS. . . . . . . . . . . . . . . . . . . 69
A. The Indictment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
B. Trial Evidence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
C. The Government Could Not Have Convicted Olis Under the Theory
Alleged in the Indictment.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
D. The Government Worked an Unconstitutional Constructive Amendment.78
E. Ineffective Assistance of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
F. No Procedural Default.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
V. INEFFECTIVE ASSISTANCE OF COUNSEL. . . . . . . . . . . . . . . . . . . . . . . . . . 84
A. Failure to Object to Constructive Amendment of Indictment And to Raise
the Issue on Appeal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
B. Failure to Object to Biased Juror and Violation of Olis’ Sixth Amendment
Rights To Be Present and to Have Counsel Present and Failure to Raise
The Issue on Appeal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
1. The Facts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
2. The Inclusion of an Admittedly Biased Juror Violated Olis’ Sixth
Amendment Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
3. Counsel Was Constitutionally Ineffective in Failing to Object to the
iv
Sixth Amendment Violation and For Failure to Raise the Issue on
Appeal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
4. The Court’s Ex Parte Communication with the Juror Violated Olis’
Constitutional Rights to be Present and to Have Counsel Present.93
C. Failure to Object to Erroneous Jury Instructions And to Raise the Issue on
Appeal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
1. Erroneous Instruction Concerning Interstate Commerce Element of
Wire Fraud. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
2. Erroneous Instruction Concerning the “Scheme to Defraud”
Element of Mail and Wire Fraud.. . . . . . . . . . . . . . . . . . . . . . . . . 98
3. The Infirmities Infect the Other Charges.. . . . . . . . . . . . . . . . . . 100
D. Failure to Object to Hecker’s Attempt to Testify as an Expert.. . . . . . . 102
E. Failure to Take Other Necessary Steps. . . . . . . . . . . . . . . . . . . . . . . . 104
IV. RELIEF. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
v
TABLE OF AUTHORITIES
CASES
Berger v. United States, 295 U.S. 78, 55 S. Ct. 629 (1935). . . . . . . . . . . . . . . . . . 32, 49
Brady v. United States, 397 U.S. 742 (1970). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Brennan v. Stewart, 834 F.2d 1248 (5th Cir. 1988). . . . . . . . . . . . . . . . . . . . . . . . . . . 46
California v. Trombetta, 467 U.S. 479, 104 S. Ct. 2528 (1984). . . . . . . . . . . . . . . 45, 46
Campbell v. Wood, 18 F.3d 662 (9th Cir. 1994). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Caplin & Drysdale, Chartered v. United States, 491 U.S. 617, 109 S. Ct. 2646 (1989).51
Carpenter v. United States, 484 U.S. 19, 108 S. Ct. 316 (1987). . . . . . . . . . . . . . . . . 96
Cleveland v. United States, 531 U.S. 12, 121 S. Ct. 365 (2000). . . . . . . . . . . . . . . . . 98
Cohen v. Senkowski, 290 F.3d 485 (2d Cir. 2002). . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Coppedge v. United States, 369 U.S. 438, 82 S. Ct. 814 (1963). . . . . . . . . . . . . . . . . 45
County of Sacramento v. Lewis, 523 U.S. 833, 118 S. Ct. 1708 (1998).. . . . . . . . . . . 46
Douglas v. California, 372 U.S. 353, 83 S. Ct. 814, (1963). . . . . . . . . . . . . . . . . . . . . 45
Dura Pharmaceuticals, Inc. V. Broudo, 544 U.S. 336, 125 S. Ct. 1627 (2005). . . . . . 60
Faretta v. California, 422 U.S. 806, 95 S. Ct. 2525 (1975). . . . . . . . . . . . . . . . . . . 94, 95
Fisher v. Trainor, 242 F.3d 24 (1st Cir. 2001).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Gov’t of the Virgin Islands v. Fahie, 419 F.3d 249 (3d. Cir. 2005). . . . . . . . . . . . . . . . 50
Griffin v. United States, 502 U.S. 46, 112 S. Ct. 466 (1991). . . . . . . . . . . . . . . . . . . 100
Griswold v. Connecticut, 381 U.S. 479, 85 S. Ct. 1678 (1965).. . . . . . . . . . . . . . . . . . 46
Herring v. New York, 422 U.S. 853, 95 S. Ct. 2550 (1975). . . . . . . . . . . . . . . . . . 48, 49
vi
Hopt v. Utah, 110 U.S. 574, 4 S. Ct. 202 (1884). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Hughes v. United States, 258 F.3d 453 (6th Cir. 2001). . . . . . . . . . . . 89, 90, 91, 92, 95
Iowa v. Tovar, 541 U.S. 77 (2004). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Irvin v. Dowd, 366 U.S. 717, 81 S. Ct. 1639 (1961). . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Johnson v. Zerbst, 304 U.S. 458 (1938).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Kapral v. United States, 166 F.3d 565 (3d Cir. 1999).. . . . . . . . . . . . . . . . . . . . . . . . . 30
Kentucky v. Stincer, 482 U.S. 730, 107 S. Ct. 2658 (1987). . . . . . . . . . . . . . . . . . . . . 94
Kyles v. Whitley, 514 U.S. 419, 115 S. Ct. 1555 (1995). . . . . . . . . . . . . . . . . . . . . . . . 49
Leebaert v. Harrington, 332 F.3d 134 (2d Cir. 2003). . . . . . . . . . . . . . . . . . . . . . . . . . 46
Lucas v. O’Dea, 179 F.3d 412 (6th Cir. 1999). . . . . . . . . . . . . . . . . . . . . . . . . . . . 83, 84
Malagon de Fuentes v. Gonzales, 462 F.3d 498 (5th Cir. 2006). . . . . . . . . . . . . . . . . 46
McNally v. United States, 483 U.S. 350, 107 S. Ct. 3875 (1987). . . . . . . . . . . . . . . . . 98
Monterey Plaza Hotel Ltd. P’ship v. Local 483 of Hotel Employees, Rest. Employees,
215 F.3d 923 (9th Cir. 2000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Moshier v. United States, 402 F.3d 116 (2d Cir. 2005). . . . . . . . . . . . . . . . . . . . . . . . 30
Neder v. United States, 527 U.S. 1, 119 S. Ct. 1827 (1999). . . . . . . . . . . . . . . . . . . . 56
Parr v. United States, 363 U.S. 370 (1960). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Pinkerton v. United States, 328 U.S. 640, 66 S. Ct. 1180 (1946).. . . . . . . . . . . . . . . 101
Pollard v. Delo, 28 F.3d 887 (8th Cir. 1994). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Reno v. Flores, 507 U.S. 292, 113 S. Ct. 1439 (1993). . . . . . . . . . . . . . . . . . . . . . . . . 47
Richardson v. Gramley, 998 F.2d 463 (7th Cir. 1993). . . . . . . . . . . . . . . . . . . . . . . . . 30
Rochin v. California, 342 U.S. 165, 72 S. Ct. 205 (1952). . . . . . . . . . . . . . . . . 46, 47, 50
vii
Rushen v. Spain, 464 U.S. 114, 104 S. Ct. 453 (1983). . . . . . . . . . . . . . . . . . . . . . . . 94
Sanchez-Castellano v. United States, 358 F.3d 424 (6 Cir. 2004). . . . . . . . . . . . . . .th 30
SEC v. Guenthner, 395 F. Supp. 2d 835 (D. Neb. 2005). . . . . . . . . . . . . . . . . . . . . . 103
Sitrone v. United States, 361 U.S. 212, 80 S. Ct. 270 (1960).. . . . . . . . . . 78, 79, 80, 81
Snyder v. Massachussetts, 291 U.S. 97, 54 S. Ct. 330 (1934). . . . . . . . . . . . . . . . . . 93
Strickland v. Washington, 466 U.S. 668, 104 S. Ct. 2052 (1984).. . . . 53, 83, 85, 91, 92
United States v. Adams, 778 F.2d 1117 (5th Cir. 1985). . . . . . . . . . . . . . . . . . . . . 79, 81
United States v. Alsugair, 256 F. Supp. 2d 306 (D.N.J. 2003). . . . . . . . . . . . . . . . . . . 99
United States v. Baldinger, 838 F.2d 1796 (6th Cir. 1988). . . . . . . . . . . . . . . . . . . . . . 66
United States v. Castaneda, 16 F.3d 1504 (9th Cir. 1994).. . . . . . . . . . . . . . . . . . . . 101
United States v. Causey, No. CRIM. H-04-025-SS, 2005 WL 2647976 (S.D. Tex. Oct.
17, 2005). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
United States v. Chambers, 408 F.3d 237 (5th Cir. 2005). . . . . . . . . 79, 80, 81, 82, 105
United States v. Chandler, 858 F.2d 254 (5th Cir. 1988). . . . . . . . . . . . . . . . . 78, 80, 81
United Stats v. Chin, 934 F.2d 393 (2d Cir. 1991). . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
United States v. Colvin, 204 F.3d 1221 (9th Cir. 2000). . . . . . . . . . . . . . . . . . . . . . . . 30
United States v. Conley, 349 F.3d 837 (5th Cir. 2003). . . . . . . . . . . . . . . . . . . . . . . . . 84
United States v. Cronic, 466 U.S. 648 (1984).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
United States v. Cross, 128 F.3d 145 (3d Cir. 1997). . . . . . . . . . . . . . . . . . . . . . . . . . 96
United States v. Cruz, 363 F.3d 187 (2d Cir. 2004). . . . . . . . . . . . . . . . . . . . . . . . . . 103
United States v. Cuervelo, 949 F.2d 559 (2d Cir. 1991).. . . . . . . . . . . . . . . . . . . . . . . 50
United States v. Curry, 681 F.2d 406 (5th Cir. 1982). . . . . . . . . . . . . . . . . . . . . . . . . . 96
viii
United States v. Davis, 61 F.3d 291 (5th Cir. 1995). . . . . . . . . . . . . . . . . . . . . . . . . . . 95
United States v. Dodson, 291 F.3d 268 (4th Cir. 2002). . . . . . . . . . . . . . . . . . . . . . . . 30
United States v. Estate of Parsons, 367 F.3d 409 (5th Cir. 2004). . . . . . . . . . . . . . . . 56
United States v. Feola, 420 U.S. 671, 95 S. Ct. 1255 (1975). . . . . . . . . . . . . . . . . . . . 56
United States v. Fletcher, 121 F.3d 187 (5th Cir. 1997). . . . . . . . . . . . . . . . . . . . . . . . 82
United States v. Gagnon, 470 U.S. 522, 105 S. Ct. 1482 (1985). . . . . . . . . . . . . . . . . 93
United States v. Garcia, 413 F.3d 201 (2d Cir. 2005). . . . . . . . . . . . . . . . . . . . . . . . 103
United States v. Gonzalez-Lopez, __ U.S. __, 126 S. Ct. 2557 (2006). . . . . . . . . 52, 53
United States v. Gray, 790 F.2d 1290 (6th Cir.1986). . . . . . . . . . . . . . . . . . . . . . . . . . 96
United States v. Griffin, 324 F.3d 330 (5th Cir. 2003).. . . . . . . . . . . . . . . . . . . . . . . . 103
United States v. Guidry, 456 F.3d 493 (5th Cir. 2006). . . . . . . . . . . . . . . . . . . . . . . . . 46
United States v. Hanno, 21 F.3d 42 (9th Cir. 1994). . . . . . . . . . . . . . . . . . . . . . . . . . . 94
United States v. Harms, 442 F.3d 367 (5th Cir. 2006). . . . . . . . . . . . . . . . . . . . . . . . . 57
United States v. Hoover, 467 F.3d 496 (5th Cir. 2006).. . . . . . . . . . . . . . . . . . . . . . . . 80
United States v. Lake, 472 F.3d 1247 (11th Cir. 2007). . . . . . . . . . . . . . . . . . . . . . . . 96
United States v. Lew, 875 F.2d 219 (9th Cir. 1989). . . . . . . . . . . . . . . . . . . . . . . . . . . 99
United States v. Marshank, 777 F. Supp. 1507 (N.D. Cal. 1991). . . . . . . . . . . . . . . . . 50
United States v. Mills, 199 F.3d 184 (5th Cir. 1999). . . . . . . . . . . . . . . . . . . . . . . . . . . 96
United States v. Mmahat, 106 F.3d 89 (5th Cir. 1997). . . . . . . . . . . . . . . . . . . . . . . . . 56
United States v. Moya-Gomez, 860 F.2d 706 (7th Cir. 1988).. . . . . . . . . . . . . . . . . . . 46
United States v. Nell, 526 F.2d 1223 (5th Cir. 1976). . . . . . . . . . . . . . . . . . . . 89, 90, 91
United States v. Olano, 507 U.S. 725, 113 S. Ct. 1770 (1993). . . . . . . . . . . . . . . . . . 81
ix
United States v. Olis, 429 F.3d 540 (5th Cir. 2005). . . . . . . . . . . . . . . . . . . . . 26, 27, 61
United States v. Olis, Criminal No. H-03-217-01, 2006 WL 2716048 (S.D. Tex. Sept. 22,
2006). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
United States v. Peterson, 101 F.3d 375 (5th Cir. 1996). . . . . . . . . . . . . . . . . . . . . . . 57
United States v. Pettigrew, 77 F.3d 1500 (5th Cir. 1996). . . . . . . . . . . . . . . . . . . . . . 100
United States v. Phillips, 201 F.3d 345 (5th Cir. 2000).. . . . . . . . . . . . . . . . . . . . . . . . 86
United States v. Ratcliff, 488 F.3d 639 (5th Cir. 2007). . . . . . . . . . . . . . . . . . . . . . 57, 73
United States v. Reyes, 102 F.3d 1361 (5th Cir. 1996). . . . . . . . . . . . . . . . . . . . . . . . 82
United States v. Robles-Vertiz, 155 F.3d 725 (5th Cir. 1998).. . . . . . . . . . . . . . . . 78, 79
United States v. Rosas-Fuentes, 970 F.2d 1379 (5th Cir. 1992). . . . . . . . . . . . . . . . 101
United States v. Rosen, 487 F. Supp. 2d 721 (E.D. Va. 2007).. . . . . . . . . . . . 41, 51, 52
United States v. Sabri, 973 F. Supp. 134 (W.D.N.Y. 1996). . . . . . . . . . . . . . . . . . . . . 50
United States v. Salerno, 481 U.S. 739, 107 S. Ct. 2095 (1987). . . . . . . . . . . . . . . . . 46
United States v. Salinas, 601 F.2d 1279 (5th Cir. 1979). . . . . . . . . . . . . . . . . . . . . . . 81
United States v. Sandoval-Espino, Cr. No. C-04-685, 2007 WL 1558608 at *3 (S.D.
Tex. May 29, 2007).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
United States v. Scrushy, 366 F. Supp. 2d 1134 (N.D. Ala. 2005). . . . . . . . . . . . . . . . 50
United States v. Shaid, 937 F.2d 228 (5th Cir. 1991). . . . . . . . . . . . . . . . . . . . . . . . . . 84
United States v. Stein, 435 F. Supp. 2d. (S.D.N.Y.2006). . . 32, 37, 38, 45, 47-49, 51-53
United States v. Stein, 495 F. Supp. 2d. (S.D.N.Y.2007). . . . . . . . . . 32, 46, 47, 51, 105
United Stats v. Stringer, 408 F. Supp. 2d 1083 (D. Ore. 2006). . . . . . . . . . . . . . . . . . 50
United Stats v. Walker, 68 F.3d 931 (5th cir. 1995). . . . . . . . . . . . . . . . . . . . . . . . . . . 84
x
United States v. Walters, 87 F.3d 663 (5th Cir. 1996). . . . . . . . . . . . . . . . . . . . . . . . . 57
United States v. Walters, 997 F.2d 1219 (7th Cir. 1993). . . . . . . . . . . . . . . . . . . . 73, 99
United States v. Williams, 372 F.3d 96 (2d Cir. 2004). . . . . . . . . . . . . . . . . . . . . . . . . 47
United States v. White, 492 F.3d 380 (6th Cir. 2007). . . . . . . . . . . . . . . . . . . . . 103, 104
Via v. Cliff, 470 F.2d 271 (3d Cir. 1972). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Virgil v. Dretke, 446 F.3d 598 (5th Cir. 2006). . . . . . . . . . . . . . 89, 90, 91, 92, 93, 94, 95
Washington v. Glucksberg, 521 U.S. 702, 117 S. Ct. 2258 (1997). . . . . . . . . . . . 45, 47
Williams v. Taylor, 529 U.S. 362, 120 S. Ct. 1495 (2000). . . . . . . . . . . . . . . . . . . . . . 83
Wood v. Quarterman, 491 F.3d 196 (5th Cir. 2007). . . . . . . . . . . . . . . . . . . . . . . . 83, 85
Yates v. Dynegy, Inc., No. 2005-37891 (127th Judicial District, Harris County, Tex2a8s), .33
Yates v. United States, 354 U.S. 298, 77 S. Ct. 1064 (1957).. . . . . . . . . . . . . . . . . . 100
Young v. Dretke, 356 F.3d 616 (5th Cir. 2004).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
STATUTES, AUTHORITIES, CONSTITUTION
18 U.S.C. § 922(g)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
18 U.S.C. § 1341. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
18 U.S.C. § 1343. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
28 U.S.C. § 1346. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
28 U.S.C. § 2254. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
28 U.S.C. § 2255. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 29, 30, 31, 66
28 U.S.C. § 2255 Rule 4.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
xi
28 U.S.C. § 2255 Rule 6(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
28 U.S.C. § 2255 Rule 8(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Fed. R. App. P. 4(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Fed. R. App. P. 26. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Fed. R. Crim. P. 16.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Fed. R. Crim. P. 16(a)(1)(G). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Fed. R. Crim. P. 43(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Fifth Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45, 69, 78, 81, 83
Sixth Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51, 52, 86, 94
1
INTRODUCTION
In the radioactive environment following the collapse of Enron, Petitioner Jamie
Olis was the first person to be tried in a criminal case arising from the business
transactions of a Houston gas trading company. For reasons that could not have been
known to the Court, Olis’ was a fundamentally flawed and unfair prosecution. As a
result, an innocent man stands wrongfully convicted. It is time for the Court to remedy
that injustice.
Recent disclosures during a related civil lawsuit establish that Olis’ conviction
was the product of flagrant violations of his Fifth and Sixth Amendment rights to present
the defense of his choosing. The United States Attorney’s Office (“USAO”) acted
purposefully to sabotage Olis’ ability to prepare and defend his case by blocking funding
from his former employer, Dynegy, despite the fact that Dynegy was legally and
contractually obligated to pay the funds. In similarly complex cases, defense costs
commonly run into the tens of millions of dollars. Here, as a result of the USAO’s
misconduct, Olis’ defense team represented him at trial after receiving a total of less
than $14,000. In stark contrast, at the same time the USAO was working to deny Olis
defense funding that would have permitted him to retain crucial defense experts, the
USAO required Dynegy to pay for the government’s own experts and investigation.
Thus, the USAO brazenly stacked the scales of justice in favor of Olis’ conviction. See
infra, Argument Part III.
Having deprived Olis of the resources to defend himself in this massively
complex case, the USAO compounded its misconduct by engaging in an
2
unconstitutional bait and switch. It constructively amended the indictment, abandoning
the grand jury’s charge that Olis conspired to publish false financial statements and
instead urging the petit jury to convict Olis of a scheme to fool one auditor at Arthur
Anderson, James Hecker, regardless whether Hecker’s opinions about the accounting
treatment for Project Alpha were right or wrong. The USAO repeatedly told the jury that
it mattered not at all whether Hecker’s accounting opinions were correct, inviting the jury
to convict Olis even though the evidence failed to establish that Olis’ conduct rendered
Dynegy’s financial statements false, as the indictment alleged. See infra, Argument
Part IV. This new trial theory — in addition to being different from that charged in the
indictment — failed even to state a cognizable offense under the securities, wire and
mail fraud statutes with which Olis was charged. The result is that Olis was convicted
and sits in prison for conduct which, even under the government’s strained theory, was
not a crime. See infra, Argument Parts IV.B, V.C.
These errors were further exacerbated by the USAO’s presentation of false
testimony on the central issue of market loss and materiality. At trial, the USAO
overcame a defense motion in limine to exclude testimony concerning loss by
convincing the Court that proof of the loss was relevant and material to establish Olis’
intent and motive. The USAO then culminated the presentation of its case with
testimony that Olis’ conduct caused pensioners in the University of California system to
lose millions of dollars. But this highly prejudicial and inflammatory testimony was false.
Newly discovered evidence demonstrates that Olis’ conduct caused no losses to the
University of California system. Thus, Olis’ conviction was based on false and
misleading testimony. See infra, Argument Part III.D.1.
3
The fairness of the proceedings was also compromised by the inadequacy of
defense counsel. Counsel’s inadequacies included:
• failure to object to the USAO’s constructive amendment of the indictment, where
such an objection would have required dismissal of the charges against Olis;
• failure to object to the inclusion of an admittedly biased juror on Olis’ panel;
• permitting the Court to speak to the admittedly biased juror privately and out of
the presence of both Olis and counsel, in violation of Olis’ rights to be present
and have counsel present at critical stages of the proceedings; and
• failure to object to legally erroneous jury instructions that had the effect of
relieving the USAO of its burden to prove each element of charged offenses
beyond a reasonable doubt.
See infra, Argument Part V.
The confluence of these inequities was impossible to overcome. Singly and in
combination, the USAO’s misconduct and the inadequacy of counsel’s representation
deprived Olis of his fundamental right to a fair trial and resulted in the conviction of an
innocent man. Accordingly, as we demonstrate below, Olis’ conviction and sentence
must be set aside pursuant to 28 U.S.C. § 2255.
FACTS
1. Project Alpha
In 2000, Dynegy, based in Houston, was a publicly traded company and one of
the largest oil and gas trading companies in the United States. A large portion of
Dynegy’s business involved trades in long-term gas contracts, including futures and
The trial transcripts are lodged in the record at Docket numbers 97-99, 102-1051
and 122. Each transcript volume represents one of the eight days of trial, and thismemorandum will refer to the transcripts accordingly, as “TTx Day __.”
4
derivatives. One consequence of that business profile (together with the “mark-to-
market” accounting method that Dynegy was required to employ) was that Dynegy’s
earnings reports tended to be out of sync with its cash flow. TTx Day 2, 226:15-22. 1
During 2000, some analysts expressed concern about this cash flow gap. TTx Day 3,
189:19-194:6. Dynegy, with the help of several law firms, banks and the accounting
firm Arthur Andersen (“Andersen”), developed and implemented an extremely
complicated gas trading transaction, which later came to be known as “Project Alpha,”
to address the earnings gap while at the same time lowering Dynegy’s effective tax rate.
TTx Day 4, 127:12-25.
Olis was a mid-level member of a large team that worked on Project Alpha at
Dynegy, which itself was only one company among many involved in developing and
implementing the transaction. TTx Day 2, 43:17-22. Rob Doty, Dynegy’s Chief
Financial Officer, was ultimately responsible for the approval and implementation of
Project Alpha. TTx Day 2, 43:4-10. Mike Mott, Dynegy Senior Vice President and
Controller, was ultimately responsible for accounting issues relating to the transaction.
Other members of the Dynegy team included Rich Gould, Director of Finance (TTx Day
2, 55:14-22); Helen Sharkey, a manager in the accounting department under Mott (TTx
Day 2, 61:23-62:8); Tammy Norman, Vice President of Gas Trading (TTx Day 2, 61:5-
22); David Roth, Vice President and Assistant General Counsel (TTx Day 2, 94:14-25);
Wendy Ho, Associate Counsel under Roth (TTx Day 2, 132:5-13); Gene Foster, Vice
5
President of Tax; and Olis, Director of Tax Planning under Foster (TTx Day 4, 148:11-
151:7). In addition, attorneys at the law firms Vinson & Elkins, Milbank Tweed, Mayer
Brown, Andrews Kurth and Bracewell & Patterson were intimately involved in Project
Alpha. TTx Day 2, 86:14-16, 96:3-15, 131:6-15.
