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[In]Securities Guest Blog: Troubled Water Over the Bridge by Aegis Frumento Esq
May 14, 2020
[In]Securities
a Guest Blog by
Aegis J. Frumento, Partner, Stern Tannenbaum & Bell
Aegis J. Frumento, Partner, Stern Tannenbaum & Bell
Troubled Water Over the Bridge
Everybody lies. We lie to each other and we lie to ourselves. We lie because the truth is often hard to know and even harder to accept. But mostly we lie because we get by in the world through the stories we tell, and all good stories are imaginative. They are, in the words of J.R.R. Tolkien, acts of "sub-creation." We make them up.
As far back as the Iliad and the Odyssey, the hero Odysseus is praised for his clever deceptiveness. Remember that Odysseus told those fantastic tales from the Odyssey at a drunken dinner party. Was he giving testimony or doing stand-up? Was there really a Cyclops, or was he jerking his audience's collective chain? We ask, but we honestly don't care, because we love the story regardless. Today, we give our very best liars, those who can transport us with their lies, things like the Nobel Prize in Literature. And that, I think, is progress. Plato would have banned storytellers from his ideal Republic, because they didn't tell the Truth. How dreadful would that have been?
Our love of lies hasn't been without angst. The Seventh Commandment orders, "Thou shalt not bear false witness," and we hope that only covers accusations and testimony. Aristotle categorized lies into those that do no harm and those that hurt. St. Augustine expanded those to eight different types, and St. Thomas Aquinas debated with himself whether they were all mortal sins or only some of them. Emmanuel Kant went the full reductio ad absurdum by concluding one should never lie, ever. At the other extreme are those who lie so often we never trust a word they say. I ain't naming names here, just sayin'.
All this raises the question, when should the law get involved? This is not an idle thought for me, because most of securities law involves the regulation of lies. Last Thursday, May 7, we had two glimpses of how limited the law is -- indeed, how limited it should be -- in dealing with the lies we tell.
The first was the Supreme Court's unanimous decision to throw out the fraud convictions of two of New Jersey Governor Chris Christie's political appointees, Anne Kelly and William Baroni, who shut down two of three lanes from Fort Lee, NJ to the George Washington Bridge for a few days in the Fall of 2013. Those shutdowns caused massive delays and congestion for Fort Lee commuters. The jury found that Kelly and Baroni did this to punish the Mayor of Fort Lee for not supporting their governor in his reelection bid.
The second was DOJ's motion to dismiss the criminal charges against former Trump Administration National Security Advisor and U.S. Army General Michael Flynn. Flynn pled guilty to lying to FBI agents, and admitted doing so in open court, and is awaiting sentencing after cooperating with the government to secure the convictions of some other members of Team Trump. Before his downfall, Flynn was best known for leading the "lock her up" cheer at the 2016 Republican National Convention. Irony never had a better day than when Flynn was arrested. Now, months later, DOJ says he should never have been charged to begin with.
The so-called Bridgegate case turned on whether Kelly and Baroni did anything for personal gain. Whatever it cost the State, in terms of shuffling personnel to manage the lane closures, didn't go into their pockets and was never intended to. "The evidence the jury heard no doubt shows wrongdoing -- deception, corruption, abuse of power," said the Justice Kagan for the Court. "But the federal fraud statutes at issue do not criminalize all such conduct." https://www.supremecourt.gov/opinions/19pdf/18-1059_e2p3.pdf
The prosecution argued that in reassigning traffic lanes away from Fort Lee, Kelly and Baroni "commandeered" the traffic lanes and diverted bridge employees, incurring the cost of extra toll collectors, to make it happen. That was the economic hook to criminal liability. And they lied about why they did it, claiming they were engaged in a bogus "traffic study." That was the fraud.
This, for the Court, was a bridge too far. Federal wire and property fraud has to be about getting some tangible benefit from the fraud, like bribes or kickbacks, or getting your house painted or your lawn mowed by city employees. Reassigning traffic lanes was just a "run-of-the-mill exercise of regulatory power [that] cannot count as taking of property."
