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United States v. Bercoon

United States District Court, N.D. Georgia, Atlanta Division

July 25, 2017

MARC E. BERCOON, et al., Defendants.


          Leigh Martin May United States District Judge.

         This case comes before the Court on the Magistrate Judge's Report and Recommendation ("R&R") [182], (1) recommending that Defendants Bercoon, Goldstein, and Vuegeler's Motions to Suppress Evidence from Wiretaps [51, 75, 77, 118] be denied; Defendants Bercoon, Goldstein, and Vuegeler's Motions for Severance [46, 54] be denied; and that Defendant Goldstein's Motion to Strike Surplusage [53] be denied; and (2) ordering that Defendants' requests for Franks hearings and a bill of particulars [48] be denied. Pursuant to 28 U.S.C. § 636(b)(1), Defendants Bercoon and Goldstein filed Objections to the R&R [199, 201].[1] After due consideration, the Court enters the following Order:


         Under 28 U.S.C. § 636(b)(1), the Court reviews the Magistrate's Report and Recommendation for clear error if no objections are filed to the report. 28 U.S.C. § 636(b)(1). If a party files objections, however, the district court must determine de nova any part of the Magistrate Judge's disposition that is the subject of a proper objection. Id.; Fed. R Crim. P. 59(b)(3). As Defendants filed objections, the Court reviews the Magistrate Judge's challenged recommendations on a de nova basis.[2] 28 U.S.C. § 636(b)(1).

         Defendant Bercoon has objected to the Magistrate Judge's recommendation regarding his Motion to Suppress [75]. Obj., Dkt. No. [199]. Bercoon did not object the Magistrate Judge's recommendation to deny his Motion to Sever [46], and thus he has waived his right to review on that issue. See Fed. R Crim. P. 59(a).

         Defendant Goldstein has made a litany of objections, objecting to practically every factual and legal finding made by the Magistrate Judge with regard to all of his Motions [46, 48, 51, 53, 118]. See Obj., Dkt. No. [201]. The Court will consider the objections in turn.


         A. Bercoon's Objections

         Defendant Bercoon argues he is entitled to a Franks hearing because the Government recklessly withheld information from the wiretap authorizing judges, undermining the district judges' necessity determinations. Obj., Dkt. No. [199] at 1. As the Magistrate Judge correctly noted, a Franks hearing is mandated when "a defendant makes a substantial preliminary showing that a false statement knowingly and intentionally, or with reckless disregard for the truth, was included by an affiant in a search warrant affidavit, and [] the allegedly false statement was necessary to the finding of probable cause ...." R&R, Dkt. No. [182] at 49 (citing Franks v. Delaware. 438 U.S. 154, 155-56 (1978)). "Likewise, Franks also applies when the 'misinformation' involves omissions from the affidavit 'made intentionally or with a reckless disregard for the accuracy of the affidavit.' Madiwale v. Savaiko, n7 F.3d 1321, 1326-27 (nth Cir. 1997) (quoting United States v. Martin, 615 F.2d 318, 329 (5th Cir. 1980)). However, '[o]missions that are not reckless, but are instead negligent ... or insignificant and immaterial, will not invalidate a warrant .... Indeed, even intentional or reckless omissions will invalidate a warrant only if inclusion of the omitted facts would have prevented a finding of probable cause.' Id. at 1327 (citations omitted); accord United States v. Brown, 370 F.App'x 18, 21 (nth Cir. 2010) (same)." R&R, Dkt. No. [182] at 49-50.

         At bottom, Bercoon argues Affiant's failure to obtain and review the evidence which he and Goldstein provided to the Securities and Exchange Commission's ("SEC") Los Angeles Regional Office ("LARO") in connection with a civil injunctive lawsuit, which was brought against him and Defendant Goldstein, SEC v. LADP Acquisition, Inc., CV10-6835 (CD. Cal.) (hereinafter, "LARO evidence"), affected the wiretap's necessity. Bercoon makes five explicit objections to the R&R: (1) he should not have been required to produce an affidavit or sworn statement to lay a foundation for his Franks hearing; (2) the Government's version of the facts should not have been credited; (3) the LARO evidence was important; (4) U.S. v. Rajaratnam. Crim. A. No. 09-cr-1184-RJH, should have been followed; and, (5) the good faith exception to the exclusionary rule should not have been applied. Obj., Dkt. No. [199] at 25-31.

         Turning to the specific objections, the Court does not read the R&R so broadly as to require counsel to produce an affidavit to support its offer of proof. See R&R, Dkt. No. [182] at 76 ("The court finds that Defendant Bercoon failed to present evidence, in the form of sworn affidavits or other statements relying instead on his counsel's 'factual' summary, that Affiant had in his possession at the time he prepared the affidavits in June, July and August 2011 any of the information previously gathered during the SEC LARO investigation and civil litigation.") (emphasis added). Rather, the Magistrate Judge denied the claim because, despite having access to the entirety of the SEC LARO evidence since September 2015, Bercoon failed to point the court to any evidence which-if reviewed-would have changed the wiretaps' necessity analysis. Id. at 79 ("The simple fact is that Defendants have failed to point to any specific information from the SEC LARO investigation, even though in their possession since September 2015, that would have undermined the necessity showing, especially as regards the efforts to investigate ongoing and future market manipulations."); Id. at So ("Absent a showing of what information specifically was omitted from the affidavits which if included would have negated necessity, instead of just generally opining that there was a lot of information gathered by the SEC LARO none of which was included in the affidavits, Defendants simply are not entitled to a Franks hearing.").

         The Magistrate Judge also noted that the only facts which Bercoon cites in support of Affiant's LARO investigation knowledge include two instances in which the SEC Atlanta Regional Office ("ARO") provided information to the LARO, not the other way around. And the LARO involved a different type of stock fraud involving different entities, further discrediting the potential value of the information. Id. at 78-79. The Court finds the Magistrate Judge did not require an affidavit as Defendant suggests.

         The Magistrate Judge also correctly found that the ARO did not have the Defendants' LARO evidence until the Government obtained the information at Defendants' request. And the Court does not find that Defendant's citation to the FBI-302 report detailing that Affiant once met with LARO attorneys during an informant interview undermines the Magistrate Judge's determination that Defendants had only presented "rank speculation" that Affiant had knowledge of the LARO materials or was otherwise aware of any non-public details of that investigation. See R&R, Dkt. No. [182] at 77-78. As the Magistrate Judge correctly fund, that investigation involved "a different type of stock fraud, related to distinct entities, not involving market manipulation, " Id. at 78, so Defendants' arguments that Affiant should have obtained the LARO evidence also does not amount to recklessness.

         The Magistrate Judge also properly distinguished the non-binding district court opinion of United States v. Rajaratnam, 09-cr-1184-RJH (S.D.N.Y.). See R&R, Dkt. No. [182] at 81-83. Unlike in Rajarantnam, where the existence of a related SEC investigation which had underlain Rajarantam's criminal investigation was never referenced, here Affiant expressly disclosed to the district judges (1) the LARO investigation's existence, and (2) that the fraud was distinct. See, e.g., July 26, 2011 Aff., Gov't Ex. 2-B i 81 ("Louis Cohan is an attorney who represents GOLDSTEIN, BERCOON, and an entity they own, LADP Acquisition, Inc. in a pending lawsuit by the U.S. Securities and Exchange Commission, SEC v. LADP Acquisition, Inc..... The SEC's civil complaint alleges that the defendants in that case committed securities fraud by raising $3.2 million from 110 investors in an ...

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