Andersen was Dynegy’s outside auditor. James Hecker was the audit
“engagement partner” for the Dynegy account. TTx Day 2, 30:22-31:14. Among
Hecker’s responsibilities were reviewing Dynegy’s financial statements for accuracy and
approval of the accounting treatment of Dynegy’s operations. TTx Day 2, 31:15-32:7.
He was assisted in these responsibilities by Marshall Dodson, who was the primary
audit manager on the Dynegy account. TTx Day 2, 71:5-13. Partners and managers in
Andersen’s Houston tax department also worked on the Dynegy account and, more
specifically, Project Alpha. These included Ted McElroy, Kelvin Kelm and Sean Muller.
TTx Day 2, 26:15-23, 33:20-35:1. During the development and implementation of
Project Alpha, Hecker and Dodson had little direct contact with members of Dynegy’s
team, and to the extent they did have contact, most of it was with Mott, the Controller.
TTx Day 2, 53:24-54:19, 68:14-21, 72:24-74:12; Day 6, 56:16-22.
Project Alpha originated from a proposal by Andersen. In the Spring of 2000,
Keith Kechik of Andersen’s Chicago tax department (along with McElroy, Kelm and
Muller from the Houston tax department) pitched a structured tax benefit proposal for
Dynegy at a meeting with Doty, Foster and Olis. TTx Day 2, 36:4-42:12. The proposal
was called Commodity Basis Enhancement Strategy (“CBES”) and involved the transfer
of losses from one company to another through a power trading contract. TTx Day 2,
36:10-16. Kechik had a client, Integrated Capital Associates (“ICA”), which had such
6
losses and, as it was later revealed, Andersen had a contingent profit-sharing
arrangement with ICA that would pay Andersen 50% of ICA’s profits if a CBES
transaction was successfully concluded. TTx Day 2, 39:9-17, 44:9-19; Day 3, 73:7-
75:5; Trial Ex. 62.
Meanwhile, Dynegy management remained interested in addressing the
perceived disconnect between cash flow and reported earnings. During the summer of
2000, Patrick Boultinghouse at Citibank pitched Dynegy (represented by Gould, Doty
and Sharkey) a proposal for a “prepaid” gas contract that could help address the
disconnect. TTx Day 3, 198:19-199:9. Dynegy responded that it was interested in the
proposal but wanted essentially to merge the idea of a pre-paid contract with
Andersen’s CBES proposal. TTx Day 3, 208:20-209:7. Boultinghouse and Steve
Wagman from Citibank then attended a meeting at Dynegy with Gould, Foster and Olis
(with Andersen people on the phone) during which the parties explored the idea of
merging the Citibank and Andersen proposals so that Dynegy could enjoy both the cash
flow benefits of a prepaid contract and the tax benefits of the CBES transaction. TTx
Day 3, 209:8-211:4, 211:24-212:16. Citibank approved the idea in principle. TTx Day
3, 212:17-213:3, 224:7-11, 230:18-22.
For the next six months, there followed protracted negotiations between Citibank,
Dynegy and several other parties and banks (including Deutche Bank and Credit
Suisse) over the terms of the transaction. The structure of the transaction continually
morphed over this period, becoming more and more complex. TTx Day 3, 232:9-17.
The final version of Project Alpha, a remarkably complex transaction with two key
provisions, emerged from these negotiations. TTx Day 4, 127:12-128:7, Trial Ex. 679A.
7
The first provision was intended to improve cash flow from operations. TTx Day 2,
78:6-19; Day 3, 212:6-16, 231:10-17. Dynegy would enter into a contract to purchase
gas from a “special purpose entity” (“SPE”), to be known as ABG Gas Supply, for one
year at a discounted price and then for four years at a premium price. TTx Day 2,
88:9-89:17, 211:12-212:16. Throughout the five years of the contract, Dynegy would
re-sell the gas at market price, resulting in a positive cash flow during the first year of
the deal and a negative cash flow during the last four years. TTx Day 2, 227:3-17.
Because, according to mark-to-market accounting principles, the losses in the last four
years offset the gains in the first year, Dynegy reported increased cash flow but no
earnings during the first year of the deal. TTx Day 2, 78:20-81:5.
The second provision was intended to accomplish the tax benefit. TTx Day 3,
211:24-212:5. Dynegy would form a partnership with ICA, the Andersen client that had
large operating losses. Within that partnership, the taxable income during the first year
of Project Alpha would be allocated to ICA, and the tax losses in the last four years
would be allocated to Dynegy. TTx Day 2, 45:1-25, 228:6-17. As a result, Dynegy
would realize positive cash flow and no taxable income in the first year, while realizing
negative cash flow and tax losses in the latter years.
Although Project Alpha was not a traditional prepaid transaction, it was a “mirror”
to a prepaid transaction, and accomplished similar results. TTx Day 6, 11:10-12:1. As
Hecker admitted at trial, at the time of Project Alpha, prepaid transactions were
considered entirely legitimate, and the SEC permitted the cash flows resulting from
prepaid transactions to be accounted for as operating income. TTx Day 6, 12:8-16; see
also TTx Day 3, 182:18-20 (prepaid transactions common in the industry).
8
During the final stages of the Project Alpha negotiations, there was much
discussion concerning whether and how Credit Suisse and Deutsche Bank could hedge
their 3% interest in ABG Gas Supply with “swaps,” and whether Citibank’s hedges with
ABG Gas Supply and Dynegy could be further protected by “tear-up” provisions.
Ultimately, the parties agreed to hedge the banks’ 3% interest in yet another SPE —
ABG Gas Holding — to be the owner of ABG Gas Supply. TTx Day 2, 90:6-91:21,
104:6-111:6; Day 3, 80:15-84:24; Day 4, 15:6-18:16, 19:6-27:12, 32:6-33:21, 54:10-
58:12, 62:17-67:12. Later, to address Citibank’s similar concern about its exposure to
gas trading risk, the parties’ external counsel proposed tear-up agreements between
Dynegy and Citibank. TTx Day 4, 30:3-33:21. All of the parties, together with their
inside attorneys and outside attorneys, were informed of these provisions. Certainly,
the parties understood that the banks would not finance the project unless their
investments were protected — the banks were not, after all, in the volatile gas trading
business. TTx Day 3, 236:2-17; Day 4, 33:22-36:5. The parties believed and
understood that Andersen expected this as well; it was common knowledge. TTx Day
4, 72:22-24.
On April 10, 2001, Alpha was finalized and funded. TTx Day 6, 196:14-15. The
company’s financial statements later in the year reflected Project Alpha’s effects. The
market did not respond to the disclosures, and in two cases the price of Dynegy shares
actually dropped. Declaration of Bala Dharan Ex. C at ¶¶ 22-24.
2. The Indictment
On June 10, 2003, the grand jury issued an indictment charging Foster, Sharkey
and Olis with alleged crimes arising out of the design and implementation of Project
Olis was indicted on six counts: conspiracy (Count One); securities fraud2
(Count Two); mail fraud (Count Three); and wire fraud (Counts Four through Six). SeeIndictment (Docket #1). Count One alleged a conspiracy to commit securities fraud,mail fraud and wire fraud. The other counts were entirely derivative — those countsalleged no new facts, but instead incorporated Count One’s allegations, and chargedthat the same alleged scheme involved substantive violations of the securities, wire andmail fraud statutes. See Indictment (Docket # 1).
9
Alpha. Indictment (Docket # 1). The indictment explicitly alleged that Project Alpha2
was a scheme to falsely report financing activity as operating cash flows:
[T]he Defendants . . . would and did conceive, design and execute a plan toborrow money: that is, to engage in a “financing activity” but make it appearthat the borrowed funds were cash flow from Dynegy’s “risk-managementactivities” to create the false impression and illusion that Dynegy’s cash flowsfrom risk-management activities were much improved and that its earningswere of sufficient quality to justify, maintain and increase Dynegy’s stockprice, and to avoid the potentially adverse effect of a downgrade of Dynegy’scredit rating.
Indictment ¶ 15; see also Indictment ¶ 19 (“the Defendants and their coconspirators
and agents well knew, intended, and believed [that] Project Alpha was, in fact, a loan
structured to appear as a 5-year natural gas contract that should have been disclosed
as cash flows from financing activities”). The indictment alleged that Project Alpha
employed a “100% hedging” strategy to insulate the involved banks from financial risk,
and that reporting such an arrangement as operating income violated Generally
Accepted Accounting Principles (“GAAP”). Indictment ¶ 20. The indictment further
alleged that in reporting the cash flows as operating income, the Defendants
“intentionally concealed from Dynegy’s auditors, the SEC, Rating Agencies, lenders,
market and securities analysts, and the investing public” the fact that Project Alpha
employed hedges and tear-up agreements to ensure that the project would not lose
10
money. Indictment ¶ 21. According to the indictment, the Defendants therefore “falsely
report[ed]” to the “Rating Agencies, lenders, market and securities analysts, and the
investing public” that the cash flows were operating income rather than financing
activities. Indictment ¶ 21. The false reports “caused Dynegy’s cash flow from
operations . . . to be materially overstated” and caused Dynegy’s financial statements to
be misleading. Indictment ¶ 24.
3. The Trial
a. The USAO’s New Prosecution Theory
From the commencement of Olis’ trial, the USAO eschewed the indictment’s
central allegation that Project Alpha was a scheme “to create the false impression and
illusion that Dynegy’s cash flows from risk-management activities were much
improved....” Indictment ¶ 15. From its opening statement through closing argument,
the USAO explicitly stated that it did not matter whether the alleged conspirators’ deceit
had caused revenue from Project Alpha to be mischaracterized as revenue from
operations, as opposed to financing. Instead, as the USAO told the jury in its opening
statement, the only issue was whether Olis and his alleged co-conspirators hid the
outside hedges and tear-up agreements from James Hecker, Andersen’s engagement
partner: “this case is not about accounting, it’s concealment. It doesn’t matter if Jim
Hecker was right or wrong. It just matters that he didn’t have all the information in front
of him when he made the decision.” TTx Day 1, 104:21-24 (emphasis added); see also
TTx Day 7, 77:17-22 (Government’s closing argument: “Now, right or wrong, Mr. Hecker
set the rules. That is at the heart of this case. Mr. Hecker was the gatekeeper. It
11
doesn’t matter whether some other accountant would have set different rules. He was
the gatekeeper. He was the person who had to give his approval.” (emphasis added)).
Thus, the government’s trial theory was that Olis could be guilty of the fraud charges
even if Hecker’s opinions were wrong and the accuracy of Dynegy’s financial
statements were not affected by the outside hedges and linked tear-ups to which
Hecker objected.
The USAO’s strategic shift was compelled by several indisputable facts:
• Mike Mott, Dynegy’s Controller and the man ultimately responsible for Project
Alpha’s accounting treatment, disagreed with Hecker’s opinions and defended
Alpha’s accounting — outside hedges, tear-ups and all — in written and oral
presentations to the SEC. TTx Day 7, 102:22-103:1; Day 5, 168:21-23; see also
Trial Exhibit 57, Mott letter to Robert Herdman, dated April 19, 2002. A copy of
Mott’s letter is attached as Exhibit C to the Declaration of Ted W. Cassman in
Support of Olis’ Motion to Set Aside His Conviction (“Cassman Decl.”) .
• Although the SEC concluded that Dynegy should restate its financials and re-
characterize the revenue from Project Alpha as financing instead of operations, it
did not require the consolidation of ABG Gas Supply with Dynegy — a result that
would necessarily have followed if it shared Hecker’s concern about the tear-ups
and outside hedges. TTx Day 5, 158:22-159:7, 170:2-171:4. The SEC’s action
was not consistent with the position that Hecker had taken on the accounting for
Project Alpha. TTx Day 5, 161:13-23.
• After extensively reviewing the underlying documentation for Project Alpha,
PriceWaterhouseCoopers (“PWC”), the firm that replaced Andersen as Dynegy’s
Hecker suggested at trial that PWC was not up to speed on Project Alpha. TTx3
Day 5, 169:9-15. However, newly discovered evidence establishes that PWC chargedmore than $520,000 to evaluate Project Alpha in March and April 2002,Declaration ofLloyd E. Kelley in Support of Olis’ Motion to Set Aside His Conviction (“Kelley Decl.”)Ex. H), and reached the conclusion that “[a]lthough we have not audited thetransaction, we reviewed the form of the transaction and believe that — in form — it isin accordance with GAAP.” Kelley Decl. Ex. I.
12
outside accountants after Andersen was indicted, notified Dynegy that it was
prepared to defend the accounting of Project Alpha. 3
• Gene Foster, the USAO’s key witness, acknowledged that he knew that Mott
disagreed with Hecker about the accounting for Alpha and that Mott and
Dynegy’s “internal accountants at the end of the day were okay with the
transaction.” TTx Day 7, 102; see also TTx Day 7, 171:12-172:5 (Foster
confirming SEC deposition testimony that he believed Project Alpha was a “good
deal” and that the accounting treatment was proper).
Given these facts, the USAO could not and did not attempt to prove the allegation that
lay at the heart of the indictment — i.e., that Olis understood that Dynegy’s financial
statements were rendered false by the outside hedges and linked tear-ups to which
Hecker objected. Instead, the USAO attempted to prove that Hecker was tricked into
approving a transaction that, right or wrong, he otherwise would not have. Yet even on
this fall-back position, the proof was unconvincing.
b. Linked Tear-ups and Outside Hedges
From its early stages, the participants in Project Alpha envisioned that the SPE,
ABG Gas Supply, would be funded by Citibank or another bank. Everyone participating
directly in the prolonged negotiations knew that banks are not in the gas trading
13
business and that they would insist that their exposure be hedged. TTx Day 3, 236:2-
17; Day 4, 33:22-36:5. The banks’ representatives knew it. Their counsel knew it.
Dynegy’s accountants and inside attorneys knew it. Dynegy’s outside attorneys knew it.
TTx Day 4, 17:7-18:12, 34:13-35:4, 129:3-130:19, 184:2-20. Even Sean Muller, the
Andersen tax senior manager principally responsible for reviewing Project Alpha,
admitted that he knew it. TTx Day 3, 100:23-102:14. It was, in fact, openly discussed
and common knowledge:
Q: Was it ever contemplated by Citibank or Deutsche Bank or CreditSuisse First Boston that they, the equity investors, would face any riskof losing their money that they invested . . . because of changes in theprice of natural gas?
A: No, I don’t think the banks ever contemplated that, or anybody elseon the team contemplated that, because that’s — banks don’t do that,I think everybody knows that. Or everyone — let me rephrase that —everyone who was involved in the transaction knows that banks don’tsign up for commodity risks.
Testimony of Patrick Boultinghouse, TTx Day 4, 17:7-16; see also TTx Day 4, 72:22-24
(“It’s widely known that when banks enter into transactions, they do not enter into
commodity risks. So, you know, we knew it, Dynegy knew it, Arthur Andersen knew it.”).
Andersen personnel were not directly involved in the Project Alpha negotiations,
but did monitor them — primarily through the point persons in its tax department, Kelm
and Muller. TTx Day 3, 77:18-78:6. During the negotiations, Hecker participated
directly in a meeting with “high-level” Dynegy representatives (not including Olis), one or
two “all hands” meetings, and an “all hands” conference call. TTx Day 5, 101:16-
102:14, 114:13-116:9, 133:20-25. Olis attended the “all hands” meetings, but Hecker
never spoke to Olis directly about any aspect of Project Alpha. TTx Day 5, 189:9-190:3.
14
Although Andersen’s primary contacts with Dynegy personnel throughout this process
were Kelm and Muller (and, to a lesser extent, McElroy), Hecker insisted that they did
not represent him in the deal — they were neither his “eyes and ears,” nor his
“mouthpiece.” TTx Day 5, 124:25-125:12, 210:22-212:10.
A continual source of frustration for members of Dynegy’s team and for
representatives of the other parties throughout the negotiations was the fact that
Andersen changed its advice on several key issues, as communicated directly by
Hecker or indirectly through Muller or Kelm. Ttx Day 2, 110:7-111:1; Day 3, 189:16-24;
Day 4, 189:16-24; Day 7, 102:5-17, 107:10-23. Hecker changed his opinion whether
the bank’s funding of ABG Gas Supply could occur gradually over the first year or must
occur completely at the inception of the deal. TTx Day 2, 111:2-18. He also changed
his advice whether the bank’s 3% interest in ABG Gas Supply could be held as
common stock, as opposed to preferred stock. TTx Day 2, 120:7-22. Finally, and most
relevant here, Andersen provided the Dynegy team with confusing and conflicting
advice concerning (1) the requirements for maintaining the independence of an SPE,
and (2) more generally, the requirements for accounting of Project Alpha as cash flow
from operations, not from financing. Gould, Puleo and others became fed up and
angry. TTx Day 2, 165:16-20; Day 3, 143:6-144:7; Day 7,110:1-111:4. As a result of
Andersen’s changed positions and inconsistencies, Dynegy’s project Alpha team was
compelled to rely on Dynegy’s internal accountants and its external attorneys for advice
concerning the legitimacy of the transaction. TTx Day 7, 102:12-103:1, 107:10-23.
Hecker nevertheless testified that he always took the position that the 3%
investment in ABG Gas Supply could not be hedged and had to be at risk in order for
15
him to recognize ABG Gas Supply as an SPE. TTx Day 5, 110:21-111:21. Further,
Hecker testified that he insisted that there should be no tear-ups between Dynegy and
Citibank because that provided “linkage.” TTx Day 5, 120:23-121:5, 133:30-134:19.
He testified that the transaction, as it ultimately evolved, had three features that he
would not have approved and that, in his opinion, killed the accounting of the
transaction:
Q: So, now we have a third requirement that has to be met in order forthis transaction to generate the operating cash flow benefit. We’vegot to have a gas SPV that meets the three percent minimum equityrequirement, right?
A: Yes.
Q: You’ve got to have a gas contract that’s a qualifying gas contract,right?
A: Yes.
Q: And to the extent that ICA has a special purpose vehicle for their partof this transaction, that has to meet the three percent minimum?
A: That’s correct.
TTx Day 5, 107:6-17. According to Hecker, this meant that a minimum of 3% of the
equity investment in both ABG Gas Supply and ICA had to remain at risk (i.e., without a
swap or floor) and that there could not be linked tear-up agreements for the Dynegy
and Citibank swaps at the ABG Gas Supply level. TTx Day 5, 92:18-93:14, 98:12-99:5,
116:1-19, 121:1-10. However, Hecker conceded that the GAAP rules were not always
clear, TTx Day 5, 31:3-7, and that at the time of Project Alpha’s negotiation and
implementation, he was not sure whether the outside hedging was appropriate, TTx
Day 5, 191:17-192:13.
At trial, Foster described a similar incident, though he had previously accused4
Hecker of drawing the circle. Foster also testified that Olis was present during the circleincident and did not include Kelm in the group. TTx Day 6, 159:24-161:22.
16
There is no doubt that members of the Dynegy team perceived Hecker’s position
on these issues to be shifting and inconsistent. TTx Day 2, 136:15-137:17, 145:15-19,
165:19-166:23. Just as clearly, other members of Andersen’s team — primarily those
in the tax department — were sending the Dynegy team different messages.
Muller admitted at trial that on February 17, 2001, he told Olis that ICA could
hedge the last 3% equity interest with a floor at NGAI LAR, LLC outside of the SPV,
precisely as eventually occurred. TTx Day 3, 83:21-85:12. Muller further testified at
trial that in the context of a meeting where the 3% minimum risk requirement for the
SPE was being discussed, Foster, Kelm, Muller, Ted McElroy (of Andersen’s tax
department) and possibly Olis had a short side discussion during which McElroy drew a
circle on a schematic drawing of Project Alpha. The circle was intended to show the
entities and transactions for which Andersen would need to review documents before
issuing its opinion. TTx Day 2, 96:16-100:25. According to Foster, the circle included4
within it ABG Gas Supply, but not the entities “below” it or “above” it in the transaction,
including those referred to as the “CLN and CitiGroup support.” TTx Day 6, 159:24-25,
162:24-164:25. Foster was comfortable with the belief that Andersen did not need to
know about or review documents relating to agreements outside the circle. TTx Day 7,
91:10-20.
On March 20, 2001, after a question arose whether the banks’ risk against price
Muller testified that on the morning of the 20th, he essentially stumbled upon5
documents reflecting the tear-up agreements, and was surprised to see them. ButMuller’s story is false and his surprise was completely feigned. The evidenceestablished that Muller was aware of the tear-ups and sent Dodson an email inquiringabout them at least two days earlier. TTx Day 3, 117:18-181:8.
17
fluctuations in gas prices could be protected by “tear-up” provisions, Marshall Dodson5
suggested in an email that they could “if somehow the provisions are worded and they
are not linked to the gas contract.” TTx Day 3, 129:12-131:17; Trial Ex. 381. Hecker
testified that he followed that email by convening a telephone conference with Dynegy’s
team in New York, including Olis, during which he made it clear that there could be no
tear-ups period, directly or indirectly linked to the gas contract. TTx Day 5, 133:20-
134:19. But Muller, Hecker’s associate and tax senior manager, evidently did not hear
such a clear, definitive message; and two days later he sent Olis and Foster an email
stating that Andersen would only have to review documents referred to in the principal
agreements. TTx Day 2, 176:20-177:22, 184:1-186:1; Day 3, 136:22-137:5, 142:6-9.
The express text of Andersen’s SAS 50 opinion was ultimately consistent with Dodson’s
suggestion in that email. TTx Day 3, 149:12-150:3; Trial Ex. 660A-6 at 4 (SAS 50
opinion letter stating “Any sales or hedges transacted by DHI will not be with ABG or its
owner or directly linked to the natural gas purchase arrangement . . . .” (emphasis
added)). Thus, with input from Dynegy’s accountants, inside attorneys and outside
attorneys, and from the banks, Dynegy and Dynegy’s Project Alpha team followed
Dodson’s advice. TTx Day 3, 141.
c. The Alleged Conspiracy
Foster testified that at some undefined point in time he, Helen Sharkey, Tammy
In his statements to the government, Foster had also identified Mike Mott,6
Steve Wagman and Amanda Angelina (another Citibank representative) as co-conspirators. TTx Day 7, 74: 10-17, 76:1-4; 77:21-78:4. Of these twelve persons, onlyFoster, Sharkey and Olis were charged with a crime. Foster and Sharkey pleadedguilty with cooperation agreements, but Sharkey did not testify at trial. She did,however, write a letter to the Court in support of Olis at the time of the re-sentencing, inwhich she asserted that with regard to implementation of the tear-ups and outsidehedges, Olis relied upon the accounting expertise of Mike Mott and others in Dynegy’sfinancing department, as well as upon the advice of outside counsel. Docket # 270 Ex.4.
18
Norman, Richard Gould, Wendy Ho, Robert Doty, Mark Spradling, Cliff Rankin and
Jamie Olis agreed to keep relevant documents and information concerning certain
aspects of Project Alpha from Andersen. TTx Day 6, 91:5-12; 93:21-94:4. With regard6
to Olis’ involvement, specifically, Foster described a telephone call with Dynegy CFO
Doty, during which Foster said that he and Olis informed Doty of the need to hide
documents relating to the tear-ups from Andersen. TTx Day 6, 190:18-193:14. Doty
was not a witness a trial. But he has since flatly contradicted Foster’s testimony.
According to Doty, no such conversation ever occurred. Transcript of Doty Testimony
in Yates v. Dynegy, Inc. (Kelley Decl. Ex. E) 26:20-27:15. At any rate, Hecker testified
that he (and Andersen) did not learn about Project Alpha’s outside hedges and linked
tear-up agreements until April 2002 — a year after the transaction closed.
However, Olis did not behave consistently with an agreement to hide the outside
hedges and tear-ups from Andersen. To the contrary, it was undisputed that on April
24, 2001, Olis sent Kelvin Kelm, who was responsible for creating Andersen’s detailed
financial models of Project Alpha, an email with a schedule that expressly listed both
the ICA and ABG Gas Holding outside hedges. Day 3, 125:13-126:20, Trial Ex. 21.