That's not to say the Court condoned what Kelly's and Baroni's own lawyers conceded was an abuse of power. "For no reason other than political payback, Baroni and Kelly used deception to reduce Fort Lee's access to the George Washington Bridge-and thereby jeopardized the safety of the town's residents. But not every corrupt act by state or local officials is a federal crime."
The charges against Flynn involved his phone calls with Russian ambassador Sergey Kislyak after the 2016 election. Flynn had earlier been under investigation for being a little too friendly with the Russians, but according to DOJ's motion, that investigation came up empty and was all but closed. Then Flynn called Kislyak. The FBI asked him about it, and he misstated what he had said -- let's say he lied, since that's what he admitted doing.
But the FBI had full transcripts of those calls anyway, from routine surveillance of the Russian embassy. They didn't need Flynn to tell them what he said. That wouldn't have excused the lying, but for this: DOJ now says that lying to the feds is only criminal when the lie is "material" to an ongoing investigation. At the time, the only "investigation" concerned Flynn's calls with Kislyak, which the FBI knew all about and from which no criminal charges ever came. https://int.nyt.com/data/documenthelper/6936-michael-flynn-motion-to-dismiss/fa06f5e13a0ec71843b6/optimized/full.pdf
So, according to DOJ's motion, the criminal case against Flynn is circular. He's charged with lying to the FBI, which was material to nothing except the lies he told them. DOJ now says the charge against Flynn was just a heavy-handed prosecution against someone politically disfavored by certain FBI and DOJ officials, and therefore an improper exercise of prosecutorial discretion.
If, as Attorney General Barr said, history is written by the winners, then motions are written by the players still on the field. It's good to take them with a grain of salt. The motion has been roundly criticized and there may very well be more here. The judge in the Flynn case has already invited outsiders to brief the whole thing before he rules. He, too, takes a dim view of Flynn's shenanigans. Recall that he once asked why Flynn was not being charged with treason. So we'll see what happens.
But at face value, these results come across like hearing Elvis cover Simon & Garfunkel. It doesn't seem right until you experience it. The Bridgegate defendants clearly abused their power and Flynn admitted he lied. They "deserve" -- something. But the Court and DOJ now tell us it is not the role of criminal prosecutors to dish up all comeuppances. Even scoundrels have a right not to be bullied by cops.
And that's the point. The rule of law must protect miscreants or it can't protect any of us. As Thomas More told Roper, who in A Man for All Seasons would cut down every law to get at the Devil, "And when the last law was down, and the Devil turned 'round on you, where would you hide, Roper, the laws all being flat?" Or, closer to our own time and experience, as the good cop Vargas told the corrupt Quinlan, who complained in Orson Welles' brilliant A Touch of Evil that a policeman's job was tough, "It's supposed to be, it has to be tough. A policeman's job is only easy in a police state."
Let's remember that next time we feel the urge, as to anyone we deplore, to "lock her up." Or him, for that matter.
ABOUT THE AUTHOR
Aegis Frumento is a partner of Stern Tannenbaum & Bell, and co-heads the firm's Financial Markets Practice. Mr. Frumento represents persons and businesses in all aspects of commercial, corporate and securities matters and dispute resolution (including trials and arbitrations); SEC and FINRA regulated firms and persons on regulatory compliance issues and in SEC and FINRA enforcement investigations and proceedings; and senior executives of public corporations personal securities law and corporate governance matters. Mr. Frumento also represents clients in forming and registering broker-dealers and registered investment advisers, in developing compliance policies, procedures and controls, and in adopting proper disclosure documents. Those now include industry professionals looking to adapt blockchain technologies to finance and financial market enterprises.
Prior to joining the firm, Mr. Frumento was a managing director of Citigroup and Morgan Stanley, a partner and the head of the financial markets group of Duane Morris LLP, and the managing partner of Singer Frumento LLP.
He graduated from Harvard College in 1976 and New York University School of Law in 1979. Mr. Frumento is a frequent author and speaker on securities law issues, and is often quoted in the media on current securities law developments.
NOTE: The views expressed in this Guest Blog are those of the author and do not necessarily reflect those of BrokeAndBroker.com Blog.