Kelm, in fact, relied upon that email and another from Olis to create a model of Project
Helen Sharkey did not testify at trial, but FBI notes of her interviews reflect that7
when asked by the USAO to review and comment on an electronic version of Kelm’smodels for Project Alpha as part of her cooperation agreement, Sharkey recognizedthat Kelm had included the “outside hedges” in his calculations. Cassman Decl. Ex. B.
This email was provided by the government in discovery prior to trial, but8
counsel with their limited resources never found it.
19
Alpha that accounted for the presence of the outside hedges. TTx Day 3, 109:6-
109:17, 112:1-6; Trial Ex. 20. So the evidence established that Olis notified an7
Andersen accountant of both outside hedges that Hecker claimed would kill the
accounting. In other words, Olis did not hide the outside hedges from Andersen, and
as Hecker himself admitted, it was Andersen’s opinion, not Hecker’s, that mattered:
“Dynegy or any other company doesn’t care what my opinion on accounting is
individually. They want to know what Arthur Andersen opinion is and Arthur Andersen’s
interpretation of generally accepted accounting principles.” TTx Day 5, 10:6-12.
Moreover, newly discovered evidence establishes that on April 6, 2001, Debbie
Ramirez of Vinson & Elkins sent numerous people — including Kelm, Muller and
Dodson — an email that expressly documented the ICA hedge. Cassman Decl. Ex. A. 8
This email establishes that, contrary to Hecker’s express testimony, Andersen knew
about the ICA hedge. Moreover, the email was sent not only to Kelm and Muller in
Andersen’s tax department, but also to Marshall Dodson — the individual who Hecker
himself identified as his right-hand man. Thus, the suggestion that Olis was trying to
hide the hedges from Andersen was contradicted by the evidence at trial; and the
assertion that Andersen’s audit team in particular was not aware of the outside hedges
or that Andersen as an entity did not know about those hedges is contradicted by the
20
new evidence.
d. Andersen’s Contingent Fee with ICA
The reason for Andersen’s schizophrenia and mixed messages is now clear.
Andersen had a contingent fee arrangement with ICA that entitled Andersen to 50% of
the net proceeds that ICA received from Dynegy on Project Alpha. ICA received total
proceeds of approximately $21 million. After deductions for expenses, the net
proceeds to ICA were approximately $15.6 million. TTx Day 3, 73:7-75:5; Trial Ex. 62.
Thus, Andersen realized a fee of more than $7.8 million as a result of Alpha. That fee
was directly tied to the funding of NGAI LAR, LLC, which was only possible because the
banks negotiated a floor (or outside hedge) for the transaction, precisely as Muller had
advised. TTx Day 3, 81:12-85:21, 167:13-168:8.
These facts were generally developed during the trial. However, because of the
government’s interference with Dynegy’s funding, Olis’ defense team was unable to
retain experts to assist them in the cross-examination of Hecker and Muller, and in the
presentation of expert testimony concerning the impropriety of the contingent fee
arrangement, the disabling conflict of interest such a fee created and the powerful
motivation it created in Andersen’s tax department, and hence Andersen as an
institution, to see that Project Alpha was realized. In addition, this evidence would have
undermined Hecker’s credibility as a key government witness.
e. The Aftermath
Hecker, of course, asserted that his accounting opinions for Project Alpha, as
articulated to the jury, were correct. But, as noted above, the government never tried to
prove that they were in fact correct and repeatedly argued to the jury that the
21
correctness or incorrectness of Hecker’s opinions was neither important nor an issue
that they need decide. According to the government, it did not matter whether Hecker’s
opinions were right or wrong. Thus, the government did not seek to prove that
Dynegy’s financial statements were in fact false.
Although the jury heard little about them, there were many reasons for Olis to
believe that the accounting treatment for Project Alpha was proper. Mike Mott, who as
Controller was ultimately responsible for the accuracy of Dynegy’s financial statements,
disagreed with Hecker’s opinions. In April 2002, after the Wall Street Journal had
questioned the propriety of Project Alpha and the SEC had inquired, Mott defended
Alpha’s accounting — outside hedges, tear-ups and all — in written and oral
presentations to the SEC. TTx Day 7, 102:22-103:1; Day 5, 168:21-23; Trial Ex. 21.
Mott was the primary accounting expert upon whom Olis relied, and he always took the
position that the revenues from Alpha were properly accounted as operations. TTx Day
7, 102:12-103:1.
Mott’s position before the SEC was supported by Dynegy’s new outside auditors,
PriceWaterhouseCoopers (“PWC”). On April 4, 2002, Michael O’Shea, an accountant
at PWC, sent an email to Mott with the subject matter “Dynegy Statement on Alpha.”
The email stated that “[a]lthough we have not audited the transaction, we reviewed the
form of the transaction and believe — in form — it is in accordance with GAAP.” Yates
Ex. 68 (Kelley Decl. Ex. I). Subsequent discovery in the Yates trial established that
PWC’s April 2002 opinion was the result of an evaluation of Alpha for which PWC
charged in excess of $520,000. Yates Ex. 155 (Kelley Decl. Ex. H). Thus, after an
extensive analysis, PWC differed with Hecker’s opinion as to the “form” of the
22
transaction; and none of this information was available to Olis or his counsel at the time
of trial in this case.
Finally, the SEC’s decision was also inconsistent with Hecker’s opinion that the
outside hedges and the Citibank/Dynegy linked tear-ups destroyed the desired
accounting. The SEC found that Dynegy should have characterized the revenues from
Project Alpha as financing, not operations. But that decision was premised on the
similarities of Project Alpha to a prepaid transaction, not on the existence of the
Citibank/Dynegy tear-ups or the outside swaps that Hecker found objectionable. Had
the SEC agreed with Hecker’s position, it would have required consolidation of the
financials of ABG Gas Supply and Dynegy.
Given these facts, the government’s decision to abandon the indictment’s charge
that Olis and the co-conspirators intended to file false financial statements was certainly
understandable. The indictment’s charge was contrary to the evidence and could not
be proven, and the government did not even try.
f. Government’s Heavy Reliance on Incorrect Loss Testimony
During the government’s opening statement, AUSA Beek — after reciting the
facts the government believed it could show about Project Alpha — stated:
Did it matter? You bet it did, because by the close of business the nextday [after Project Alpha’s disclosure] on April 26th, Dynegy’s stock hadfallen 52 percent, and investors lost billions of dollars. Billions with a B.
You’re going to hear from a witness later in the trial named Jeff Heil. Hewas the chief investment analyst for the Regents of the University ofCalifornia school system. They run — and this money that they manageruns the university system . . . . They lost over a hundred million dollarsjust in their investment in Dynegy.
Did it matter? You bet it did.
23
TTx Day 1, 104:7-18 (emphasis added).
Olis’ attorneys sought to exclude Heil’s testimony, but the Court reversed an
earlier provisional decision and permitted the government to call Heil in order to show
“loss resulting from the defendant’s scheme” as “circumstantial evidence of intent.” TTx
Day 7, 128:29-134:17. Indeed, the government contended that Heil’s testimony was
vital to its case, arguing that evidence of stock loss “is absolutely relevant to motive
here, because the effect was so big and so important. That shows why it was so critical
to do this deal. I mean, it is — without the size of that effect, we can’t get across why
they did this.” TTx, Day 6, 237:11-15.
Heil testified generally that an investor deciding whether to buy a particular stock
would be interested in the company’s credit rating and growth rate. TTx Day 7, 204:5-
211:6. Heil then stated that in his “professional opinion,” an investor would be very
concerned that a company had to reclassify $300 million in cash flow from operations
as cash flow from financing. Id. 211:8-212:9. He testified that cash flow from
operations “is sort of the final and ultimate number that investors are looking at.” Id.
213:14-21. He specifically testified that “cash flow was our primary approach to valuing
stocks,” and was the primary factor that caused him to recommend purchasing Dynegy
stock. Id. 215:5-24, 218:7-16. Heil also stated, however, that he recommended buying
Dynegy stock because one of his analysts was excited about the newly deregulated
energy market and the broadband market. Id. 216:19-218:6.
Heil testified that he had recommended that the University of California system
purchase a total of about $100 million worth of Dynegy shares during 2001, id. 215:25-
AUSA Lewis’s reference to Dynegy’s September 2000 stock price was9
misleading. It is true that Dynegy’s stock price reached a peak of approximately $55 atthat time. But Project Alpha was not implemented until April 2001, at which time thestock price was still about $55 — and it declined steadily thereafter. Thus, ProjectAlpha was clearly not responsible for the inflation of the stock price to $55.
24
216:18, but sold the stock in May 2002 after Dynegy announced it would reclassify
$300 million in operating cash flows as financing on April 25, 2002, id. 220:18-221:6.
Heil stated that he recommended selling the stock largely because of the
reclassification of cash flows. Id. 220:18-221:6. Heil testified that the University system
decided to sell its Dynegy shares after the company’s 8K announcement and lost “a
little over $100 million” when it sold its stock. Id. 222:10-20.
During closing arguments, the government again relied heavily on Heil’s
testimony. AUSA Lewis argued:
if you look at that stock chart, you will see that back in 1998 a share ofDynegy cost about $5. By the end of ‘99, it was about $10. And bySeptember 2000, it had shot up to $55 a share. And people were buying it.Pension funds were buying it.
. . . .
[The alleged conspirators] created a picture of the company that was notreal, and the end result of that — and you can see from the stock chart — iswhere we are now, $5, $55 to $5.
TTx Day 8, 41:7-24. Lewis later continued:9
This was a huge deal, Project Alpha. And probably the best way tounderstand that is to think back to the testimony of the gentleman from theUniversity of California Regents . . . who put over a hundred million dollarsof Pension money into Dynegy.
Id. 43:17-23.
Thus, the government presented Heil for the express purpose of showing losses
25
caused by the allegedly fraudulent Project Alpha. Heil testified that the University of
California system lost over $100 million when it sold its Dynegy stock in May 2002. And
the government relied upon Heil’s testimony to argue to the jury that Project Alpha had
caused the University of California system to lose over $100 million, and that other
investors — including pension funds — presumably lost huge sums, as well.
Yet a properly-funded defense would have easily demonstrated that Heil’s
testimony was incorrect and entirely unreliable, and that the government’s arguments
derived from Heil’s testimony were conceptually bankrupt too. As set forth in detail in
Part III.D, infra, Heil’s assertion that the University of California system sold its Dynegy
stock because of the April 25, 2002 disclosures related to Project Alpha was simply
false. The University of California system in fact purchased an additional 900,000
Dynegy shares on May 6 and 7, 2002, and did not begin selling Dynegy shares until
May 21, 2002 — almost a month after the negative revelations of April 25.
Furthermore, Heil’s testimony that he made his investment decisions based almost
solely upon Dynegy’s cash flows was directly contradicted by the University of California
system’s transaction records, which demonstrate no reaction to the news about Project
Alpha and cash flows that was disseminated to the market at various points in April
2002. Most fundamentally, the conclusions about loss that the government rested upon
Heil’s testimony were conceptually bankrupt. Heil testified that his employer lost over
$100 million when Dynegy’s stock price declined after Project Alpha was disclosed to
the investing public. The government strongly implied to the jury that the decline in
stock price, and thus the University of California system’s purported loss, was
attributable to Project Alpha. But an analysis that attributes all of the declines in
26
Dynegy’s stock price to Project Alpha improperly ignores numerous other factors that
contributed to the decline. In fact, the price declines were not entirely due to Project
Alpha — and, indeed, Project Alpha did not cause any statistically significant decline in
the stock price.
4. Sentencing
After Olis’ conviction, the parties submitted substantial briefing concerning
sentencing. Olis filed, among other items, a declaration by Professor Bala Dharan that
demonstrated that Dynegy’s stock declined in tandem with the stock of the other
companies in the industry, that these declines were caused by numerous factors
unrelated to Project Alpha, and that it is impossible to isolate any decline in Dynegy’s
stock price caused solely by Project Alpha. Docket # 130 & 132. Nonetheless, over
Olis’ objection, the Court calculated the loss caused by Olis’ conduct based entirely on
Jeffrey Heil’s testimony that the University of California system lost over $100 million
when Dynegy’s stock fell after the disclosure of Project Alpha. Sentencing Transcript
(Docket # 145) 4:1-5:1, 5:17-22, 8:3-12, 8:22-9:2. The Court found that Heil’s
“uncontroverted testimony” about his former employer’s losses was “a reasonable
estimate of the loss” cause by Olis’ conduct. Id. 8:3-12, 8:22-9:2. Accordingly, the
Court sentenced Olis to 292 months in prison. Id. 20:2-23:19; Docket # 133.
5. The Appeal
Olis appealed his conviction and sentence. The Fifth Circuit affirmed Olis’
conviction but reversed his sentence. United States v. Olis, 429 F.3d 540 (5th Cir.
2005). Discussing the District Court’s calculation of loss for sentencing purposes, the
27
Court of Appeals found that the District Court had “overemphasized [its] discretion as
factfinder at the expense of economic analysis. Thus, the court elected to rely solely on
the Heil testimony concerning the purchase and sale of UCRS stock as a measure of
the loss caused by Olis’ offense,” even though “a substantial portion of the entire loss
on the UCRS investment in Dynegy, over $100 million, could not have been caused by
Olis’ work on Project Alpha.” Id. at 548. The Court of Appeals further held:
During sentencing, moreover, Olis offered the expert report of a RiceUniversity expert, Professor Bala Dharan, which explored numerous forcesat work on the Dynegy stock price during the relevant periods . . . . ProfessorDharan’s report demonstrates that Dynegy stock declined during the periodcovering Project Alpha in tandem with the stocks of other publicly tradedcompanies in the energy marketing and trading business. Further, Dynegy’sstock was negatively affected, even before the restatement of Project Alpha’scash flow impact, by the company’s failed bid to acquire the faltering Enron.These factors and others cited in the report suggested that attributing to Olisthe entire stock market decline suffered by one large or multiple smallshareholders of Dynegy would greatly overstate his personal criminalculpability.
Id. The Court of Appeals therefore remanded the case to the District Court for
resentencing. Id. at 548-49.
6. Resentencing
During the resentencing proceedings before this Court, Olis presented further
declarations by two notable experts who offered their services pro bono: Professor
Dharan and Professor Joseph Grundfest. See Supplemental Report of Bala Dharan
(Docket # 197 Ex. 1); Declaration of Professor Joseph A. Grundfest (Docket # 270 Ex.
6); Declaration of Professor Bala G. Dharan (Docket # 270 Ex. 7). Dharan and
Grundfest demonstrated that the USAO had failed to prove that Project Alpha caused
any decline in Dynegy’s stock price: although Dynegy’s stock indisputably declined,
28
numerous factors other than the disclosure of Project Alpha contributed to this decline,
and the data showed that Project Alpha did not have any statistically significant effect
either in inflating Dynegy’s stock price before its disclosure or in deflating the price after
its disclosure. See, e.g., Declaration of Professor Bala G. Dharan (Docket # 270 Ex. 7)
¶ 11; Declaration of Professor Joseph A. Grundfest (Docket # 270 Ex. 6) ¶ 13. This
Court concluded that “it is not possible to estimate with reasonable certainty the actual
loss to shareholders attributable to corrective disclosures about Project Alpha.” 2006
WL 2716048 at *9. The Court sentenced Olis to a term of 72 months. Id. at *13.
7. The Yates Trial
In April and May 2007, the case of Yates v. Dynegy, Inc., No. 2005-37892 (127th
Judicial District, Harris County, Texas) (“Yates”), proceeded to trial. In Yates, Olis’
defense attorney, Terry Yates, sued Dynegy for breach of its obligation to pay Yates’s
attorney fees in connection with Olis’ criminal trial. Yates Complaint, attached as
Exhibit A to the Declaration of Lloyd E. Kelley (“Kelley Decl.”). As discussed in detail in
Part III of the Argument section of this memorandum, the evidence presented in Yates
demonstrated for the first time that although Dynegy had been contractually obligated to
fund Olis’ defense to the criminal charges, and originally intended to comply with its
obligation, the USAO interfered with that funding. More specifically, the USAO coerced
Dynegy into reneging on its obligations to Olis by making it clear to Dynegy’s
management that the USAO’s decision whether to indict Dynegy itself would be
determined in part by Dynegy’s willingness to block defense funding to any of its
employees who were indicted. This group, as it turned out, included Olis. Finding that
Olis learned of the facts underlying the claims raised in Part III, infra,10
concerning the USAO’s interference with Olis’ fundamental right to present his defenseusing funds lawfully available to him, only recently, in April 2007. Declaration of JamieOlis in Support of His Motion to Set Aside His Conviction at ¶ 3. Because the factssupporting those claims could not have been discovered earlier, even through theexercise of due diligence, § 2255’s statute of limitations with respect to those claims willnot expire until April 2008. § 2255 ¶ 6(4). Nonetheless, in an abundance of caution andfor ease of resolution by the Court, Olis has raised the claims now. Olis’ investigation ofthe facts underlying this motion continues, and Olis reserves the right to supplement hisclaims in a timely fashion.
29
Dynegy had breached its contractual obligations and had acted in bad faith, the jury in
the civil lawsuit awarded Yates approximately $2.5 million, including $2 million in
exemplary damages. Kelley Decl. ¶ 3.
ARGUMENT
I. TIMELINESS
28 U.S.C. § 2255 ¶ 6 provides, in pertinent part:
A 1-year period of limitation shall apply to a motion under this section. Thelimitation period shall run from the latest of —
(1) the date on which the judgment of conviction becomes final; [or]
. . .
(4) the date on which the facts supporting the claim or claimspresented could have been discovered through the exercise of duediligence.
Olis has filed this motion in compliance with the time limit established in § 2255 ¶
6(1). Olis was resentenced after remand from the Fifth Circuit Court of Appeals, 10
United States v. Olis, Criminal No. H-03-217-01, 2006 WL 2716048 (S.D. Tex. Sept. 22,
2006) (Docket # 293), and the Court entered its amended judgment on September 27,
2006. Docket # 294. Olis did not appeal the new sentence, and his judgment therefore
Although the Court of Appeals affirmed the conviction and remanded only for11
reconsideration of Olis’ sentence, the conviction did not become final until after theDistrict Court accomplished its mandate because the case was remanded for a non-ministerial purpose. United States v. Dodson, 291 F.3d 268, 275-76 (4th Cir. 2002)(holding that remand for resentencing “may supply a defendant with the basis for anonfrivolous appeal. In such cases, the one-year statute of limitations in § 2255 doesnot begin to run until” the new sentence is imposed); see also United States v. Colvin,204 F.3d 1221, 1222-25 (9th Cir. 2000) (holding that a remand even for a purelyministerial purpose tolls the finality of conviction until the ministerial act is completed);Richardson v. Gramley, 998 F.2d 463, 465 (7th Cir. 1993) (“A judgment is not final if theappellate court has remanded the case to the lower court for further proceedings,unless the remand is for a purely ‘ministerial’ purpose, involving no discretion, such asrecomputing prejudgment interest according to a set formula.”).
30
became “final” for purposes of § 2255 ¶ 6(1) when his time for appeal expired. Moshier
v. United States, 402 F.3d 116, 118 (2d Cir. 2005); Sanchez-Castellano v. United
States, 358 F.3d 424, 428 (6th Cir. 2004); Kapral v. United States, 166 F.3d 565, 577
(3d Cir. 1999); United States v. Sandoval-Espino, Cr. No. C-04-685, 2007 WL 1558608
at *3 (S.D. Tex. May 29, 2007). Under the Federal Rules of Appellate Procedure, the11
time for appeal of a district court judgment expires ten days after it is entered, excluding
Saturdays, Sundays and legal holidays. Fed. R. App. P. 4(b) & 26; see also Moshier,
402 F.3d at 118 n.1; Sandoval-Espino, 2007 WL 1558608 at *3 & n.5. Thus, the
judgment against Olis became final on October 12, 2006.
II. STANDARD OF REVIEW
A prisoner in federal custody may move to set aside his conviction under § 2255
on the grounds that it “was imposed in violation of the Constitution or laws of the United
States . . . or is otherwise subject to collateral attack.” 28 U.S.C. § 2255 ¶ 1. “Unless
the [§ 2255] motion and the files and records of the case conclusively show that the
prisoner is entitled to no relief, the court shall cause notice thereof to be served upon
31
the United States attorney, grant a prompt hearing thereon, determine the issues and
make findings of fact and conclusions of law with respect thereto.” § 2255 ¶ 2.
Thus, when a prisoner files a motion pursuant to § 2255, the court must “order
the United States attorney to file an answer, motion, or other response within a fixed
time, or to take action the judge may order,” unless “it plainly appears from the motion,
any attached exhibits, and the record of prior proceedings that the moving party is not
entitled to relief.” Rule 4, Rules Governing Section 2255 Cases in the United States
District Courts (“§ 2255 Rules”). Furthermore, “[a] judge may, for good cause, authorize
a party to conduct discovery under the Federal Rules of Criminal Procedure or Civil
Procedure, or in accordance with the practices and principles of law.” § 2255 Rule 6(a).
And “[i]f the motion is not dismissed, the judge must review the answer, any transcripts
and records of prior proceedings, and any [other] materials submitted . . . to determine
whether an evidentiary hearing is warranted.” § 2255 Rule 8(a).
III. THE USAO’S INTERFERENCE WITH OLIS’ ACCESS TO FUNDINGVIOLATED HIS FIFTH AND SIXTH AMENDMENT RIGHTS TO PRESENT THEDEFENSE OF HIS CHOICE
The USAO’s ethical and professional obligations extend far beyond those of other
members of the bar:
The United States Attorney is the representative not of an ordinary party toa controversy, but of a sovereignty whose obligation to govern impartially isas compelling as its obligation to govern at all; and whose interest, therefore,in a criminal prosecution is not that it shall win a case, but that justice shallbe done. As such, he is in a peculiar and very definite sense the servant ofthe law, the twofold aim of which is that guilt shall not escape or innocencesuffer. He may prosecute with earnestness and vigor — indeed, he shoulddo so. But, while he may strike hard blows, he is not at liberty to strike foulones. It is as much his duty to refrain from improper methods calculated toproduce a wrongful conviction as it is to use every legitimate means to bring
32
about a just one.
Berger v. United States, 295 U.S. 78, 88, 55 S. Ct. 629, 633 (1935). Here, the USAO
violated its duty of fairness by using the deadly threat of indictment to force Dynegy to
cut off Olis’ access to defense funds. As discussed in the recent United States v. Stein
case, such interference with a defendant’s ability to mount a defense deprives the
defendant of his due process right to fairness in criminal proceedings and of his Sixth
Amendment right to prepare his defense with funds lawfully available to him.
Stein concerned the prosecution of eighteen defendants, most of them former
employees or partners of the accounting giant KPMG, on conspiracy and tax evasion
charges. The court found that KPMG would have paid the KPMG defendants’ legal
fees, but that the USAO employed the threat of indicting KPMG to coerce the company
into cutting off funding. United States v. Stein, 435 F. Supp. 2d 330, 336-53 (S.D.N.Y.
2006) (“Stein I”); United States v. Stein, 495 F. Supp. 2d 390, 393-409 (S.D.N.Y. 2007)
(“Stein IV”). The court held that the USAO’s conduct violated the KPMG defendants’
substantive due process and Sixth Amendment rights, and dismissed the indictment
against the defendants who suffered the violations. Stein IV, 495 F. Supp. 2d at 427-
28. Like the indictment in Stein, Olis’ conviction must be set aside. It was obtained in
violation of his due process and Sixth Amendment rights.
A. Facts
The USAO in the Southern District of Texas obstructed Olis’ access to defense
funding to which he was lawfully entitled, apparently in an effort to force Olis to plead
guilty or cripple his ability to defend himself at trial. Dynegy was obligated to advance
33
Olis funds for his defense, but the USAO used the threat of indictment to coerce
Dynegy into breaching its obligation, thereby depriving Olis of the means to present the
defense of his choice. Testimonial and documentary evidence produced in the recent
civil case Yates v. Dynegy, Inc., discussed below, conclusively establishes the
government’s wrongdoing.
1. Dynegy Was Legally Obligated — And Intended — To Fund Olis’Defense to the Criminal Charges
Dynegy incurred legal obligations to advance defense funds to Olis in numerous
separate and independently-operative ways: (1) Dynegy Inc.’s and Dynegy Holdings
Inc.’s articles of incorporation each required advancement; (2) Dynegy’s Board of
Directors resolved to provide advancement; (3) Dynegy and Olis entered into an
“undertaking agreement” pursuant to that resolution requiring Dynegy to advance
defense funds; (4) two later written agreements reconfirmed Dynegy’s advancement
obligation; and (5) Dynegy’s general counsel’s office orally promised to advance
defense funds. It is therefore abundantly clear that Dynegy was obligated, and
intended, to advance defense funds to Olis.
At the time of the DOJ investigation into Project Alpha, Olis was an officer of
both Dynegy Inc., an Illinois corporation, and its subsidiary corporation Dynegy Holdings
Inc., a Delaware corporation. Transcript of Testimony of Bruce Williamson in Yates v.
Dynegy, Inc. (“Williamson Tx”) (Kelley Decl. Ex. B), Vol I, 8:11-19; Transcript of
Testimony of Jamie Olis in Yates v. Dynegy, Inc. (“Olis Tx”) (Kelley Decl. Ex. C) 9:14-
23. Each entity’s articles of incorporation contained both standard indemnity provisions
and advancement provisions. Yates Exhibit 2 (Kelley Decl. Ex. J); Yates Exhibit 3
34
(Kelley Decl. Ex. K). Article X, § 10.2 of Dynegy Holdings Inc.’s articles of incorporation
provided:
Prepayment of Expenses. The corporation shall pay the expenses (includingattorneys’ fees) incurred by [an officer subject by virtue of his office to a civilor criminal legal proceeding] in advance of its final disposition, provided,however, that, to the extent required by law, such payment of expenses inadvance of the final disposition of the proceeding shall be made only uponreceipt of an undertaking . . . to repay all amounts advanced if it shouldultimately be determined that the [officer] is not entitled to be indemnified.
Kelley Decl. Ex. J (emphasis added). Likewise, Article 7.1.D of Dynegy Inc.’s articles of
incorporation provided:
(1) Reasonable expenses incurred in defending a civil or criminal action, suitor proceeding shall be paid by the Corporation in advance of the finaldeposition of such action, suit or proceeding, upon receipt of (I) a statementsigned by such director or officer to the effect that such director or officeracted in good faith and in a manner which he believed to be in, or notopposed to the best interests of the Corporation and (ii) an undertaking byor on behalf of the director or officer to repay such amount, if it shallultimately be determined that he is not entitled to be indemnified by theCorporation as authorized in this Article.
(2) The board of directors may, by separate resolution adopted under andreferring to this Article of the by-laws, provide for securing the payment ofauthorized advances by the creation of escrow accounts, the establishmentof letters of credit or such other means as the board deems appropriate andwith such restrictions, limitations and qualifications with respect thereto asthe board deems appropriate in the circumstances.
Kelley Decl. Ex. K (emphasis added).
As the government began investigating Project Alpha, Dynegy affirmed its
already clear advancement obligation to Olis. On October 18, 2002, Dynegy’s Board of
Directors “ratifie[d], approve[d], adopt[ed] and confirm[ed] the advancement of
expenses to” Olis and several other Dynegy officers and employees “with respect to
reasonable expenses incurred by any such person in defending a civil or criminal
35
action, suit or proceeding relating to his or her actions on behalf of Dynegy in
connection with Project Alpha, in advance of the final disposition of such action.” Yates
Ex. 6 (Kelley Decl. Ex. L). In accordance with Dynegy’s articles of incorporation, the
advancement was conditioned on Olis providing a statement “to the effect that [he]
acted in good faith” and in the interests of Dynegy, and an undertaking to repay
advanced funds if the company later determined that he did not meet the requirements
for indemnification. Id. Olis executed an undertaking agreement and statement of
good faith on January 24, 2003. Yates Ex. 11 (Kelley Decl. Ex. M).
Dynegy later further acknowledged and reaffirmed its contractual duty to fund
Olis’ Alpha-related defense pursuant to the undertaking agreement. On March 5, 2003,
Dynegy and Olis entered into a severance agreement and claims release that
recognized the undertaking agreement and excluded from the release “the payment of
attorneys’ fees related to investigations and/or litigation of Project Alpha. The payment
of such fees is governed by the undertaking agreement executed by [Olis] on January
24, 2003, and Dynegy agrees to abide by the terms of that undertaking agreement.”
Yates Ex. 16 (Kelley Decl. Ex. N) at 3 (emphasis added). On March 6, 2003, Dynegy
executed yet another agreement with Olis that provided, “This Letter Agreement sets
forth the entire agreement between the parties hereto and supersedes any and all prior
agreements or understandings, written or oral, between the parties pertaining to the
subject matter of this Letter Agreement, except as to the terms and conditions of the
undertaking agreement executed by you on January 24, 2003.” Yates Ex. 14 (Kelley
Decl. Ex. O) at 2 (emphasis added).
36
Finally, when Olis hired criminal counsel after his indictment in June 2003,
Dynegy expressly promised to pay Olis’ attorney fees. Transcript of Testimony of Terry
Yates in Yates (“Yates Tx”), attached as Kelley Decl. Ex. D, at 18:4-21:24, 28:15-33:16
(describing faxing Olis retainer agreement to Dynegy attorney Cristin Cracraft and her
subsequent promises to pay Olis’ fees through trial. According to Yates, Cracraft “said
Dynegy was paying the bill. I confirmed that with her.”); see also Transcript of
Testimony of Mark Clark in Yates (“Clark Tx”), attached as Kelley Decl. Ex. F, at 15:5-
17:4 (describing similar conversation with Cracraft).
2. The Government Pressured Dynegy to Cooperate as Defined in the Holder and Thompson Memoranda
Meanwhile, the USAO began to apply extreme pressure to Dynegy. The
government sought Dynegy’s cooperation in investigating its own employees — and the
government wielded an all-powerful weapon: the threat of indictment.
Dynegy was extremely anxious to cooperate with the government investigation in
the hope of avoiding indictment. Bruce Williamson, Dynegy’s new CEO, believed that
an indictment would destroy the company. Williamson Tx (Kelley Decl. Ex. B) Vol. I,
151:16-152:4, 156:25-157:2. Thus, when AUSA Jimmy Sledge sent Williamson a letter
on January 9, 2003, complaining that Dynegy employees were not fully cooperating,
Williamson was worried. Id.; see also Yates Ex. 141 (Kelley Decl. Ex. P) (1/9/03 Sledge
letter to Williamson). Williamson immediately called the United States Attorney for the
Southern District of Texas, Michael Shelby, and set up a meeting for the next day.
Williamson Tx (Kelley Decl. Ex. B) Vol. I, 142:1-15.
At the meeting, Shelby presented Williamson with the “Holder Memorandum,” a
37
Department of Justice policy document setting forth guidelines for determining when to
indict a company. Id. at 107:5-108:17, 145:12-146:10, 148:7-149:20, 155:23-156:16.
The Holder Memorandum, officially titled Federal Prosecution of Corporations, advised
that companies that paid for their employees’ legal defenses should be deemed
uncooperative. The memorandum set forth considerations for making the charging
decision, including “the corporation’s timely and voluntary disclosure of wrongdoing and
its willingness to cooperate in the investigation of its agents.” Stein I, 435 F. Supp. 2d
at 337 (quoting Holder Memorandum; emphasis in original). In a later provision, the
memorandum stated:
Another factor to be weighed by the prosecutor is whether the corporationappears to be protecting its culpable employees and agents. Thus, whilecases will differ depending upon the circumstances, a corporation's promiseof support to culpable employees and agents, either through the advancingof attorneys fees, through retaining the employees without sanction for theirmisconduct, or through providing information to the employees about thegovernment’s investigation pursuant to a joint defense agreement, may beconsidered by the prosecutor in weighing the extent and value of acorporation’s cooperation.
Id. (quoting Holder Memorandum; emphasis in original). The memorandum also
emphasized the importance of the corporation’s willingness to waive its attorney-client
privilege and work product protections. Id.; Williamson Tx (Kelley Decl. Ex. B) Vol. I,
148:7-149:20.
At the January 10 meeting, Shelby “didn’t serve much up except the Holder
memo,” and it was “served pretty cold.” Williamson Tx (Kelley Decl. Ex. B) Vol. I,
155:23-156:3. Shelby essentially told Williamson, “If you don't cooperate, we are going
to get your company.” Id. at 156:4-10. Williamson got the message: he promised to
Indeed, Williamson was so intent that the government view Dynegy as entirely12
cooperative that he fired Dynegy’s outside counsel, Baker Botts, LLP, because Shelbycomplained about the firm. Williamson Tx (Kelley Decl. Ex. B) Vol. II, 157:19-158:13.
38
fully cooperate, as that term is used in the Holder Memorandum, including waiving the
company’s attorney-client and work product privileges. Id. at 117:3-11, 148:7-149:20,
162:23-163:8, 172:2-7; Yates Ex. 142 (Kelley Decl. Ex. Q) (1/17/03 Shelby letter
confirming Williamson’s pledge of cooperation). Williamson even promised to “make
available, on any topic with which [the government] need[ed] assistance, a consulting
expert from the company.” Yates Ex. 142 (Kelley Decl. Ex. Q). Williamson walked out
of the meeting “a few pounds lighter.” Williamson Tx (Kelley Decl. Ex. B) Vol. I,
156:13. 12
On January 20, 2003, the Department of Justice released the “Thompson
Memorandum,” a policy document superseding the Holder Memorandum. Stein I, 435
F. Supp. 2d at 338; Yates Ex. 143 (Kelley Decl. Ex. R). The Holder Memorandum’s
“language concerning cooperation and advancing of legal fees by business entities was
carried forward without change.” Stein I, 435 F. Supp. 2d at 338. “Unlike its
predecessor, however, the Thompson Memorandum was binding on all federal
prosecutors.” Id. Apparently to reinforce the pressure he applied on January 10,
Shelby sent a copy of the Thompson Memorandum to Williamson. Williamson Tx
(Kelley Decl. Ex. B) Vol. I, 145:25-146:10.
The government’s oppressive tactics quickly produced the desired results.
Despite the Board of Directors’ resolution authorizing payment of Alpha-related legal
fees to finance director, Richard Gould, Dynegy sent Gould and his attorney a letter on
The letter to Sharkey promised continued payment of Sharkey’s costs13
associated with an SEC investigation, Yates Ex. 140 (Kelley Decl. Ex. T), presumablybecause the USAO had no interest in such fees.
39
March 6, 2003, advising them that Dynegy would cease paying such fees as of March
31. Yates Ex. 138 (Kelley Decl. Ex. S). On May 5, 2003, Dynegy sent a similar letter to
Helen Sharkey — who also had been promised funding by the Board — informing
Sharkey and her attorney that Dynegy would no longer reimburse costs and fees
associated with the criminal investigation. Yates Ex. 140 (Kelley Decl. Ex. T). 13
Williamson testified that Dynegy probably cut off Sharkey’s reimbursement because the
USAO discovered that Dynegy was still paying her fees and put pressure on Dynegy.
Williamson Tx (Kelley Decl. Ex. B) Vol. I, 175:16-176:22.
3. Dynegy Capitulated to Government Pressure, Reneging on ItsObligation to Fund Olis’ Defense
The USAO’s pressure eventually coerced Dynegy to breach its contractual
obligation to Olis. Despite its clear legal obligations, Dynegy did not advance Olis funds
to defend against the indictment in this case. Instead, responding to demands by the
USAO, Dynegy adopted the baseless position that it was entitled to “advance” the funds
into an escrow account, where the funds remained until after trial.
Olis, Sharkey and Gene Foster were indicted on June 10, 2003. See Indictment
(Docket # 1). Olis hired criminal counsel Terry Yates on June 20, 2003. Yates Tx
(Kelley Decl. Ex. D) at 18:4-21:24, 28:15-33:16.
In July 2003, USAO attorneys called Dynegy’s outside criminal counsel, Larry
Finder. The government had learned that Dynegy was paying Olis’ defense costs, and
demanded to know why. Transcript of Testimony of Larry Finder in Yates (“Finder Tx”),
Dynegy was in no rush: the Board did not make its “determination” about Olis’14
good faith until March 7, 2007. Yates Ex. 59 (Kelley Decl. Ex. Y).
40
attached as Kelley Decl. Ex. G, at 137:4-138:17. Finder informed the government that
Dynegy had reached an undertaking agreement with Olis. Id. at 138:19-25. The
government attorneys were not impressed by this contractual obligation. They asked
whether state law required Dynegy to advance fees to Olis. Id. at 139:1-9. They told
Finder to get them the operative Illinois statute, and he faxed it to them. Id. at 139:1-17;
Yates Ex. 106 (Kelley Decl. Ex. U). A few days later, the government attorneys called
Finder back and told him they did not believe Illinois law required Dynegy Inc. to
reimburse Olis’ fees. Finder Tx (Kelley Decl. Ex. G) at 151:21-152:5, 156:10-16.
Finder reported this conversation to Williamson. Id. at 156:10-16.
The government and Dynegy together hatched a plan to cut off Olis’ fees,
concocting a patently frivolous rationalization — that under the advancement provisions
in the articles of incorporation, Dynegy was entitled to “advance” Olis’ fees into an
escrow account and leave the money there until the Board determined whether Olis met
the standards for indemnification — in other words, until after Olis’ trial. Williamson Tx
(Kelley Decl. Ex. B) Vol. I, 180:3-24 (“We can put the money in escrow, and then
determine if they meet the standards of indemnification and disburse it afterwards if
they do.”); id. at 24:19-25:5.14
This bogus interpretation of Dynegy Inc.’s articles of incorporation ignored the
fact that the articles of both Dynegy Inc. and Dynegy Holdings Inc. specifically required
payment of funds “in advance” of the disposition of the legal action — not mere
indemnification. Yates Ex. 2 (Kelley Decl. Ex. J) at Article X, § 10.2 (emphasis added);
41
Yates Ex. 3 (Kelley Decl. Ex. K) at Article 7.1.D. “[A]dvancement and indemnification
are generally recognized as distinct and separate legal rights,” United States v. Rosen,
487 F. Supp. 2d 721, 726 (E.D. Va. 2007), and the provisions at issue here clearly call
for advancement. Indeed, the advancement provisions’ clear meaning is corroborated
by the fact that the provisions in both sets of articles of incorporation supplement
separate indemnity clauses. Yates Ex. 2 (Kelley Decl. Ex. J) at Article 10, § 10.1; Yates
Ex. 3 (Kelley Decl. Ex. K) at Article 7.1.A. The company’s contrived interpretation
nullified the advancement requirement. In any event, even leaving aside the articles of
incorporation, Dynegy’s decision to escrow funds breached the company’s independent
contractual obligations arising from the undertaking agreement, the March 2003
severance agreement, and Cristin Cracraft’s oral promises.
The true reason for Dynegy’s legally unsupportable decision to escrow Olis’
funds had nothing to do with its interpretation of contracts. Rather, the decision was
designed to appease the government. At the civil trial, Williamson testified:
there was communications going on between the litigation team at Dynegyand the investigative team of the FBI and Department of Justice, and theywere not happy that we were continuing to provide financial support whenthe Thompson memo said the companies cooperating should not providefinancial support. So the decision was made to escrow the funds becausethat was the most that we could do to get as close to the standard ofcooperation under the Thompson memo, which was provided by theDepartment of Justice. It was the standards of cooperation.
Williamson Tx (Kelley Decl. Ex. B) Vol. II, 105:20-106:9 (emphasis added).
In fact, the government worked directly with Dynegy to cause this result. A
series of emails between Williamson and Shelby demonstrates the extent of the
government’s interference:
42
• On July 18, 2003, Williamson wrote to Shelby: “Larry [Finder] and I talked and I
wanted to let you know directly that I am totally supportive of trying to modify our
legal support posture. I have wanted to do so for some time. Larry can get you
more details but I think we have a workable game plan to further support your
efforts.” Yates Ex. 160 (Kelley Decl. Ex. V). Williamson testified that “modify our
legal support posture” meant putting Olis’ defense funds into escrow. Williamson
Tx (Kelley Decl. Ex. B) Vol. I, 73:2-7.
• Shelby replied on July 19: “Thanks for looking into this. I think it in neither of our
interests to have the company pay for the defense of individuals whose actions
were so egregious.” Yates Ex. 160 (Kelley Decl. Ex. V).
• Later on July 19, Williamson wrote Shelby: “I just reviewed and approved a
board resolution to change the process. Seems odd to me it takes a bOD
resolution but oh well, I have a telephonic BOD meeting this week for some of
the financing matters so we will add this to the agenda (s/b Wednesday) and
then notify Olis and Foster Attorneys. I am no paying for Sharkey as it is so this
impact is to Foster and Olis.” Yates Ex. 161 (Kelley Decl. Ex. W).
On July 23, 2003, Dynegy’s Board of Directors adopted the resolution approved
by Williamson. Yates Ex. 144 (Kelley Decl. Ex. X). The resolution stated, in part:
the Board directs all future advancements of authorized reasonableexpenses (including attorney’s fees) incurred by Foster and Olis in defendingthe [Project Alpha indictment] be remitted by Dynegy to [an] escrow accountor accounts upon the establishment of said account(s); and
IT IS FURTHER RESOLVED, that funds deposited in said escrow accountor accounts established in accordance with this Resolution shall remain ondeposit in said account(s) until the Board makes its determination, pursuant
Williamson attempted to rationalize Dynegy’s dereliction of its contractual15
duties to Olis by arguing that Olis had himself somehow breached the undertakingagreement by failing to cooperate with the USAO. Williamson Tx (Kelley Decl. Ex. B)Vol I, 100:6-102:15, 117:3-19. This argument is an obvious post hoc fabrication: theundertaking agreement contains no requirement that Olis cooperate with the USAO orany government agency. See Yates Ex. 11 (Kelley Decl. Ex. M).
Williamson also advanced a second rationalization, that “evidence from theinvestigation was coming to the surface that was clearly pointing out that Mr. Olisprobably understood while Project Alpha was going on that he was breaking the law.” Williamson Tx (Kelley Decl. Ex. B) Vol I, 117:19-23. Again, however, that argumentmisses the mark. Neither the undertaking agreement nor the articles of incorporationpermitted Dynegy to withhold advancement based on its judgment that Olis was guilty. See Yates Ex. 2 (Kelley Decl. Ex. J) at Article X, § 10.2; Yates Ex. 3 (Kelley Decl. Ex. K)at Article 7.1.D.; Yates Ex. 11 (Kelley Decl. Ex. M).
43
to ISCA Section 8.75(a), whether or not Olis and Foster, respectively, actedin good faith and in a manner he reasonably believed to be in, or notopposed to, the best interests of Dynegy and had no reasonable cause tobelieve that his conduct was unlawful.
Id. at 3-4. Finder emailed a copy of the resolution to Shelby, copying Williamson, and
Williamson replied: “Larry: thanks for sending. [¶] Michael: hope this helps.” Id.
Williamson testified that he directed Finder to share the resolution with the USAO “[a]s
a show of good faith that we were trying to get as close to the standard of cooperation
under the Thompson memo as we could.” Williamson Tx (Kelley Decl. Ex. B) Vol. I,
107:8-11.15
On August 13, 2003, Dynegy notified Olis of its plan to escrow funds until the
Board of Directors could make its determination to continue advancements. Yates Ex.
32 (Kelley Decl. Ex. BB); Yates Tx (Kelley Decl. Ex. D) 63:11-64:18. Dynegy stated that
it would pay Olis’ costs through August 18, 2003. Yates Ex. 32 (Kelley Decl. Ex. BB).
However, after paying an initial $14,000 bill for Yates’s June work, Yates Ex. 33 (Kelley
Decl. Ex. CC), Dynegy paid no more funds before trial. Yates Tx (Kelley Decl. Ex. D)
44
76:4-77:16, 127:17-20. Dynegy next paid a bill a week after the trial concluded, Yates
Ex. 40 (Kelley Decl. Ex. DD); Yates Tx (Kelley Decl. Ex. D) 77:17-78:7, and never paid
almost $450,000 in attorney fees and expenses incurred after August 18, 2003. Yates
Tx (Kelley Decl. Ex. D) 118:1-120:16.
In short, the USAO wielded the threat of indictment, and the extreme definition of
“cooperation” enshrined in the Holder and Thompson Memoranda, to coerce Dynegy
into complete capitulation. See, e.g., Williamson Tx (Kelley Decl. Ex. B) Vol I, 117:3-5
(“Our standards of cooperation is that we would fully cooperate with the government per
the Thompson memo”); 172:2-7 (“We wanted to fully cooperate with the government.
They were investigating, and this [the Holder/Thompson Memoranda] is a guideline
from our government that says what a corporation needed to do to cooperate. We fully
complied with this. And not paying attorney’s fees is a factor that they can weigh in.”);
Finder Tx (Kelley Decl. Ex. G) 181:22-182:13 (Finder believed it was his job to ensure
that Dynegy was in full compliance with the Thompson Memorandum so that Dynegy
could hope to avoid indictment). Accordingly, Dynegy waived its attorney-client and
work-product privileges, fired attorneys the government disliked, agreed to pay for
experts to support the government’s investigation, and completely cut off defense fees
to Dynegy employees who had no advancement rights under the articles of
incorporation. But Dynegy was contractually bound to advance Olis defense funds, so
Dynegy responded to government pressure to stop paying his fees by concocting —
with government input — a ridiculous machination. Williamson Tx (Kelley Decl. Ex. B)
In fact, the escrow mechanism had advantages not offered by completely16
ending the funding arrangement. Under the escrow regime, although Dynegy did notpay for Olis’ defense, it continued to seek bills from Olis’ attorneys. The governmentused this fact to gain an improper insight into Olis’ defense strategy. When Olis’attorneys met with USAO attorneys at the government’s offices on August 13, 2003, theattorneys were shocked to see a copy of their latest bill to Dynegy in the governmentoffices. Yates Tx (Kelley Decl. Ex. D) 60:13-63:3; Clark Tx (Kelley Decl. Ex. F) 40:14-41:16. The government violated Olis’ right to prepare his defense by monitoring hisattorneys’ activities by reviewing their bills.
45
Vol. II, 105:20-106:9; Finder Tx (Kelley Decl. Ex. G) at 151:21-152:5, 156:10-16.16
B. Due Process Violation
The Fifth Amendment’s Due Process Clause provides “substantive protection for
fundamental rights — those that are so essential to individual liberty that they cannot be
infringed by the government unless the infringement is narrowly tailored to serve a
compelling government interest.” Stein I, 435 F. Supp. 2d at 360 (citing Washington v.
Glucksberg, 521 U.S. 702, 721, 117 S. Ct. 2258, 2268 (1997)). Here the government
unjustifiably impeded Olis’ fundamental right to use resources lawfully available to him
to conduct his defense to criminal charges.
“[D]efendants have the right, under the Due Process Clause, to fundamental
fairness throughout the criminal process.” Id. at 356-60.
No general respect for, nor adherence to, the law as a whole can well beexpected without judicial recognition of the paramount need for prompt,eminently fair and sober criminal law procedures. The methods weemploy in the enforcement of our criminal law have aptly been called themeasures by which the quality of our civilization may be judged.
Douglas v. California, 372 U.S. 353, 358 n. 2, 83 S. Ct. 814, 816 n.2 (1963) (quoting
Coppedge v. United States, 369 U.S. 438, 449, 82 S. Ct. 917, 923 (1962); emphasis
added). “Under the Due Process Clause . . ., criminal prosecutions must comport with
46
prevailing notions of fundamental fairness.” California v. Trombetta, 467 U.S. 479, 485,
104 S. Ct. 2528, 2532 (1984). Thus, due process principles protect a defendant’s “right
to obtain and use in order to prepare a defense resources lawfully available to him or
her, free from knowing or reckless government interference” — that right is “basic to our
concepts of justice and fair play. It is fundamental.” Id. at 361-62; see also United
States v. Moya-Gomez, 860 F.2d 706, 729 (7th Cir. 1988) (finding a due process
violation where the government restrained a defendant’s funds without opportunity to
challenge the forfeiture.”).
The USAO violated Olis’ fundamental due process right under two alternative
tests. “‘[S]ubstantive due process’ prevents the government from engaging in conduct
that ‘shocks the conscience,’ or ‘interferes with rights implicit in the concept of ordered
liberty.’” United States v. Salerno, 481 U.S. 739, 746, 107 S. Ct. 2095, 2101 (1987).
Legislation that infringes a fundamental liberty interest is usually subject to the familiar
strict scrutiny test. County of Sacramento v. Lewis, 523 U.S. 833, 845-46, 118 S. Ct.
1708, 1716 (1998); Griswold v. Connecticut, 381 U.S. 479, 504, 85 S. Ct. 1678, 1692
(1965); Stein IV, 495 F. Supp. 2d at 411-12; see also Malagon de Fuentes v. Gonzales,
462 F.3d 498, 505-06 (5th Cir. 2006); Brennan v. Stewart, 834 F.2d 1248, 1256-57 (5th
Cir. 1988). Courts construe the term “legislation” broadly to include all “government
regulation,” Leebaert v. Harrington, 332 F.3d 134, 140 n.2 (2d Cir. 2003), and thus the
Holder and Thompson Memoranda may properly be considered “legislation” subject to
the strict scrutiny test. Stein IV, 495 F. Supp. 2d at 412.
By contrast, acts by particular government employees violate substantive due
47
process when the acts are so outrageous as to “shock the conscience.” County of
Sacramento, 523 U.S. at 846-47, 118 S. Ct. at 1716; Rochin v. California, 342 U.S.
165, 172-73, 72 S. Ct. 205, 209-10 (1952); United States v. Guidry, 456 F.3d 493, 506-
07 (5th Cir. 2006). “A defendant has a due process defense to prosecution where (1)
the government violates a protected right of the defendant and (2) the government’s
conduct is sufficiently outrageous.” United States v. Williams, 372 F.3d 96, 111 (2d Cir.
2004); see also Rochin, 342 U.S. at 172-74, 72 S. Ct. at 209-11. Because the
government misconduct here involved acts by individual USAO attorneys, the “shocks
the conscience” test is also applicable. Stein IV, 495 F. Supp. 2d at 412.
1. Strict Scrutiny
Under the strict scrutiny test, the government may not infringe a fundamental
liberty interest unless the government action is “narrowly tailored to meet a compelling
government interest.” Glucksberg, 521 U.S. at 721, 117 S. Ct. at 2268 (quoting Reno v.
Flores, 507 U.S. 292, 302, 113 S. Ct. 1439, 1447 (1993)). No such compelling
government interest justifies the Holder and Thompson Memoranda’s mandate that
indictment decisions turn on companies’ willingness to withhold defense funding from
their employees.
The Stein court recognized several possible justifications for the defense-funding
provisions, but rightly rejected each as inadequate. First, the Thompson and Holder
Memoranda arguably serve to help the USAO punish wrongdoers by withholding
defense funds from them. Stein I, 435 F. Supp. 2d at 363. But the USAO has no
compelling interest in punishment — that is the task of juries and courts. Id. Rather,
48
“[t]he job of prosecutors is to make the government’s best case to a jury and to let the
jury decide guilt or innocence . . . . The imposition of economic punishment by
prosecutors, before anyone has been found guilty of anything, is not a legitimate
government interest — it is an abuse of power.” Id.
Second, the USAO policies might arguably serve the government interests in
investigating and fairly prosecuting crime. Id. But even if those ends could be
considered compelling, the Holder and Thompson Memoranda are not narrowly tailored
to accomplish them. Id. As an initial matter, it is difficult to fathom how the
government’s interest in investigating and fairly prosecuting crime is served by denying
accused persons access to defense funds. “The very premise of our adversary system
of criminal justice is that partisan advocacy on both sides of a case will best promote
the ultimate objective that the guilty be convicted and the innocent go free.” Herring v.
New York, 422 U.S. 853, 862, 95 S. Ct. 2550, 2555 (1975). Impeding a defendant’s
ability to proffer rigorous partisan advocacy undermines that “ultimate objective.”
Moreover, the defense-funding provisions are not even well tailored to the
express purpose of the Holder and Thompson Memoranda: determining whether a
company is cooperating with a government investigation. Because a company may
pay, or obligate itself to pay, defense funds “out of a judgment that extending this
benefit will aid it in keeping and hiring competent employees,” the fact of payment is not
a good barometer of the level of a company’s cooperation. Stein I, 435 F. Supp. 2d at
364.
Finally, the government might argue that the memoranda’s defense-funding
49
provisions were intended to tackle the circumstance where a company purports to
cooperate with the government but uses defense funding to impede an investigation.
But even if defense funding might in some cases impede a government investigation,
the memoranda’s attempts to remedy such impediments are overbroad. Their
provisions are not narrowly drawn to discourage payment of defense funds only where
the funding is somehow used to impede or obstruct an investigation, but instead apply
broadly to any payment of defense funds. Id. at 363. The memoranda therefore impact
many defendants’ exercise of their rights even when the exercise does not impede the
government in any way.
Thus, without any close nexus to a compelling government interest, the Holder
and Thompson Memoranda fail the strict scrutiny test; and the USAO’s implementation
of those policy documents was unconstitutional.
2. Shocks the Conscience
The government’s misconduct also violated Olis’ substantive due process rights
because it shocks the conscience. The USAO forced Dynegy to breach its contracts
with Olis, thereby depriving Olis of lawfully-available means to defend himself. This
effort to cripple its adversary’s ability to raise a defense runs counter to the most basic
principles of our adversarial system of criminal justice. Kyles v. Whitley, 514 U.S. 419,
429, 115 S. Ct. 1555, 1563 (1995) (“the adversary system of prosecution [should not]
descend to a gladiatorial level unmitigated by any prosecutorial obligation for the sake
of truth”); Herring, 422 U.S. at 862, 95 S. Ct. at 2555 (“The very premise of our
adversary system of criminal justice is that partisan advocacy on both sides of a case
will best promote the ultimate objective that the guilty be convicted and the innocent go
50
free.”); Berger, 295 U.S. at 88, 55 S. Ct. at 633 (USAO’s interest “in a criminal
prosecution is not that it shall win a case, but that justice shall be done”).
Although some recognized conscience-shocking conduct involves physical injury
to the defendant, see Rochin, 342 U.S. at 172, 72 S. Ct. at 209-10; United States v.
Chin, 934 F.2d 393, 399 & n.4 (2d Cir. 1991), physical injury is not necessary.
Improper government investigatory techniques and interference with a criminal
defendant’s ability to defend himself can be sufficiently outrageous to “shock the
conscience.” See Gov’t of the Virgin Islands v. Fahie, 419 F.3d 249, 253-54 (3d Cir.
2005) (recognizing that intentional Brady violations may constitute conduct so
egregious as to warrant dismissal of an indictment); United States v. Cuervelo, 949
F.2d 559, 565-68 (2d Cir. 1991) (opining that a federal agent establishing and using a
sexual relationship to further the government’s investigation may be sufficiently
outrageous to warrant relief); United States v. Stringer, 408 F. Supp. 2d 1083, 1089 (D.
Ore. 2006) (finding that the government’s surreptitious conduct of a secret criminal
investigation under the guise of an SEC proceeding shocked the conscience, and
dismissing indictment); United States v. Scrushy, 366 F. Supp. 2d 1134, 1137-40 (N.D.
Ala. 2005) (suppressing evidence improperly gathered by the USAO using SEC
proceedings); United States v. Sabri, 973 F. Supp. 134, 146-47 (W.D.N.Y. 1996)
(holding that the government’s active collaboration with a defendant’s attorney was
conscience-shocking and warranted dismissal); United States v. Marshank, 777 F.
Supp. 1507, 1518-25 (N.D. Cal. 1991) (finding that government’s exploitation of
conflicted defense counsel shocked the conscience and warranted dismissal).
The government obviously intended that Dynegy withhold defense funds from17
Olis, but even if the government’s conduct was merely recklessly indifferent to Olis’ability to marshal funds lawfully available to him, the conduct still shocked theconscience. Stein IV, 495 F. Supp. 2d at 414-15.
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This case fits comfortably among the above-cited cases finding conscience-
shocking misconduct. Indeed, the Stein court found that almost identical conduct
shocked the conscience. Stein IV, 495 F. Supp. 2d at 412-15. The USAO directly
pressured Dynegy to breach its contractual obligations to Olis, deliberately undermining
Olis’ ability to mount a well-funded defense to the indictment. The apparent reason17
for the USAO’s course of action was to ensure that Olis either pled guilty or entered trial
as a severely underprepared contestant. Such conduct is “outrageous and shocking in
the constitutional sense because it [i]s fundamentally at odds with two of our most basic
constitutional values — the right to counsel and the right to fair criminal proceedings.”
Stein IV, 495 F. Supp. 2d at 414.
C. Sixth Amendment Right to Use Own Funds for Defense
The USAO’s conduct also violated Olis’ Sixth Amendment rights. The Sixth
Amendment “guarantees more than the mere presence of a lawyer at a criminal trial. It
protects, among other things, an individual’s right to . . . use one’s own funds to mount
a defense that one wishes to present.” Stein I, 435 F. Supp. 2d at 366; see also Caplin
& Drysdale, Chartered v. United States, 491 U.S. 617, 626, 109 S. Ct. 2646, 2652
(1989) (recognizing that an individual has the “right to spend his own money to obtain
the advice and assistance of . . . counsel.”); United States v. Rosen, 487 F. Supp. 2d
721, 727-30 (E.D. Va. 2007) (same). The USAO’s conduct infringed on Olis’ exercise
of that right by depriving him of funds that were lawfully available to him.
52
The government’s interference with Olis’ Sixth Amendment right to mount a
defense using his own funds was “wrongfully motivated or without adequate
justification.” Stein I, 435 F. Supp. 2d at 367 (quoting Via v. Cliff, 470 F.2d 271, 274-75
(3d Cir. 1972)); see also Rosen, 487 F. Supp. 2d at 730-31. “[W]hen the government’s
interests are weighed against [Olis’] the result is thoroughly one-sided: the government
has no legitimate interest in arrangements for third parties to advance . . . attorney fees
unless, as is not true here, the advancement is alleged to be part of an actual
obstruction of justice scheme.” Rosen, 487 F. Supp. 2d at 731. “In contrast, [Olis has]
an undeniably strong interest — indeed, one protected by the Constitution — in . . .
obtaining, without government interference, the contractually guaranteed fee
advances.” Id. The USAO unjustifiably violated Olis’ Sixth Amendment rights.
D. Prejudice
The USAO’s interference with Olis’ Sixth Amendment rights was presumptively
prejudicial. As the Stein court observed, the Sixth Amendment violation at issue here is
analogous to that at issue in United States v. Gonzalez-Lopez, __ U.S. __, 126 S. Ct.
2557 (2006), where the Court considered a violation of the defendant’s right to counsel
of choice. Stein I, 435 F. Supp. 2d at 369. The Gonzalez-Lopez Court held:
Deprivation of the right is “complete” when the defendant is erroneouslyprevented from being represented by the lawyer he wants, regardless of thequality of the representation he received. To argue otherwise is to confusethe right to counsel of choice — which is the right to a particular lawyerregardless of comparative effectiveness — with the right to effective counsel— which imposes a baseline requirement of competence on whatever lawyeris chosen or appointed.
126 S. Ct. at 2563. “The government has interfered with [Olis’] right to be represented
53
as [he] choose[s], subject to the constraints imposed by the resources lawfully available
to [hi]m. This violation, like a deprivation of the right to counsel of [his] choice, is
complete irrespective of the quality of the representation” Olis received. Stein I, 435 F.
Supp. 2d at 369.
Put differently, the due process and Sixth Amendment errors that infected Olis’
trial were “structural errors.” Id. at 370-72. Structural errors have “consequences that
are necessarily unquantifiable and indeterminate” and “defy analysis by harmless-error
standards because they affect the framework within which the trial proceeds, and are
not simply an error in the trial process itself.” Gonzalez-Lopez, 126 S. Ct. at 2564
(quotation marks and alterations omitted). For such errors, prejudice “is so likely that
case-by-case inquiry into prejudice is not worth the cost.” Strickland v. Washington,
466 U.S. 668, 692, 104 S. Ct. 2052, 2067 (1984). The USAO’s misconduct here
worked a structural error because it is impossible to precisely reconstruct how Olis
might have conducted his defense had he received full funding from Dynegy. It is
certain, however, that the funds would have helped him better prepare for the unusually
complex trial. The due process and Sixth Amendment violations affected the
“framework within which the trial proceed[ed].” Gonzalez-Lopez, 126 S. Ct. at 2564.
In any event, even if Olis was required to show specific prejudice, it readily
appears. If Olis had access to full funding, he would have retained experts to counter
the prosecution’s theories, investigators to investigate the facts and potential witnesses,
and a jury consultant; he would have purchased a searchable database to better enable
review of the enormous volume of discovery; and his attorneys would have been better
54
prepared to meet the charges against him. Below we present several specific and
obvious lacking resources that would have earned Olis an acquittal.
1. Absence of Witnesses to Counter Evidence of Purported Loss
At trial the government relied heavily on the testimony of Jeffrey Heil, who
testified about the losses purportedly suffered by his former employer, the Regents of
the University of California, as a result of Project Alpha. The government used Heil’s
testimony to demonstrate the motive for and materiality of the alleged fraud scheme.
But the testimony, and the government’s arguments based thereon, were factually
incorrect and conceptually flawed in fundamental respects. Expert testimony would
have completely discredited Heil and refuted the government’s arguments concerning
the losses purportedly caused by Project Alpha. Yet because Olis’ defense was not
funded by Dynegy, Olis lacked the capacity to retain an expert and crucial conclusions
about loss went unchallenged at trial.
a. The Government’s Reliance on Heil
As set forth in the Facts section, supra, the government relied extensively on
Heil’s testimony about stock loss. Indeed, the government contended that Heil’s
testimony was vital to its case, arguing that evidence of stock loss “is absolutely
relevant to motive here, because the effect was so big and so important. That shows
why it was so critical to do this deal. I mean, it is — without the size of that effect, we
can’t get across why they did this.” TTx, Day 6, 237:11-15.
During the government’s opening statement, AUSA Beek declared that Project
Alpha “matter[ed]” because “by the close of business the next day [after Project Alpha’s
disclosure] on April 26th, Dynegy’s stock had fallen 52 percent, and investors lost
55
billions of dollars. Billions with a B.” In particular, she asserted that the University of
California system lost “over a hundred million dollars just in their investment in Dynegy.”
TTx Day 1, 104:7-18 (emphasis added).
Then — after presenting Heil as its final witness to testify that the University of
California system and its pensioners lost over $100 million because of Project Alpha —
the government relied again on his testimony during its closing argument. AUSA Lewis
argued:
This was a huge deal, Project Alpha. And probably the best way tounderstand that is to think back to the testimony of the gentleman fromthe University of California Regents . . . who put over a hundred milliondollars of Pension money into Dynegy.
Id. 43:17-23.
Thus, the government presented Heil for the express purpose of showing motive
and intent by demonstrating the losses caused by the purported fraud. Heil testified
that the University of California system lost over $100 million when it sold its Dynegy
stock in May 2002. And the government relied upon Heil’s testimony to argue to the
jury that Project Alpha had caused the University of California system to lose over $100
million, and that other investors — including pension funds — presumably lost huge
sums, as well.
b. Countering Heil’s Testimony Was Vitally Important
For several reasons, it was vitally important for the defense to counter Heil’s
testimony and the conclusions the government drew therefrom concerning the loss
caused by the alleged crime.
Countering Motive Evidence: As discussed, the government itself acknowledged
56
the importance of showing motive through stock-loss testimony, and it placed
considerable reliance on Heil’s testimony during arguments. Countering this evidence
of motive would have severely undermined the government’s case.
Countering Materiality Evidence: Heil’s testimony was the only true evidence of
materiality, a required element under all of the substantive charges against Olis. If Olis
had been able to discredit Heil’s testimony and present his own evidence that Project
Alpha was unimportant to investors, he would have negated that element and would
have been acquitted of the securities, mail and wire fraud charges.
Wire, mail and securities fraud charges each require proof of materiality. Neder
v. United States, 527 U.S. 1, 4, 119 S. Ct. 1827, 1831 (1999) (holding that “materiality
is an element of the federal mail fraud, wire fraud, and bank fraud statutes”); Peterson,
101 F.3d at 380 (holding that securities fraud conviction requires proof of materiality);
see also TTx Day 8, 28:16-25 (Court instructing jury that conviction on Count Two
required proof that “the fact misstated or fact omitted was of such importance that it
could reasonably be expected to cause or induce a reasonable person to invest or
cause or induce a person not to invest”), 30:5-19 (Court instructing jury about
materiality requirement for mail fraud conviction), 32:6-20 (Court instructing jury about
materiality requirement for wire fraud conviction). Likewise, the government must prove
materiality to warrant a conviction for conspiracy to commit wire, mail or securities
fraud. See United States v. Mmahat, 106 F.3d 89, 95 & n.2 (5th Cir. 1997) (citing
United States v. Feola, 420 U.S. 671, 686, 95 S. Ct. 1255, 1264-65 (1975)), overruled
on other grounds by United States v. Estate of Parsons, 367 F.3d 409 (5th Cir. 2004).
Although the indictment charged a scheme to defraud the SEC, Dynegy's18
auditors, rating agencies, lenders, market and securities analysts, and the investingpublic, Indictment (Docket # 1) ¶ 21, the only even arguably cognizable victim under themail and wire fraud charges was the investing public. As the indictment did not chargea violation of 28 U.S.C. § 1346, the government was required to prove that the allegedwire and mail fraud schemes were intended to obtain money or property from the victim. United States v. Ratcliff, 488 F.3d 639, 643-44 (5th Cir. 2007); United States v. Walters,87 F.3d 663, 667 (5th Cir. 1996); see also TTx Day 8, 30:7-9, 32:8-10 (Court’sinstructions that mail and wire fraud “scheme to defraud” is a plan to “deprive another ofmoney or property”); Part V.C, infra (mere deprivation is insufficient to support mail andwire fraud convictions; government was required to prove that Olis sought to obtainmoney or property). The evidence provided no support whatsoever for the notion thatthe alleged conspirators sought to obtain money or property from the SEC, ArthurAndersen, rating agencies, lenders or market analysts.
Likewise, the securities fraud statute prohibits only schemes to defraud “inconnection with the purchase or sale of a security.” United States v. Peterson, 101F.3d 375, 379 (5th Cir. 1996). Thus, the securities fraud conviction required proof thatthe alleged conspirators contemplated affecting the investing public. See United Statesv. Causey, No. CRIM. H-04-025-SS, 2005 WL 2647976 at *2-3 (S.D. Tex. Oct. 17,2005); see also TTx Day 8, 28:16-29:13 (Court’s instructions regarding securities fraud,including admonition that a “scheme to defraud” is a plan to “obtain money or
57
In the mail and wire fraud context, “[a] statement is material if its has a natural
tendency to influence, or is capable of influencing, the decision of the decision-making
body to which it was addressed.” United States v. Harms, 442 F.3d 367, 372 (5th Cir.
2006). In the securities fraud context, “[a] statement of fact is material if there is a
substantial likelihood that a reasonable shareholder would consider it important in
making an investment decision” and “[a]n omission is material if there is a substantial
likelihood that the disclosure of the omitted fact would have been viewed by the
reasonable investor as having significantly altered the total mix of information made
available." Causey, 2005 WL 2647976 at *3 (citations and quotation marks omitted).
Thus, Olis’ convictions depended on proof that the purported scheme was likely to
influence the investing public to purchase Dynegy shares.18
something of value”).
AUSA Lewis further invoked this prejudice by referring in his closing to a jury19
venireperson who had been struck, asserting to the jury that “he can never retirebecause his money went into a mutual fund and it was full of stocks of companies likeDynegy that cratered because of scandals like this.” TTx Day 8, 39:23-40:3.
58
Yet the only evidence of materiality presented at trial was Heil’s testimony that
institutional investors like his employer were induced to buy Dynegy shares by the
supposedly artificial cash flow numbers.
Countering Prejudicial Arguments: Perhaps most importantly, Heil’s testimony
introduced — and the government expanded upon — concepts likely to inflame the
jury’s prejudices. Olis’ was the first energy and accounting trial in Houston’s hostile
post-Enron environment. Ordinary people had lost their retirement savings. And the
government produced Heil to testify that Olis, too, had caused pensioners to lose
millions of dollars. Indeed, the government expressly tied this testimony to losses
suffered by pensions. Without effective rebuttal and impeachment of Heil, his19
testimony was devastating to Olis’ defense.
c. Expert Testimony Would Have Entirely Discredited Heil’s Conclusions and Refuted the Government’s Arguments
It should have been easy to attack these centrally-important contentions about
the losses caused by Project Alpha. Heil’s testimony, and the government’s arguments
derived therefrom, were factually incorrect and conceptually defective. Professor Bala
Dharan, an expert who provided analysis of the purported loss caused by Project Alpha
during the sentencing and resentencing phases of Olis’ trial, has submitted a
declaration herewith demonstrating how an expert retained during trial could have
59
entirely discredited Heil’s testimony and the conclusions the government sought to
draw. See Declaration of Bala Dharan (“Dharan Decl.”):
First: Heil’s testimony that the University of California system sold its Dynegy
stock immediately after the negative revelations on April 25, 2002 was false. Instead,
the UC system bought 900,000 additional shares on May 6 and 7, 2002, and did not
even begin selling Dynegy shares until May 21, 2002 — almost a month after the
negative revelations. Dharan Decl. ¶¶ 11-12 & Ex. D. This error completely
undermines Heil’s conclusions about the losses the University of California system
suffered. And an expert preparing to meet Heil’s testimony about losses would
unquestionably have known about the error. Id. ¶¶ 5 n.2, 11-17. Thus, had Olis been
able to retain an expert on stock loss at trial, his attorneys could have easily and simply
eviscerated Heil’s conclusion about losses.
Second: Heil testified that he made his investment decisions based almost
solely upon Dynegy’s cash flows, and thus implied that (a) Project Alpha lulled him into
purchasing Dynegy stock, and (b) when Dynegy restated its cash flows, he advised
selling its stock. But Dharan observes that the University of California system’s
transaction records are inconsistent with this purported motivation for purchasing and
selling the stock. Id. ¶¶ 14-18. A Wall Street Journal article disclosed sufficient
information on April 3, 2002, to enable traders to understand the pertinent facts about
Project Alpha and Dynegy’s cash flows. Id. ¶ 15. Yet the University of California
system did not sell its Dynegy holdings then. Nor did it sell its holdings immediately
after Dynegy’s official disclosures on April 25, 2002. Id. ¶ 16. It did not begin selling its
60
Dynegy stock until May 21, 2002 — and even then, it sold the stock only incrementally
over the course of five weeks. Id. ¶ 17. If the University of California system truly
wished to unload its stock because of the cash flow revelations, the stock was liquid
enough that it could have done so in two or three days. Id..
Third: Most fundamentally, the conclusions about loss that the government
rested upon Heil’s testimony were conceptually bankrupt. Heil testified that his
employer lost over $100 million when Dynegy’s stock price declined after Project Alpha
was disclosed to the investing public. The government strongly implied to the jury that
the decline in stock price, and thus the University of California system’s purported loss,
was attributable to Project Alpha. Indeed, the very purpose for Heil’s testimony was to
establish the “loss resulting from the defendant’s scheme.” But an analysis that
attributes all of the declines in Dynegy’s stock price to Project Alpha improperly ignores
numerous other factors that contributed to the decline. As the Supreme Court recently
observed,
When [a] purchaser subsequently resells . . . shares [purchased after amisrepresentation], even at a lower price, that lower price may reflect, notthe earlier misrepresentation, but changed economic circumstances,changed investor expectations, new industry-specific or firm-specific facts,conditions, or other events, which taken separately or together account forsome or all of that lower price.
Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 343-44, 125 S. Ct. 1627, 1632
(2005). As demonstrated by Professor Dharan’s declaration, an expert would have
testified that decline in Dynegy’s stock price was not entirely due to Project Alpha —
and, indeed, that Project Alpha did not cause any statistically significant decline in the
price. Dharan Decl. ¶¶ 4-9.
As set forth in Olson’s declaration, Olson Decl. ¶ 3, Mr. Olson previously20
submitted a letter to the Court during the resentencing proceedings reaching thesesame conclusions. See Mr. Olis’ (1) Memorandum on Loss Causation and (2)
61
In fact, the Fifth Circuit has already recognized that Heil’s testimony could not
properly form the basis for determining loss even for sentencing purposes, United
States v. Olis, 429 F.3d 540, 548 (5th Cir. 2005), and found that Professor Dharan’s
critique in papers filed during the sentencing phase of Olis’ trial persuasively “suggested
that attributing to Olis the entire stock market decline suffered by one large or multiple
small shareholders of Dynegy would greatly overstate his personal criminal culpability.”
Id. And this Court found that “it is not possible to estimate with reasonable certainty the
actual loss to shareholders attributable to corrective disclosures about Project Alpha.”
2006 WL 2716048 at *9. Furthermore, Heil himself admitted — after the conclusion of
the trial — that “he couldn’t place a dollar value on the UC losses tied specifically to
Project Alpha . . . . ‘To be truthful,’ he said, ‘I wouldn't have known the figure.’”
Jonathan Peterson, “White-Collar Prison Terms Under Debate,” Los Angeles Times,
July 11, 2004 (Dharan Decl. Ex. E). A defense expert would have brought these crucial
facts to light at trial.
d. Testimony by a Stock Analyst Would Have Bolstered theExpert’s Criticism
The conclusions of an expert like Dharan could also have been supported by
testimony by a stock analyst that traded in Dynegy’s stock. John Olson is such an
analyst, and has submitted a declaration setting forth how he could have testified at
trial. See Declaration of John Olson in Support of Olis’ Motion to Set Aside His
Conviction (“Olson Decl.”). Olson has been a securities analyst for 40 years, and20
Response to Government’s Sentencing Memorandum (Docket # 197) Ex. 3.
62
followed and analyzed Dynegy’s stock since the company was formed in 1993. Olson
Decl. ¶¶ 1-2.
According to Olson, Dynegy and other “Merchant Energy” companies were
considered by Wall Street to be Enron imitators — that is, the Merchant Energy
companies’ stock was influenced heavily by Enron’s outlook, and tended to trade at
valuations “parallel” to Enron’s stock, but at varying discounts. Id. ¶ 7. Enron’s collapse
sent shockwaves through the entire industry because the other Merchant Energy
companies lost their largest trading partner and market maker, and also because the
entire industry suffered a loss of credibility on Wall Street. Id. ¶ 8. The stock of all
Merchant Energy companies crashed as Enron collapsed, and Dynegy’s stock suffered
an especially large decline because of Dynegy’s disastrous attempt to acquire Enron in
November 2001. Id. ¶ 9.
From Olson’s position “on the front lines” as an equity analyst watching Dynegy,
he did not discern that Project Alpha was an “identifiable factor” of the decline in
Dynegy’s market value. Id. ¶ 10. Rather, at the time, it appeared that all Merchant
Energy companies were “sucked down by the Enron undertow.” Id.
Indeed, Olson echoes Dharan’s point that Project Alpha was disclosed to the
market by the April 3, 2002 Wall Street Journal article questioning the transaction’s
accounting treatment, and notes that the article did not precipitate any decline in
Dynegy’s stock price. Id. ¶ 11. Furthermore, Dynegy’s April 25, 2002, disclosure of
Project Alpha was accompanied by other disclosures of negative information that Olson
63
describes as “more traditionally tied to stock valuation,” such as decreased earnings
projections and a write-down of over $300 million in assets. Id. ¶ 12.
Thus, Dharan’s academic exploration of Project Alpha’s effect on the market
finds support on the real-life experience of a stock analyst: the market simply did not
care about Project Alpha. The alleged fraud, even if it had occurred, was not material
and did not cause the losses for pension funds and other investors.
e. Lack of Defense Funding Precluded Raising TheseChallenges to Heil’s Testimony
Although witnesses like Dharan and Olson could have entirely discredited Heil’s
testimony and the conclusions the government sought to draw therefrom, the defense
team retained no such expert. No expert discovered and demonstrated that the
University of California system bought, rather than sold, Dynegy stock after the
disclosure of Project Alpha. No expert demonstrated that the drop in Dynegy’s stock
price could not be blindly attributed to Project Alpha without careful analysis. And no
expert testified that such careful analysis in fact shows no statistically significant effect
from Project Alpha on the stock price. The reason for the absence of such critical
testimony is simple: Olis could not afford it. Declaration of Jamie Olis in Support of His
Motion to Set Aside His Conviction (“Olis Decl.”) ¶ 4.
On the other hand, had Dynegy funded Olis’ defense as it was contractually
obligated to do, Olis would have been able to present this expert testimony to cripple
the government’s proof of motive and materiality. The expenditure on such an expert
would clearly have qualified as a “reasonable expense” under Olis’ various
advancement contracts with Dynegy.
64
2. Absence of an Accounting Expert to Discredit Hecker
The government’s theory at trial was that Olis and his alleged coconspirators hid
crucial facts — the existence of the outside hedges and tear-up agreements — from
Jim Hecker, the so-called “gatekeeper.” See, e.g., TTx Day 1, 87:24-88:2, 97:22-98:11,
104:21-24; Day 8, 38:22-24, 77:17-21. Hecker testified that he felt the outside hedges
and tear-up agreements were improper. Yet, as discussed, the government expressly
abandoned the contention in the indictment that Dynegy’s accounting treatment was
false or improper, choosing instead to argue that the alleged scheme was simply to fool
Hecker.
Hecker was therefore a central government witness. He should have been
entirely discredited — and would have been, if Dynegy had funded Olis’ defense. With
such funding, Olis would have retained an accounting and audit expert such as Michael
Jayson, who has submitted a declaration demonstrating the testimony and analysis he
could have provided.
a. Outside Hedges and Tear-Ups Did Not Violate GAAP
Most importantly, an expert would have demonstrated that the outside hedges
and tear-up agreements did not render Dynegy’s accounting treatment for Project Alpha
improper. Jayson Decl. ¶¶ 20-21. GAAP principles in effect at the time Project Alpha
was consummated permitted the types of outside hedges and tear-up agreements the
parties employed here. Id. Indeed, even Hecker admitted that the GAAP rules were
not always clear, TTx Day 5, 31:3-7, and that at the time of Project Alpha’s negotiation
and implementation, he was unsure whether the outside hedging was appropriate, TTx
Day 5, 191:17-192:13; see also TTx Day 5, 79:13-16 (Hecker describing the rules for
65
accounting for SPEs: “the rules get very complicated, very esoteric, and in many cases
counter-intuitive, and some of them just don’t make any darn sense.”). Even under the
government’s fraud-on-Hecker trial theory, this fact is extremely important: by
demonstrating that Hecker was simply wrong about the GAAP rules, the expert would
have showed that the supposed deception of Hecker was entirely immaterial. As
materiality is an element of the offenses charged against Olis, see Part III.D.1.b, supra,
raising such doubt about materiality would have resulted in acquittal. The expert
testimony concerning GAAP would likewise have been vital if the government had tried
to convict Olis of the charge in the indictment: because the indictment charged that the
alleged conspirators joined a scheme to publish false financial statements and
improperly account for Project Alpha, testimony that demonstrated that the accounting
was proper would have required acquittal.
b. Andersen Was Not Independent
Expert testimony would also greatly have aided counsel’s ability to impeach the
testimony of Hecker and the other Andersen witnesses at trial. The expert would have
persuasively demonstrated that Arthur Andersen was not independent with respect to
Project Alpha and that the contingent-fee arrangement rendered both Arthur
Andersen’s SAS 50 opinion and Dynegy’s Forms 10-K and 10-Q, the documents that
were the foundation for all of the charges, void and violated Texas’s accounting rules of
professional ethics. Jayson Decl. ¶¶ 4-7.
Although trial counsel attempted to raise this conflict of interest in cross-
examination, the impeachment was weak because expert testimony was needed. For
66
instance, Hecker professed to have had no previous knowledge of the contingent fee,
although he conceded that it posed “a very significant potential question that would
need to be answered.” TTx Day 5, 174:4-178:21. Counsel was unable to follow up on
this concession. An expert would have testified that Andersen and Hecker suffered
from a disabling conflict of interest. even in the unlikely event that Hecker was
personally unaware of his firm’s fee arrangement. Jayson Decl. ¶ 6. Such testimony
would have permitted much stronger impeachment of the supposed victim in the
government’s trial theory.
3. General Inability to Prepare
Perhaps the most fundamental prejudice caused by the government’s
interference was the impairment of counsel’s ability to properly prepare to defend the
case.
Project Alpha was, by all accounts, a tremendously complicated and
sophisticated transaction. Simply understanding the fundamental facts of the case
therefore required substantial effort. Declaration of Terry Yates in Support of Olis’
Motion to Set Aside Conviction Pursuant to 28 U.S.C. § 2255 (“Yates Decl.”) ¶ 3.
The difficulty of understanding the facts was compounded by the government’s
production of millions of pages of discovery just a few months before the trial
commenced. Olis’ trial team did not receive its Brady and Jencks Act discovery until
August 8, 2003 — less than three months before trial commenced on November 3,
2003. Yates Tx (Kelley Decl. Ex. D) 55:5-56:23. The discovery consisted of over a
million documents, which amounted to over millions of total pages. Clark Tx (Kelley
Decl. Ex. F) 22:16-22; Yates Tx (Kelley Decl. Ex. D) 202:3-15, 269:10-12; Yates Decl. ¶
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4.
Olis’ trial team — consisting of only Terry Yates and Mark Clark — was
overwhelmed. Yates Decl. ¶¶ 5, 9. Dynegy paid the team less than $14,000 before
trial. The trial team was simply too small and underfunded to take all the steps
necessary to properly prepare Olis’ defense. Yates testified about the impact of
Dynegy’s refusal to pay his fees:
The fact that they held up payment for the fees that were due to us in Julyand August, it hurt us substantially . . . . I run a small office. I’ve gotdecent size overhead. My overhead runs about 35 to 42,000 a monthback then. And we were hurting in a big way, because most of my timewas being spent on this Olis case, and we weren’t getting paid for it.
. . . .
[The work load associated with the Olis case] was just tremendous. Andwe are trying to do this without — limited resources. We didn’t have themoney coming in. We were doing the work, but the money wasn’t comingin.
Q I think you had even started missing rent payments?
A Yes. I still — Oh, my landlord is a good guy and I owe him about$25,000 from that period . . . .
Q I guess from your bills, almost every weekend you were gettingready for trial?
A We were there every weekend, almost every [ ]weekend. I meanthe amount of work that we had to do and that compressed period of time,the amount of witnesses, SEC testimony, depositions, amount of documentsto go through . . . . It was tedious hard work, but we did it.
Q Now, I guess at this point in time, you also lost or because of thisimpact, Mr. Clark had to make other arrangements?
A Not only Mr. Clark. Almost everybody. We almost lost everybody.
Q Did this almost cause your business to fold?
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A Almost, yeah . . . . It was tough for a long period of time, but webuilt the thing back up. We are going again.
Yates Tx (Kelley Decl. Ex. D) 120:22-124:5.
Without Dynegy’s funding, the team had no ability to meet (over a few short
months) the government’s years-long, well-funded investigation. As discussed, the
team could not hire experts to help analyze the facts and present the truth to the jury.
Nor could it afford to staff the team with enough attorneys to properly review the
evidence, an investigator to investigate facts and witnesses, a jury consultant to help
with jury selection, or a database to store and use in searching the voluminous
discovery materials. This inability to fully prepare is reflected in the numerous
deficiencies discussed throughout this brief, including:
• counsel’s failure to contest Heil’s incorrect and conceptually bankrupt testimony
as discussed in subpart III.D.1, supra;
• counsel’s failure to fully impeach Hecker as discussed in subpart III.D.2, supra;
• counsel’s failure to object to the government’s unconstitutional constructive
amendment of the indictment, as discussed in part IV, infra;
• counsel’s failure to object to the Court speaking to a juror privately and out of the
presence of both counsel and Olis, in violation of Olis’ rights to be present and
have counsel present at critical stages of the proceedings, as discussed in Part
V, supra; and
• counsel’s failure to object to legally incorrect jury instructions that had the effect
of relieving the government of its burden to prove each element of charged
offenses beyond a reasonable doubt.
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All of this prejudice led to a conviction where it should not have been obtained.
Had the government not interfered with Olis’ ability to fund his own defense, it would not
have prevailed at trial.
IV. THE GOVERNMENT CONSTRUCTIVELY AMENDED THE INDICTMENT INVIOLATION OF OLIS’ FIFTH AMENDMENT RIGHTS
The Fifth Amendment guarantees that a criminal defendant will be tried only on
charges presented in a grand jury indictment. U.S. Const. amend. V. Olis’ Fifth
Amendment rights were violated when the government tried him — without objection
from Olis’ trial counsel — on a charge fundamentally different from the one contained in
the indictment.
A. The Indictment
The indictment alleged six counts against Olis. Count One alleged a conspiracy
to commit securities fraud, mail fraud and wire fraud. The other counts were entirely
derivative — those counts alleged no new facts, but instead incorporated Count One’s
allegations, and charged that the same alleged scheme involved substantive violations
of the securities, wire and mail fraud statutes. See Indictment (Docket # 1).
The indictment explicitly alleged that Project Alpha was a scheme to falsely
report financing activity as operating cash flows. Indictment ¶ 15; see also id. ¶ 19 (“the
Defendants and their coconspirators and agents well knew, intended, and believed
[that] Project Alpha was, in fact, a loan structured to appear as a 5-year natural gas
contract that should have been disclosed as cash flows from financing activities”
(emphasis added)). The indictment alleged that Project Alpha employed a “100%
hedging” strategy to insulate the involved banks from financial risk, and that reporting
70
such an arrangement as operating income violated Generally Accepted Accounting
Principles (“GAAP”). Indictment ¶ 20. The indictment further alleged that in reporting
the cash flows as operating income, the Defendants “intentionally concealed from
Dynegy’s auditors, the SEC, Rating Agencies, lenders, market and securities analysts,
and the investing public” the fact that Project Alpha employed hedges and tear-up
agreements to ensure that the project would not lose money. Indictment ¶ 21.
According to the indictment, the Defendants therefore “falsely report[ed]” to the “Rating
Agencies, lenders, market and securities analysts, and the investing public” that the
cash flows were operating income rather than financing activities. Indictment ¶ 21. The
false reports “caused Dynegy’s cash flow from operations . . . to be materially
overstated” and caused Dynegy’s financial statements to be misleading. Indictment ¶
24.
B. Trial Evidence
The scheme asserted by the government at trial was not the same one alleged in
the indictment. At trial, the government eschewed any allegation that the purpose of
Project Alpha was falsely to characterize loan proceeds as cash flow from operations.
Instead, the government insisted that it mattered not at all whether the conspirators
believed that the accounting for Project Alpha was correct. Nor did it matter whether
Olis and his alleged co-conspirators intended falsely to characterize loan proceeds as
cash flow from operations. Instead, the government told the jury, the only question was
whether Olis and his alleged co-conspirators concealed the outside hedges and tear-
The government’s new theory conflicted with Hecker’s own testimony: “Dynegy21
or any other company doesn’t care what my opinion on accounting is individually. Theywant to know what Arthur Andersen opinion is and Arthur Andersen’s interpretation ofgenerally accepted accounting principles.” TTx Day 5, 10:6-12.
71
ups from Hecker, Andersen’s engagement partner. Thus, the government’s entire21
prosecution rested on the contention that Olis and his coconspirators hid facts from the
“gatekeeper,” Hecker, in order that he provide an accounting opinion that would form
the basis of other entities’ conclusions about Project Alpha.
The government’s shift in strategy was evident from the opening statement.
AUSA Belinda Beek told the jurors that Hecker was Dynegy’s outside auditor, and that
he told Dynegy that “the banks could not eliminate all of their risk related to the buying
and selling of gas. If they eliminated 100 percent of their risk, with insurance or
guarantees, it was just a loan.” TTx Day 1, 86:7-87:23. Then she continued, “We’re
not saying that the rules were right or even commonly agreed upon, but these were Mr.
Hecker’s rules, and he’s the man they had to get through to put the label on it that they
needed to call it cash from operations.” Id. 87:24-88:2 (emphasis added); see also id.
94:19-20 (“Hecker may have been right, he may have been wrong, but he’s the guy
certifying it and he said you can’t do it.”). Beek stated that the evidence would show
that Dynegy filed reports with the SEC that “Mr. Hecker looked at and issued
accounting opinions that they were okay, but of course he did it without all the
information . . . . The accounting opinion that [the conspirators] caused Mr. Hecker to
issue that was wrong, or at least wrong in his opinion — again, whether it was right or
wrong was not the issue. He just didn’t go forward with all the information.” Id. 97:22-
98:11 (emphasis added). Finally, Beek summed up the case: “The evidence will show
72
this case is not about accounting, it’s concealment. It doesn’t matter if Jim Hecker was
right or wrong. It just matters that he didn’t have all the information in front of him when
he made the decision.” Id. 104:21-24. Thus, the government commenced its
presentation to the jury by affirmatively modifying the nature and purpose of the alleged
scheme.
The government then hewed to its new fraud-on-Hecker theory of the case in
presenting evidence. Aside from Hecker’s own opinions, it presented no evidence that
the outside hedges and tear-up agreements violated GAAP or were otherwise
substantively improper. And even Hecker admitted that the GAAP rules were not
always clear, TTx Day 5, 31:3-7, and that at the time of Project Alpha’s negotiation and
implementation, he was unsure whether the outside hedging was appropriate, TTx Day
5, 191:17-192:13; see also TTx Day 5, 79:13-16 (Hecker describing the rules for
accounting for SPEs: “the rules get very complicated, very esoteric, and in many cases
counter-intuitive, and some of them just don’t make any darn sense.”). The government
likewise presented no evidence that Olis or his supposed coconspirators made or
intended to make any false representations to the SEC or investors — the government
neglected to demonstrate that the outside hedges and tear-ups rendered the
accounting result incorrect, and thereby abandoned any effort to show that Dynegy’s
public filings or statements were false because of the alleged fraud. Indeed, the
government could not even show that Olis hid the outside hedges from Arthur Andersen
(the “auditors” referred to in the indictment) because the evidence demonstrated that
Olis emailed a schedule containing the outside hedges to Kelvin Kelm, and Kelm
incorporated the hedges into a model he created. Rather, the government solely
73
attempted to show that Olis agreed to hide the outside hedges and tear-ups from
Hecker — a man with whom Olis had no correspondence or interaction.
Finally, the government’s closing arguments cemented its constructive
amendment of the charges. AUSA Lewis argued, for instance, that “this whole case
was focused on what did the conspirators do to keep Hecker from knowing what the
facts were.” TTx Day 8, 38:22-24. He argued that “right or wrong, Mr. Hecker set the
rules. That is at the heart of this case. Mr. Hecker was the gatekeeper. He set the
rules. It doesn’t matter that some other accountant would have set different rules. He
was the gatekeeper.” Id. 77:17-21 (emphasis added).
Thus, the proof at trial and the government’s theory of guilt were fundamentally
different from the charges in the indictment. The gravamen of the indictment was Olis’
participation in a scheme to achieve an incorrect and false accounting result, and
thereby to defraud not just Hecker, but “Dynegy’s auditors, the SEC, Rating Agencies,
lenders, market and securities analysts, and investing public.” Indictment ¶ 21. But at
trial the government expressly eschewed any attempt to demonstrate that the
accounting result was improper because of the outside hedges and tear-ups, and
instead focused the jury’s attention exclusively on the question whether Olis hid facts
from Jim Hecker. The government thereby impermissibly amended the indictment.
Even more egregiously, the government’s constructive amendment eliminated
the concept of victim from the alleged fraud. There was simply no proof that Olis and
his alleged coconspirators sought either to obtain money from or deprive any victim of
money or property. None of the charges in the indictment specified an intended victim,
The Court’s mail and wire fraud instructions permitted the jury to convict upon22
finding that the alleged conspirators joined a scheme to “deprive” someone of money orproperty, TTx Day 8, 30:7-9, 32:8-10, but, as discussed in detail in Part V.C., infra,those instructions were erroneous. Mail and wire fraud convictions require proof thatthe defendant sought to obtain money or property from someone.
74
even though conduct constitutes an illegal “scheme to defraud” only where the
defendant seeks to obtain money from a victim. See Part V.C.2, infra; United States v.
Walters, 997 F.2d 1219, 1227 (7th Cir. 1993); United States v. Ratcliff, 488 F.3d 639,
645 (5th Cir. 2007) (while “the misrepresentations in a mail fraud scheme need not be
made directly to the scheme’s victim, the alleged scheme to defraud must nevertheless
be one to defraud the victim” (citation omitted)). Count One came the closest to22
identifying a victim: it alleged that Olis intended to mislead the “Ratings Agencies,
lenders, market and securities analysts, and the investing public.” Indictment (Docket #
1) ¶ 24. But there was no suggestion at trial that the ratings agencies, lenders, or
market and securities analysts parted with any money or property, let alone that Olis
and his alleged accomplices obtained it from them. That leaves the investing public.
However, there are three fundamental problems with the theory that the alleged
conspirators sought to obtain money from the investing public.
First, there was no proof at trial that Dynegy or any of the alleged coconspirators
issued, bought, or sold Dynegy stock during the purported conspiracy. Absent such
proof, there was no showing that the alleged conspirators sought to obtain any money
or property under the so-called “scheme to defraud” investors.
Second, the government never proved that Hecker’s opinions were correct and
that the outside hedges and linked tear-ups to which he objected were in fact violative
75
of GAAP. Instead, the government urged that it did not matter whether Hecker’s
opinions were right or wrong. Under this theory, it also did not matter whether the
outside hedges and linked tear-ups caused Dynegy’s financials to overstate cash flow
from operations. But investors who purchase stock after reviewing accurate financial
statements lose no money. Absent a GAAP violation or other falsehood, investors lost
nothing and the alleged deception was immaterial.
Third, Foster testified that he and the alleged coconspirators intended to
circumvent Hecker, but believed that the accounting was nevertheless correct. TTx Day
7, 102; see also TTx Day 7, 171:12-172:5. Absent a showing that Olis knew and
intended that the outside hedges and linked tear-ups would destroy the desired
accounting treatment, there was no proof that he intended and agreed to deprive
someone of money or property, let alone obtain it from them. Thus, even if the
government proved an intent to fool Hecker, its evidence failed to establish that
someone (i.e. the investing public) parted with money or property or that Olis intended
to obtain money or property as a result of that deceit. In other words, there was no
victim and, hence, no crime.
C. The Government Could Not Have Convicted Olis Under the TheoryAlleged in the Indictment
The evidence at trial did not prove the allegations in the indictment. There was
no proof that Dynegy’s accounting treatment violated GAAP or was improper because
of the outside hedges or tear-ups, that Olis intended to violate GAAP, or that Olis
agreed to deceive Andersen — Dynegy’s “auditors.”
As discussed, the government did not even attempt to argue that the outside
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hedges and linked tear-ups — to which Hecker objected — rendered Dynegy’s
accounting for Project Alpha wrong, or meant that the cash flows derived from Project
Alpha should properly have been classified as income from financing. In fact, the
evidence demonstrated the opposite:
• Gene Foster, the USAO’s key witness, acknowledged that he knew that Mike
Mott, Dynegy’s Controller — the person ultimately responsible for Project Alpha’s
accounting — disagreed with Hecker about the accounting and that Mott and
Dynegy’s “internal accountants at the end of the day were okay with the
transaction.” TTx Day 7, 102; see also TTx Day 7, 171:12-172:5 (Foster
confirming SEC deposition testimony that he believed Project Alpha was a “good
deal” and that the accounting treatment was proper).
• Mott disagreed with Hecker’s opinions and defended Alpha’s accounting —
outside hedges, tear-ups and all — in written and oral presentations to the SEC.
TTx Day 7, 102:22-103:1; Day 5, 168:21-23. See also Trial Exhibit 57, Mott
letter to Robert Herdman, dated April 19, 2002. A copy of Mott’s letter is
appended the Declaration of Ted W. Cassman as Exhibit C.
• After extensively reviewing the underlying documentation for Project Alpha,
PWC, the firm that replaced Andersen as Dynegy’s outside accountants after
Andersen was indicted, notified Dynegy that it was prepared to defend the
accounting of Project Alpha. Kelley Decl. Ex. I.
• Although the SEC concluded that Dynegy should restate its financials and re-
characterize the revenue from Project Alpha as financing instead of operations, it
did not require the consolidation of ABG Gas Supply with Dynegy — a result that
This email was provided by the government in discovery prior to trial, but23
counsel with their limited resources never found it.
77
would necessarily have followed if it shared Hecker’s concern about the tear-ups
and outside hedges. TTx Day 5, 158:22-159:7, 170:2-171:4. The SEC’s action
was not consistent with the position that Hecker had taken on the accounting for
Project Alpha. TTx Day 5, 161:13-23.
Indeed, the expert analysis prepared by Mike Jayson and discussed in Part III, supra,
reveals that Dynegy’s accounting for the outside hedges and tear-ups was proper under
GAAP principles applicable at the time. Jayson Decl. ¶¶ 8-22. Thus, no jury could
have found that Olis, whose responsibilities related to Project Alpha’s tax treatment,
intended to reach an incorrect accounting result.
Furthermore, the evidence conclusively established that Andersen (the “auditors”
referred to in the indictment) knew about the outside hedges and tear-ups — and that
Olis was the one who provided the firm with much of its information. On April 24, 2001,
Olis sent Kelvin Kelm in Andersen’s tax department an email with a schedule that
expressly listed both the ICA and ABG Gas Holding outside hedges. Day 3, 125:13-
126:20, Trial Ex. 21. Kelm, in fact, relied upon that email and another from Olis to
create a model of Project Alpha that accounted for the presence of the outside hedges.
TTx Day 3, 109:6-109:17, 112:1-6; Trial Ex. 20.
Newly-discovered evidence similarly establishes that on April 6, 2001, Debbie
Ramirez of Vinson & Elkins sent numerous people — including Kelm, Muller and
Dodson, each an Andersen partner — an email that expressly documented the ICA
hedge. Cassman Decl. Ex. B. The email establishes that, regardless of Olis’ conduct,23
78
and contrary to Hecker’s express testimony, Andersen knew about the ICA hedge.
Moreover, the email was sent not only to Kelm and Muller in Andersen’s tax
department, but also to Marshall Dodson — the individual who Hecker himself identified
as his right-hand man.
Indeed, as discussed in the Facts section and Part III.D.2, supra, Andersen and
ICA had a 50% profit-sharing agreement. ICA was well aware of the outside hedges
and tear-ups. And as Andersen and ICA were partners in a joint venture, Andersen had
constructive — if not actual — knowledge of the outside hedges and tear-ups. Cf.
Fisher v. Trainor, 242 F.3d 24, 32 n.7 (1st Cir. 2001).
Thus, the indictment’s charges that Olis agreed to hide the outside hedges and
tear-ups from Andersen as an institution and to disseminate false financial statements
is contradicted by the evidence. The government could not have convicted Olis of the
charges in the indictment.
D. The Government Worked an Unconstitutional ConstructiveAmendment
By fundamentally shifting its theory of prosecution, the government tried Olis on
a charge that was never presented to the grand jury. Such a trial constitutes a per se
violation of Olis’ Fifth Amendment right to avoid charges not presented by a grand jury,
and requires reversal.
“[T]he charges contained in an indictment may not be broadened or altered
through amendment, except by the grand jury itself.” United States v. Chandler, 858
F.2d 254, 256 (5th Cir. 1988) (citing Stirone v. United States, 361 U.S. 212, 215-17, 80
S. Ct. 270, 272-73 (1960)). “Such amendments need not be explicit. An implied or
79
constructive amendment also constitutes reversible error.” Id. at 256.
A constructive amendment occurs when the government changes its theoryduring trial so as to urge the jury to convict on a basis broader than thatcharged in the indictment, or when the government is allowed to prove anessential element of the crime on an alternative basis permitted by thestatute but not charged in the indictment.
United States v. Robles-Vertiz, 155 F.3d 725, 728 (5th Cir. 1998) (quotation marks
omitted). In short, “the government may not obtain an indictment alleging certain
material elements or facts of a crime, then seek a conviction on the basis of a different
set of elements or facts.” Id. This is so regardless of whether the alternative facts
presented at trial could constitute a crime under the statute charged, or even whether
the indictment could have been couched in general terms encompassing both the
particular facts alleged in the indictment and those proved at trial. When only one
particular set of material facts is charged, the conviction must rest on proof of those
facts. Stirone, 361 U.S. at 218-19, 80 S. Ct. at 274; United States v. Chambers, 408
F.3d 237, 242-44 (5th Cir. 2005); United States v. Adams, 778 F.2d 1117, 1125 (5th
Cir. 1985).
When the proof deviates from the charge in such a manner as to constitute a
constructive amendment, the conviction is “reversible per se.” Chambers, 408 F.3d at
241 (quoting Adams, 778 F.2d at 1123). A constructive amendment
destroy[s] the defendant’s substantial right to be tried only on chargespresented in an indictment returned by a grand jury. Deprivation of such abasic right is far too serious to be treated as nothing more than a varianceand then dismissed as harmless error. The very purpose of the requirementthat a man be indicted by grand jury is to limit his jeopardy to offensescharged by a group of his fellow citizens acting independently of eitherprosecuting attorney or judge. Thus the basic protection the grand jury wasdesigned to afford is defeated by a device or method which subjects the
80
defendant to prosecution for [conduct] which the grand jury did not charge.
Stirone, 361 U.S. at 217-18, 80 S. Ct. at 273-74 (citation and footnote omitted).
The Supreme Court in Stirone reversed a conviction where the indictment
charged the defendant with violating the Hobbs Act by interfering with interstate
commerce in concrete, but at trial the government presented evidence of interference
with both interstate commerce in concrete and prospective steel shipments. 361 U.S.
at 213-15, 80 S. Ct. at 271-72. The court assumed that interference with either type of
commerce could be a violation of the Hobbs Act, but observed that the indictment did
not charge interference with prospective steel shipments. Id., 361 U.S. at 217, 80 S.
Ct. at 273. The prospective steel shipments could have formed the basis for the jury’s
conviction, and reversal was therefore required since the conviction may have rested on
a charge not issued by the grand jury. Id., 361 U.S. at 218-19, 80 S. Ct. at 274.
Following Stirone, the Fifth Circuit has reversed numerous convictions based
upon impermissible constructive amendments. For example, in United States v.
Hoover, 467 F.3d 496 (5th Cir. 2006), the court reversed the conviction at issue
because “the indictment charged Hoover with making one false statement, and the jury
instructions allowed the jury to convict him for making a different false statement, [so]
the trial court constructively amended Hoover’s indictment.” Id. at 502. In Chambers
the court reversed a conviction where the indictment charging a violation of 18 U.S.C. §
922(g)(1) (felon in possession of ammunition) alleged that the interstate commerce
element of the crime was satisfied because the ammunition at issue had moved in
interstate commerce, whereas the trial evidence showed only that constituent
81
components of the ammunition moved in interstate commerce. 408 F.3d 239-40, 245-
47. The government had impermissibly proved its case “on the basis of a set of facts
different from the particular facts alleged in the indictment.” Id. at 241. In United States
v. Chandler, 858 F.2d 254 (5th Cir. 1988), the court reversed a conviction where the
indictment charged that the defendant embezzled $20,858 using a false entry in a bank
record, but the trial evidence constructively amended the pleading by showing that the
defendant had taken smaller sums totaling $20,858. Id. at 257. In Adams the court
found a constructive amendment where the indictment charged the defendant with
purchasing a handgun using a driver’s license with a false name, but the jury was
permitted to convict on the theory that the defendant used a driver’s license bearing a
false address. 778 F.2d at 1124-25 (“when only one kind of falsity is charged to have
been made in furnishing a license, a conviction must rest on that charge and not
another, even though a conviction might have rested on a more general indictment”).
And in United States v. Salinas, 601 F.2d 1279 (5 Cir. 1979), the court reversedth
because the indictment charged aiding and abetting a certain bank officer in
misapplying funds, but the evidence showed aiding and abetting a different officer. Id.
at 1287-91. See also Chambers, 408 F.3d at 242-44 (reviewing cases).
Likewise here, the government sought to convict Olis based upon a theory
fundamentally different from the one presented in the grand jury’s indictment. The
grand jury charged Olis with seeking to obtain an incorrect accounting result and cause
Dynegy to submit false information to its “auditors,” the SEC and investors. At trial, the
government abandoned this theory altogether, and made no effort to prove that Olis
We recognize that the Fifth Circuit has held in rare circumstances that the24
discretionary “plain error” rule described in United States v. Olano, 507 U.S. 725, 731-34, 113 S. Ct. 1770, 1776-77 (1993), permits a reviewing court to leave undisturbed aconviction on constructively amended charges when trial counsel failed to object. United States v. Fletcher, 121 F.3d 187, 191-93 (5th Cir. 1997); United States v. Reyes,102 F.3d 1361, 1364-55 (5th Cir. 1996). Those cases are not apposite here becausethey did not call into question the precept on which Olis relies: a trial objection to theconstructive amendment would have required acquittal, see Chambers, 408 F.3d at 247n.6, and thus trial counsel was ineffective for failing to proffer such an objection.
In any case, the special circumstances present in Fletcher and Reyes are notpresent here, and no sound principle would permit the Court to ignore the previousdecisions that “emphasized that a constructive amendment is so pernicious as torequire reversal per se.” Fletcher, 121 F.3d at 193 n.6. In Fletcher and Reyes, theCourt of Appeals found that the evidence presented at trial was sufficient to supportconviction on the charges presented in the indictment or the amended chargespresented at trial. Fletcher, 121 F.3d at 193 & n.6; Reyes, 102 F.3d at 1365. Thus, theFletcher and Reyes courts found no violation of the defendants’ “substantial rights”arising out of the constructive amendments. Fletcher, 121 F.3d at 193; Reyes, 102F.3d at 1365-66. Furthermore, the Fletcher and Reyes courts worried that, because theevidence was sufficient to prove the charges in the indictments, the defendants in thosecases would have gained nothing by objecting at trial, and therefore had an incentive to“sandbag” by purposely foregoing a fruitless objection in order to earn a reversal onappeal. Fletcher, 121 F.3d at 193; Reyes, 102 F.3d at 1366. Here, by contrast, Olis’substantial rights were prejudiced because the government expressly declined to provethe charges in the indictment. Thus, this case is a “typical case, [in which] theconstructive amendment broaden[ed] the indictment such that a defendant might beconvicted for a crime not charged therein.” Fletcher, 121 F.3d at 193 n.6 (emphasis inoriginal). Moreover, unlike the “unusual” situations in Fletcher and Reyes, Olisobviously “would have gained something by objecting” to the constructive amendment. Reyes, 102 F.3d at 1366. An objection would have required acquittal because thegovernment did not prove the charges in the indictment. Chambers, 408 F.3d at 247n.6. Reversal is warranted even under the plain error standard.
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intended to submit or did in fact submit false information to the SEC and investors.
Under Stirone, Chambers, Adams and the other constructive amendment cases cited
above, the government’s bait-and-switch cannot stand — it violated Olis’ Fifth
Amendment rights, and requires reversal per se.24
In Lucas, the court considered a petition by a state prisoner under 28 U.S.C. §25
2254. 179 F.3d at 419. As the Lucas court noted, states are not subject to the strictFifth Amendment requirement that felony charges be presented to a grand jury. Id. at417. Nonetheless, a variance between a charge and trial evidence may beunconstitutional where it deprives a state defendant of notice of the nature of theaccusations against him. Id. The court considered the effectiveness question in thiscontext, but noted that in federal cases, constructive amendments are per seprejudicial, and suggested that counsel’s failure to object to a constructive amendment
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E. Ineffective Assistance of Counsel
Despite the obvious constitutional violation discussed above, Olis’ trial counsel
failed to object to the government’s constructive amendment of the indictment. That
failure constituted ineffective assistance of counsel.
Defense counsel is constitutionally ineffective, and reversal of the conviction is
required, when “counsel’s performance was objectively deficient and . . . the defendant
was prejudiced by counsel’s deficient performance.” Wood v. Quarterman, 491 F.3d
196, 202 (5th Cir. 2007) (citing Strickland v. Washington, 466 U.S. 668, 687, 104 S. Ct.
at 2064 (1984)). “Counsel’s performance is evaluated against an objective standard of
reasonable performance based on accepted professional norms.” Id. “To show
prejudice, a petitioner must establish that but for counsel’s performance, there is a
reasonable probability that the outcome of the proceeding would have been different.”
Id. at 202-03.
Counsel’s failure to object to an unconstitutional constructive amendment
constitutes ineffective assistance. Lucas v. O’Dea, 179 F.3d 412, 418-19 (6th Cir.
1999). Such a failure both falls below the level of competence required by Strickland
and prejudices the defendant because the objection would have necessitated dismissal.
Id. Counsel can have no objectively reasonable reason to forego dismissal of criminal25
in federal court is even more obviously ineffective in federal court than in state. Id. at419.
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charges, and failure to seek such dismissal where it is warranted obviously prejudices a
defendant who is later convicted. See Young v. Dretke, 356 F.3d 616, 629-30 (5th Cir.
2004) (finding that counsel’s failure to make a motion that would have led to dismissal
of a murder charge clearly constituted ineffective assistance under Strickland and its
progeny); see also Williams v. Taylor, 529 U.S. 362, 393, 120 S. Ct. 1495, 1513 (2000)
(holding that Strickland’s prejudice prong is satisfied when “the ineffectiveness of
counsel . . . deprive[s] the defendant of a substantive or procedural right to which the
law entitles him”). Thus, counsel’s failure to object to the constructive amendment in
the case at bar — an objection that would have required dismissal per se — was
constitutionally ineffective.
F. No Procedural Default
As noted, Olis did not raise the constructive amendment objection at trial or on
direct review. But the issue is not defaulted. In addition to constituting its own
constitutional violation, counsel’s ineffective failure to raise the constructive amendment
objection provides a proper justification for Olis to raise the issue on collateral review.
Although generally a petitioner “may not raise an issue for the first time on
collateral review without showing both ‘cause’ for his procedural default, and ‘actual
prejudice’ resulting from the error,” United States v. Shaid, 937 F.2d 228, 232 (5th Cir.
1991) (en banc), “ineffective assistance of counsel, if shown, is sufficient to establish
the cause and prejudice necessary to overcome a procedural default,” United States v.
Walker, 68 F.3d 931, 934 (5th Cir. 1995); see also United States v. Conley, 349 F.3d
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837, 839 n.1 (5th Cir. 2003). As discussed above, Olis received ineffective assistance
when counsel failed to object to the constructive amendment, and therefore Olis is not
barred from raising the issue on collateral review. See Lucas, 179 F.3d at 418-19.
V. INEFFECTIVE ASSISTANCE OF COUNSEL
Olis’ conviction must be set aside because his trial counsel was constitutionally
ineffective. As discussed, defense counsel is constitutionally ineffective, and reversal
of the conviction is required, when “counsel’s performance was objectively deficient and
. . . the defendant was prejudiced by counsel’s deficient performance.” Wood, 491 F.3d
at 202; Strickland, 466 U.S. at 687, 104 S. Ct. at 2064. “Counsel’s performance is
evaluated against an objective standard of reasonable performance based on accepted
professional norms.” Wood, 491 F.3d at 202. “To show prejudice, a petitioner must
establish that but for counsel’s performance, there is a reasonable probability that the
outcome of the proceeding would have been different.” Id. at 202-03.
Counsel’s failures in the case at bar were manifold. Counsel:
• failed to object to the government’s constructive amendment of the indictment,
where such an objection would have required dismissal of the charges against
Olis;
• agreed to permit the Court to speak to a juror privately and out of the presence
of both counsel and Olis, in violation of Olis’ rights to be present and have
counsel present at critical stages of the proceedings;
• failed to object to legally incorrect jury instructions that had the effect of relieving
the government of its burden to prove each element of charged offenses beyond
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a reasonable doubt;
• failed to object when the government elicited expert testimony from an
unqualified witness; and
• to the extent the Court finds that the deficiencies discussed in Part III, supra,
were not caused by government misconduct, Olis submits that his counsel
unreasonably failed to hire necessary experts or otherwise fully challenge the
government’s vulnerable case.
In each of these instances, trial counsel’s performance was fundamentally inadequate.
Olis’ conviction must be vacated.
Further, to the extent that appellate counsel could have raised any of these trial
errors on appeal — under the “plain error” standard or otherwise — Olis submits that
appellate counsel was also constitutionally ineffective. See United States v. Phillips,
210 F.3d 345, 348-52 (5th Cir. 2000) (“A criminal defendant has a constitutional right to
receive effective assistance of counsel on direct appeal”); Pollard v. Delo, 28 F.3d 887,
889 (8th Cir. 1994) (recognizing that, even if trial counsel failed to preserve an
objection, a habeas petitioner may show that appellate counsel was ineffective “by
showing that reasonable professional performance could not have omitted the [errors]
from review under a plain error standard”). Here, as we demonstrate, the record
established several grounds for reversal of Olis’ conviction that were not raised on
appeal. Accordingly, Olis was also deprived of his sixth amendment right to the
effective assistance of counsel at the appellate stage.
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A. Failure to Object to Constructive Amendment of Indictment And toRaise the Issue on Appeal
As discussed in Part IV, supra, the government sought to convict Olis based upon
a theory fundamentally different from the one presented in the grand jury’s indictment.
The grand jury charged Olis with seeking to conduct a transaction that did not comply
with GAAP, to deceive Dynegy’s auditors and to cause Dynegy to submit false
information to the SEC and investors. At trial, however, the government jettisoned all of
those allegations. Instead, the government expressly argued that it need not show that
Project Alpha did not comply with GAAP, that the accounting treatment was “false,” or
that Arthur Andersen was deceived. Rather, the government asserted only that Olis
agreed to hide facts from Hecker, the so-called “gatekeeper.” That bait-and-switch
violated Olis’ Fifth Amendment rights, and required reversal per se.
Nonetheless, Olis’ counsel permitted the constructive amendment to pass without
objection. As discussed in Part IV, that failure constituted ineffective assistance of
counsel.
B. Failure to Object to Biased Juror and Violation of Olis’ SixthAmendment Rights To Be Present and to Have Counsel Present andFailure to Raise The Issue on Appeal
After the jury was empaneled, one of the jurors told the Court, “I will not be able to
judge this case fairly.” In response, at a side bar and out of Olis’ presence, the Court
suggested that it speak to the juror privately about this issue. Counsel for both parties
concurred. However, no inquiry was made of Olis, and no waiver was taken on the
record or otherwise. Despite the express statement of bias and without Olis’ agreement,
defense counsel permitted the juror to remain on the panel. Under the Fifth Circuit’s
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binding precedents, these circumstances violated Olis’ constitutional rights and
constituted ineffective assistance of counsel.
1. Facts
At the end of the first day of trial, after the prosecution’s opening statement, a
juror informed the judge that the trial schedule could pose an obstacle to the juror’s
obligation to pick up her daughter after school. TTx Day 1, 111:3-9. The Court told
counsel that he had discussed the issue with the juror and “I think I’ve calmed her down
and got it worked out.” Id. 111:10-16.
However, the next day, after testimony had commenced, the Court informed
counsel during a sidebar conference, out of Olis’ presence, that the juror had sent the
Court a note, which read:
I am sorry to inform you that I will not be able to judge this case fairly,knowing that my boss will not pay me for missed days and how my child willbe getting home from school, because my income is the main source for myhousehold. So, it is not fair for all that I remain on the jury. So, I’m askingyou to please dismiss me from the case.
TTx Day 2, 121:22-122:4 (emphasis added). The Court proposed to counsel that the
juror be paid weekly — and suggested that the $40 per day stipend was likely in the
range of her daily income from work — but that the juror remain on the panel. Id. 122:5-
12. Olis’ trial counsel stated that this arrangement “is acceptable with the defense.” Id.
122:13.
Later that day, during another sidebar, all counsel and the Court agreed that the
Court should communicate with the juror ex parte and explain the Court’s decision. Id.
223:19-224:16. After that ex parte communication, the Court informed counsel that the
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juror had stated that her income was $80 per day, and that the Court had suggested that
the juror ask her boss to “make up the difference.” The Court reported that the juror
“was not happy with that outcome, but I told her basically we could not excuse her . . . . I
told her it was just too late.” Id. 224:20-225:7. The juror remained on the panel through
verdict.
2. The Inclusion of an Admittedly Biased Juror Violated Olis’ Sixth Amendment Rights
A trio of cases demonstrate that trial counsel was constitutionally deficient in
failing to object to the inclusion of the biased juror on Olis’ panel, and that this deficiency
requires collateral relief from the conviction. In Virgil v. Dretke, 446 F.3d 598 (5th Cir.
2006), the court granted a state habeas petition alleging ineffective assistance of
counsel on facts very similar to those at bench. The Virgil court relied heavily on a Sixth
Circuit case, Hughes v. United States, 258 F.3d 453 (6th Cir. 2001), which granted a §
2255 motion on analogous facts. And Hughes in turn relied heavily on an earlier Fifth
Circuit case, United States v. Nell, 526 F.2d 1223 (5th Cir. 1976). Those cases set forth
the applicable framework for analyzing counsel’s deficient performance here.
Our criminal justice system rests firmly on the proposition that before aperson’s liberty can be deprived, guilt must be found, beyond a reasonabledoubt, by an impartial decisionmaker. The Sixth Amendment provides in part:“In all criminal prosecutions, the accused shall enjoy the right to a speedy andpublic trial, by an impartial jury of the State and district wherein the crime shallhave been committed.”
Virgil, 446 F.3d at 605 (emphasis in original). “Put simply, ‘[T]he right to jury trial
guarantees to the criminally accused a fair trial by a panel of impartial, indifferent
jurors.’” Id. (quoting Irvin v. Dowd, 366 U.S. 717, 722, 81 S. Ct. 1639, 1642 (1961)).
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The Supreme Court teaches that “the mere existence of any preconceived notion
as to the guilt or innocence of the accused” is not sufficient to rebut the usual
presumption of impartiality, so long as “the juror can lay aside his impression or opinion
and render a verdict based on the evidence presented in court.” Irvin, 366 U.S. at 723,
81 S. Ct. at 1642-43. But where a juror makes an “open declaration of her inability to be
fair,” and neither the court nor counsel makes “any attempt at clarification or
rehabilitation, there is no ambiguity in the record as to her bias; [the juror’s] express
admission is the only evidence available to review.” Hughes, 258 F.3d at 459; see also
Virgil, 446 F.3d at 607, 610 & n.52, 613; Nell, 526 F.2d at 1230. “[W]ithout more, juror
bias can always be presumed from such unequivocal statements.” Hughes, 258 F.3d at
460.
The Virgil, Hughes, and Nell courts each reversed convictions by juries that
included one or more people who had expressly confessed bias. In Virgil, one juror
stated that “his relationship with law-enforcement officers would preclude him from
serving as an impartial juror,” and another stated that because his mother had been
mugged, he could not be “fair and impartial.” 446 F.3d at 609-10. In Hughes, a juror
stated that because her nephew was a police officer and she knew other officers, “I don’t
think I could be fair.” 258 F.2d at 456. In Nell, one juror stated that he was biased
because he disliked unions, and another generally disclosed a possible association with
the defendant. 526 F.2d at 1227-29. Crucially, in each case neither counsel nor the trial
court rehabilitated the jurors or otherwise made any substantial efforts to assure that the
jurors could set aside their biases and judge the case fairly. Virgil, 446 F.3d at 604, 613;
It appears overwhelmingly likely that Olis would have been the target of the26
juror’s bias. The juror expressly mentioned her meager income in requesting to bereleased. At trial, the government unnecessarily presented evidence of Olis’ substantialincome in the years 1999-2002. TTx Day 7, 180:10-183:6, 191:14-193:8.
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Hughes, 258 F.3d at 456, 458-60; Nell, 526 F.2d at 1230. On such records, the
inclusion of the jurors on the respective jury panels was improper.
So here, the juror directly stated that she could not “judge this case fairly.” And
while the record reflects that the trial judge spoke to the juror ex parte, it does not reflect
any determination that the juror could set aside her expressed bias and judge the case
fairly. Under Virgil, Hughes, and Nell, the Court must give dispositive credence to the
juror’s unchallenged and unrehabilitated expression of bias.
Further, it is irrelevant that the juror’s statement of bias was somewhat
ambiguous, such that it cannot be known for certain whether the juror was biased
against the defendant or the government. So long as the “prejudicial fallout existed,” it26
was immaterial “on which side the prejudice would fall.” Hughes, 258 F.3d at 460
(quoting Nell, 526 F.2d at 1228).
Thus, the cases make clear that the inclusion of the admittedly biased juror on
Olis’ panel violated his Sixth Amendment right to an impartial jury.
3. Counsel Was Constitutionally Ineffective in Failing to Object to the Sixth Amendment Violation and For Failure to Raise the Issue on Appeal
The cases likewise firmly establish that counsel’s failure to object to the inclusion
of an admittedly biased juror constitutes ineffective assistance. Such a failure is clearly
both objectively deficient and prejudicial.
Virgil and Hughes each directly hold that failing to seek to exclude, or at least
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rehabilitate, an admittedly biased juror is deficient performance under Strickland. Virgil,
446 F.3d at 610 (“We hold that [the jurors’] unchallenged statements during voir dire that
they could not be ‘fair and impartial’ obligated Virgil’s counsel to use a peremptory or
for-cause challenge on these jurors. Not doing so was deficient performance under
Strickland.”); Hughes, 258 F.3d at 463 (“The question whether to seat a biased juror is
not a discretionary or strategic decision. The seating of a biased juror who should have
been dismissed for cause requires reversal of the conviction.”).
The prejudice prong of the Strickland inquiry is likewise easily established. The
Virgil court observed that “Strickland’s prejudice inquiry is process-based: Given
counsel’s deficient performance, do we have confidence in the process afforded the
criminally accused?” 446 F.3d at 612. “Our criminal justice system is predicated on the
notion that those accused of criminal offenses are innocent until proven guilty and are
entitled to a jury of persons willing and able to consider fairly the evidence presented in
order to reach a determination of guilt or innocence.” Id. at 613. Olis “was denied these
basic principles when two jurors expressed their inability to serve fairly and impartially in
his case.” Id. “Had [Olis’] counsel challenged for cause [the biased juror], the trial judge
would have been forced to rule, a ruling that counsel could have objected to and
pursued as error on direct appeal. There is little doubt that such an error would have
been sustained.” Id. Thus, “[g]iven the fundamental nature of the impartial jury and the
consistent line of Supreme Court precedent enforcing it,” the Court “must conclude that
‘the result of [Olis’ trial] is unreliable because of a breakdown in the adversarial process
that our system counts on to produce just results.’” Id. (quoting Strickland, 466 U.S. at
93
696, 104 S. Ct. at 2069). “Such an unreliable result dictates the conclusion that Olis’
defense was prejudiced under Strickland.” Id.
Moreover, as in Virgil, “[t]he process-failure in this case stems as much from the
unknown as from the known.” Id. “No effort was made to explore the depth or intensity
of [the juror’s] bias toward [Olis].” Id. So far as the record reflects, “[n]o question was
put to [the juror] as to whether [she] would be able to set aside [her] preconceived
notions and adjudicate [Olis’] matter with an open mind, honestly and competently
considering all the relevant evidence.” Id.
In sum, the Court cannot have “confidence in the adversarial process that
resulted in” Olis’ conviction. “By law, [Olis] was prejudiced by the presence” of a partial
juror. Id. at 613-14. Counsel’s failure to object to this fundamental violation was
deficient and resulted in constitutionally ineffective assistance of counsel. Id. at 614;
Hughes, 258 F.3d at 463-64.
4. The Court’s Ex Parte Communication with the Juror Violated Olis’Constitutional Rights to be Present and to Have Counsel Present
Counsel’s response to the biased juror issue was deficient for another reason:
without seeking an informed waiver from Olis, counsel permitted the Court to conduct a
critical stage of the proceedings out of the presence of both Olis and his counsel. Such
ex parte conduct of critical proceedings violated Olis’ due process and Sixth Amendment
rights to be personally present and to have assistance of counsel, and counsel’s
acquiescence was therefore constitutionally ineffective.
The Sixth Amendment guarantees assistance of counsel, a guarantee that is
violated when counsel is absent, and thus “a trial is unfair if the accused is denied
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counsel at a critical stage of his trial.” United States v. Cronic, 466 U.S. 648, 659
(1984). Likewise, the criminal defendant himself has a due process right to be present
when his presence has a “relation, reasonably substantial, to the fulness of his
opportunity to defend against the charge.” United States v. Gagnon, 470 U.S. 522, 526,
105 S. Ct. 1482, 1484 (1985) (quoting Snyder v. Massachusetts, 291 U.S. 97, 105-06,
108, 54 S. Ct. 330, 332, 333 (1934)); see also Kentucky v. Stincer, 482 U.S. 730, 745,
107 S. Ct. 2658, 2667 (1987) (“a defendant is guaranteed the right to be present at any
stage of the criminal proceeding that is critical to its outcome if his presence would
contribute to the fairness of the procedure”); Rushen v. Spain, 464 U.S. 114, 117, 104 S.
Ct. 453, 455 (1983) (“Our cases recognize that the right to personal presence at all
critical stages of the trial and the right to counsel are fundamental rights of each criminal
defendant”); Faretta v. California, 422 U.S. 806, 819 n.15, 95 S. Ct. 2525, 2533 n.15
(1975) (“an accused has a right to be present at all stages of the trial where his absence
might frustrate the fairness of the proceedings”).
A conference with a juror who has directly expressed bias bears a substantial
relation to a defendant’s opportunity to defend against the charge, Hopt v. Utah, 110
U.S. 574, 578, 4 S. Ct. 202, 204 (1884); United States v. Hanno, 21 F.3d 42, 47 (9th Cir.
1994); cf. also Fed. R. Crim. P. 43(a)(2) (defendant’s right to be present at jury
impanelment), and such a conference is indisputably a critical stage in criminal
proceedings because a defendant has a constitutional right to be tried by an impartial
jury, see U.S. Const. amend. VI; Virgil, 446 F.3d at 605. Thus, Olis had constitutional
rights to be present and to have his counsel present at the Court’s conferences with the
Counsel was not entitled to unilaterally waive Olis’ rights to be present and27
have counsel present at a critical stage. The right to be present during critical stages ofa trial may only be waived by “voluntary, knowing, and intelligent” abandonment. Campbell v. Wood, 18 F.3d 662, 671-72 (9th Cir. 1994) (citing Johnson v. Zerbst, 304U.S. 458, 464 (1938)); see also Cohen v. Senkowski, 290 F.3d 485, 491 (2d Cir. 2002);United States v. Davis, 61 F.3d 291, 301-02 (5th Cir. 1995). Likewise, a defendant maywaive the right to counsel only through a “knowing, intelligent ac[t] done with sufficientawareness of the relevant circumstances.” Iowa v. Tovar, 541 U.S. 77, 81 (2004)(quoting Brady v. United States, 397 U.S. 742, 748 (1970)); Faretta, 422 U.S. at 835. As neither counsel nor the Court informed Olis that the juror had admitted bias, Oliscould not knowingly and intelligently waive his rights to be present and to have counselpresent at proceedings related to that expressed bias.
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confessedly biased juror. Yet Olis’ counsel abandoned these rights without consulting
Olis or informing him of the potential bias problem. Olis Decl. ¶ 5 (Olis did not learn
about the juror’s expression of bias until he reviewed the trial transcripts after his
conviction). 27
Under the Virgil and Hughes cases discussed above, trial and appellate counsel’s
failure to vindicate Olis’ rights by objecting to the ex parte nature of the Court’s
communications with the juror and by raising the issue on appeal was objectively
unreasonable. The cases teach that “juror bias can always be presumed from . . .
unequivocal statements” such as that at issue here. Hughes, 258 F.3d at 460; see also
Virgil, 446 F.3d at 607, 610 & n.52, 613. If, as discussed above, counsel had a duty to
seek to exclude the biased juror from Olis’ panel, then counsel must also have been
required to take the step of protecting Olis’ constitutional rights by demanding that
defendant and counsel be present during conferences with the juror.
C. Failure to Object to Erroneous Jury Instructions And to Raise theIssue on Appeal
Olis’ trial and appellate counsel were also ineffective for failing to object to
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erroneous jury instructions concerning the wire and mail fraud statutes and for failing to
raise this issue on appeal. These failures prejudiced Olis because the government’s
course of proof was not sufficient to demonstrate guilt under the proper legal standards.
Moreover, the legal infirmities in the mail and wire fraud convictions infects the other
counts as well, and reversal is required on all counts.
1. Erroneous Instruction Concerning Interstate Commerce Element of Wire Fraud
With respect to the wire fraud counts, the Court instructed the jury, “It is not
necessary for the government to prove . . . that the material transmitted by wire was
itself false or fraudulent.” TTx Day 8, 32:21-24. Olis’ counsel made no objection to this
instruction. Nor was the issue raised on appeal. But the instruction was incorrect as a
matter of law.
The wire fraud counts charged a scheme involving the filing with the SEC of two
Form 10-Qs and one Form 10-K. Indictment Counts 4-6. Such filings are required by
law. See TTx Day 5, 48:4-15; Day 6, 72:10-16; 15 U.S.C. § 15m(a), 17 C.F.R. §§
240.13a-13, 249.308a, 249.310. But where a wired statement is required by law, it
cannot form the basis of a wire fraud conviction unless the statement itself is false or
fraudulent. United States v. Curry, 681 F.2d 406, 412 (5th Cir. 1982) (“mailings of
documents which are required by law to be mailed, and which are not themselves false
and fraudulent, cannot be regarded as mailed for the purpose of executing a fraudulent
scheme”) (citing Parr v. United States, 363 U.S. 370, 390-91 (1960)); United States v.
Lake, 472 F.3d 1247, 1256 (11th Cir. 2007) (following Parr and Curry in the wire fraud
context); see also United States v. Cross, 128 F.3d 145, 149-52 (3d Cir.1997); United
Although Parr and Curry analyzed the mail fraud statute, “[t]he Supreme Court28
has said that because the mail and wire fraud statutes share the same language inrelevant part, the same analysis applies to each.” United States v. Mills, 199 F.3d 184,188 (5th Cir. 1999) (citing Carpenter v. United States, 484 U.S. 19, 25 n. 6, 108 S. Ct.316, 320 n.6 (1987)).
97
States v. Gray, 790 F.2d 1290, 1298 (6th Cir.1986). Thus, it was “necessary for the28
government to prove . . . that the material transmitted by wire was itself false or
fraudulent,” and the instruction to the contrary was incorrect.
The instructional error was vitally important. As discussed in Part IV, supra, the
government’s proof at trial diverged from the allegations in the indictment. The
government made no effort to demonstrate that Dynegy’s accounting treatment for
Project Alpha was substantively incorrect because of the outside hedges and tear-ups.
Thus, it made no showing that Dynegy’s Forms 10-Q and 10-K were themselves false as
a result of the alleged fraud and, more important, no showing that Olis intended for the
financials to be false. If the jury had understood that it could not convict without proof of
the falsity of the material transmitted by wire, it almost certainly would not have
convicted Olis on Counts Four through Six.
Olis’ trial counsel was therefore constitutionally ineffective in defending against
the wire fraud counts. As discussed, counsel first blundered by permitting the
government to constructively amend the indictment by proving a different crime (fraud on
Hecker) than the one pled (false accounting and fraud on the public). Counsel
compounded that error by failing to demand a jury instruction that would have required
acquittal under the government’s new theory of wire fraud.
Counsel’s failure to object to the jury instruction was objectively deficient because
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the instruction was contrary to established Supreme Court and Circuit precedent. There
could be no discretionary or strategic reason for permitting an incorrect instruction that
effectively eliminated a winning defense — that the government was required to prove
beyond a reasonable doubt that the wired material was false or fraudulent as a result of
Olis’ scheme. Likewise, counsel’s failure was prejudicial because it permitted the jury to
convict Olis despite a glaring absence of proof.
Counts Four, Five and Six must be reversed because Olis’ counsel was
constitutionally deficient in defending against them.
2. Erroneous Instruction Concerning the “Scheme to Defraud” Elementof Mail and Wire Fraud
The instructions related to the mail and wire fraud charges, Counts Three through
Six, also suffered from a separate impropriety. The mail and wire fraud statutes
proscribe “any scheme or artifice to defraud, or for obtaining money or property by
means of false or fraudulent pretenses, representations, or promises.” 18 U.S.C. §§
1341, 1343 (emphasis added). In instructing the jury on the mail and wire fraud charges
against Olis, however, the Court defined “scheme to defraud” as “any scheme to deprive
another of money or property.” TTx Day 8, 30:7-9, 32:8-10 (emphasis added). This
instruction was incorrect, and highly prejudicial to Olis because no evidence was
presented at trial that Olis or his alleged coconspirators intended to obtain money or
property. Rather, the government attempted simply to show that investors were harmed
when they purchased Dynegy stock. Olis’ counsel should have objected to jury
instructions that improperly expanded the scope of the statutes with which Olis was
charged in a manner that better encompassed the government’s theory.
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Despite the disjunctive “or” between the phrases “scheme or artifice to defraud”
and “for obtaining money or property by means of false or fraudulent pretenses,
representations, or promises,” the Supreme Court twice has held — based on the history
of the mail and wire fraud statutes and the meaning of the term “defraud” — that those
phrases are to be read together as defining a single offense. Cleveland v. United
States, 531 U.S. 12, 25-26, 121 S. Ct. 365, 374 (2000); McNally v. United States, 483
U.S. 350, 358-359, 107 S. Ct. 3875, 2881 (1987). Yet in this case, the jury instructions
improperly deleted the “obtaining” element and permitted the jury to convict by finding a
scheme simply to deprive another of property. A “deprivation is a necessary but not a
sufficient condition” of mail or wire fraud because “only a scheme to obtain money or
other property from the victim by fraud violates” those statutes. United States v.
Walters, 997 F.2d 1219, 1227 (7th Cir. 1993); see also Monterey Plaza Hotel Ltd. P’ship
v. Local 483 of Hotel Employees, Rest. Employees, 215 F.3d 923, 926-27 (9th Cir.
2000) (“The purpose of the mail and wire fraud proscriptions is to punish wrongful
transfers of property from the victim to the wrongdoer”); United States v. Lew, 875 F.2d
219, 221 (9th Cir. 1989) (“after McNally the elements of mail fraud remain unchanged
except that the intent of the scheme must be to obtain money or property, [and] the
Court made it clear that the intent must be to obtain money or property from the one who
is deceived” (emphasis added)); United States v. Baldinger, 838 F.2d 176, 180 (6th Cir.
1988) (Section 1341 “was intended by the Congress only to reach schemes ‘that have
as their goal the transfer of something of economic value to the defendant.’”); United
States v. Alsugair, 256 F. Supp. 2d 306, 312 (D.N.J. 2003) (“[I]n addition to an allegation
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that a defendant deprived a victim of money or property, the mail-fraud statute, 18
U.S.C. § 1341, requires an allegation that the defendant obtained money or property as
well.”).
Counsel’s error in allowing instructions that permitted conviction based upon mere
deprivation of money or property was crucially prejudicial. The government presented
no evidence whatsoever that Olis or his alleged coconspirators obtained money or
property from any victim. Thus, if the instructions had followed the law, acquittal would
have been required.
3. The Infirmities Infect the Other Charges
Counsel’s ineffective failure to challenge the jury instructions on Counts Three
through Six also requires reversal on Counts One and Two.
“[W]here a general verdict form allows for conviction for conspiracy to commit any
one of several object offenses[,] a legal defect in any one of the offenses alleged will
require reversal of the conspiracy conviction.” United States v. Pettigrew, 77 F.3d 1500,
1511 (5th Cir. 1996); see also Griffin v. United States, 502 U.S. 46, 58-60, 112 S. Ct.
466, 473-74 (1991); Yates v. United States, 354 U.S. 298, 312, 77 S. Ct. 1064, 1073
(1957). Thus, an instructional error with respect to one object offense “raises the
possibility that [the] conspiracy conviction rests upon legally inadequate grounds,” and
requires reversal. Pettigrew, 77 F.3d at 1511-12.
Here, Count One of the indictment charged Olis with conspiring to commit the
object offenses alleged in the other counts. Indictment (Docket # 1) ¶ 13. The
erroneous instructions concerning the mail and wire fraud counts — and counsel’s
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unconstitutional failure to object to the instructions — therefore raise “the possibility that
[the] conspiracy conviction rests upon legally inadequate grounds.” As in Pettigrew, the
legal infirmities infecting Counts Three through Six also infect the Count One conspiracy
charge. Counsel’s failure to object to the erroneous mail and wire fraud instructions
undermines the conspiracy conviction too, and reversal on Count One is mandated.
Likewise, if a defendant is convicted on conspiracy and substantive offenses after
the court gives a Pinkerton charge, see Pinkerton v. United States, 328 U.S. 640, 66 S.
Ct. 1180 (1946), but the conspiracy conviction is subsequently reversed, the convictions
on the substantive offenses must be reversed “unless [the court] find[s] beyond a
reasonable doubt that the jury would have convicted [the defendant] of each substantive
count” as an aider and abettor or a principal. United States v. Castaneda, 16 F.3d 1504,
1511 (9th Cir. 1994); see also United States v. Rosas-Fuentes, 970 F.2d 1379, 1983
(5th Cir. 1992) (reversing conspiracy conviction and conviction for a substantive offense
after finding that the conviction on the substantive count “could rest only upon [the
defendant’s] participation in the conspiracy under the Pinkerton rule”). Here the Court’s
instructions permitted the jury to convict Olis of the various substantive offenses based
solely upon Pinkerton liability. TTx Day 8, 35:5-19. Because Olis’ conspiracy conviction
must be reversed, the remaining convictions on the substantive counts must likewise be
reversed unless it is clear beyond a reasonable doubt that the jury would have convicted
Olis on those counts in the absence of Pinkerton liability.
It is not clear beyond a reasonable doubt that the evidence supported Olis’
conviction as a principal in the commission of securities fraud. This question is not one
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of mere sufficiency of the evidence, and consequently the Fifth Circuit’s decision
affirming Olis’ conviction after applying that standard, 429 F.3d at 542-43, is not
controlling. Moreover, given the convoluted and conflicting facts of this case, the
government’s shifting legal theories, and the equivocal testimony of its star witness,
Gene Foster, the record does not sustain the conviction of securities fraud independent
of Pinkerton liability. Indeed, the Court instructed the jury that a securities fraud
conviction requires proof that the conspirators engaged in a scheme to “obtain money or
something of value.” TTx Day 8, 29:10-13. As discussed above, there was no evidence
that Olis or his alleged coconspirators attempted to obtain any money or property.
Furthermore, as discussed, the government’s proof of the materiality element of
securities fraud was entirely insufficient. The securities fraud conviction must be
dismissed.
D. Failure to Object to Hecker’s Attempt to Testify as an Expert
Although the government disavowed any effort to prove that the Project Alpha
accounting treatment was improper because of the outside hedges and tear-ups, see
Part IV, supra, it could conceivably argue that Hecker obliquely established the
impropriety. But such an argument should be foreclosed because Hecker was not
entitled to testify to such opinions. To the extent the Court finds that Hecker reached
conclusions sufficient to establish that Project Alpha’s cash flows were in fact derived
from financing, Olis’ counsel was ineffective in failing to object to those conclusions.
Testimony concerning such technical matters as the proper accounting treatment for
cash flows under GAAP is the exclusive province of experts, but the government did not
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proffer or qualify Hecker as an expert.
Federal Rule of Evidence 701 provides:
If the witness is not testifying as an expert, the witness’ testimony in theform of opinions or inferences is limited to those opinions or inferenceswhich are (a) rationally based on the perception of the witness, and (b)helpful to a clear understanding of the witness’ testimony or thedetermination of a fact in issue, and (c) not based on scientific, technical,or other specialized knowledge within the scope of Rule 702.
(emphasis added). In 2000, the drafters amended Rule 701 to foreclose lay witness
testimony “based on scientific, technical, or other specialized knowledge” — testimony
more properly given by a qualified expert. In amending the Rule, the drafters intended
to preclude a party from surreptitiously circumventing “the reliability requirements set
forth in Rule 702 . . . through the simple expedient of proffering an expert in lay witness
clothing” and to “ensure[ ] that a party will not evade the expert witness disclosure
requirements set forth in . . . Fed. R. Crim. P. 16 by simply calling an expert witness in
the guise of a layperson.” Rule 701 advisory committee’s note (2000); see also United
States v. White, 492 F.3d 380, 400-01 (6th Cir. 2007); United States v. Garcia, 413 F.3d
201, 215 (2d Cir. 2005).
“[T]he Federal Rules of Evidence distinguish between lay and expert testimony,
not witnesses.” White, 492 F.3d at 403 (emphasis in original). “One witness may
properly offer lay testimony and, at the same time, may be precluded from putting forth
expert testimony.” Id. Thus, Hecker — a witness to relevant facts in this case — could
properly testify as a lay witness to his “personal interactions” with Olis or his purported
coconspirators. Id. But he should not have been permitted to testify to opinions or
conclusions grounded in “specialized skill or expertise.” Id.; Garcia, 413 F.3d at 215;
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United States v. Cruz, 363 F.3d 187, 189, 193-94 (2d Cir. 2004); United States v. Griffin
324 F.3d 330, 347-48 (5th Cir. 2003). Conclusions about the application of GAAP or the
propriety of a complicated accounting treatment for Project Alpha indisputably call for
such specialized expertise. See SEC v. Guenthner, 395 F. Supp. 2d 835, 846 (D. Neb.
2005) (“Establishing that an accounting practice or method is inconsistent with GAAP
requires expert testimony”).
As the government failed to identify or qualify Hecker as an expert, and neglected
to provide a written summary of Hecker’s expert testimony under Federal Rule of
Criminal Procedure 16(a)(1)(G), it was error to admit testimony that established the
impropriety of Dynegy’s accounting. White, 492 F.3d at 404. Olis’ counsel should have
objected. If the Court finds that Hecker’s testimony established this central element of
the charges against Olis, counsel’s ineffective failure to object must be considered
prejudicial. No other evidence established the accounting impropriety.
E. Failure to Take Other Necessary Steps
Finally, Olis argued in Part III, supra, that the government violated his
constitutional rights by depriving him of funds that would otherwise have been available
to support his defense. If Olis had Dynegy’s contractually-required funding, he would
have retained experts to rebut Heil’s testimony regarding the losses caused by Project
Alpha, witnesses to supply vital accounting expertise, and a jury consultant, and Olis’
team would have purchased a searchable database program to facilitate discovery
review. If the Court finds that the government’s conduct was not unconstitutional or did
not lead to the failures discussed in Part III, Olis submits that his trial counsel was
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ineffective for failing to take the steps outlined therein. The steps were obvious and vital
necessities, and had they been taken, the result of Olis’ trial would almost certainly have
been different.
IV. RELIEF
Olis requests a hearing with evidence taken on the issues raised herein. The
violation of Olis’ fundamental right to prepare and present his defense using funds
lawfully available to him requires that the Court vacate Olis’ conviction and dismiss the
charges against him with prejudice. Stein IV, 495 F. Supp. 2d at 419-25, 427-28.
Likewise, because the government tried Olis for crimes not alleged in the
indictment and failed to prove the allegations in the indictment, the conviction must be
reversed and the indictment dismissed with prejudice. Chambers, 408 F.3d at 247 n.6.
In the alternative, Olis submits that, for all the reasons herein stated, Olis’
conviction must be vacated for the conduct of a new trial under conditions that
guarantee his constitutional rights.
CONCLUSION
For all of the foregoing reasons, to ensure fairness and justice, Jamie Olis’
convictions must be set aside.
Recommended