In a white-collar criminal case where Defendants were charged with conspiracy to commit securities fraud and wire fraud in a pump-and-dump scheme through a publicly traded company, Defendants Paul Spivak and Olga Smirnova filed a motion to exclude the testimony of Peter Melley under Rule 16 of the Federal Rules of Criminal Procedure. Melley is an expert the United States proffered.
The disclosure contains a paragraph stating that the United States “anticipates that Melley will provide summary testimony regarding trading in U.S. Lighting Group, Inc. . . . , including USLG’s publicly reported trading prices and volumes, USLG blue sheet data, USLG press releases, online promotional campaign materials, and transfer share records that have been produced in discovery.”
Criminal Law Expert Witness
Peter Melley serves as the Director of the Criminal Prosecution Assistance Group the Financial Industry Regulatory Authority (also known as FINRA). He assists in investigations and the preparation of criminal indictments pertaining to securities fraud, money laundering, tax evasion, and other white-collar crimes for the Offices of the United States Attorney, Federal Bureau of Investigation, Internal Revenue Service, U.S. Postal Inspection Service, and local district attorney’s offices throughout the nation.
Discussion by the Court
Analysis
The Court held that of the 17 bullet points summarizing Melley’s testimony, the first 11 and last 2 are definitions and provide helpful background for the jury. These bullets provide sufficient notice of the opinions and testimony the United States intends to elicit from Melley on these subjects.
The remaining 4 bullet points focus on pump-and-dump schemes and have greater consequence for this trial. While the first is akin to to the 13 just discussed and more or less defines pump-and-dump schemes, the other three bullets do not identify any basis for the opinions stated on these topics. Nor does the disclosure do so elsewhere. Rule 16 requires disclosure of the bases for opinions to allow for adequate pretrial preparation and evaluation of whether to file a motion under Rule 104 challenging the reliability or methodology of an expert’s opinions under Rule 702. The Court held that the Melley disclosure fails to comply with the Rule 16 requirements with respect to these three bullets.
As for the paragraph mentioned earlier which discloses that Melley will provide summary testimony regarding USLG trading, the United States recently provided the summary charts and graphics referenced in that paragraph, which provides notice of the summary testimony regarding which Melley will testify.
But even with these charts and graphics, the Court held that the disclosure fails to state what opinions Melley has or will offer about the USLG trading data.
Remedy
Rule 16(d)(2) allows the Court to fashion an appropriate remedy, which could permit additional discovery or inspection, grant a continuance, exclude the evidence, or “enter any other order that is just under the circumstances.” Under the Rule, the Court has broad discretion.
Defendants sought exclusion of Melley’s testimony, specifically asking that “the Court exclude Melley’s testimony and prohibit the Government from offering him as an expert at trial.” While the United States argues that a less severe sanction is proper “such as requiring the government to amend its disclosure,” it acknowledges that at this point in time, on the eve of trial, “the government’s ability to cure any alleged defects in its disclosure” is “virtually eliminated.”
The Court considered a lesser remedy, including further disclosure and discovery. But there is no time before trial to allow Defendants to prepare to meet such testimony, which might take weeks or longer. Under the circumstances, limiting expert opinion in these few areas balances prejudice to the parties and the requirements of the new Rule 16 expert disclosure regime.
Held
The Court granted in part and denied in part the Defendants’ motion to exclude the testimony of Peter Melley.
Key Takeaway:
Effective December 1, 2022, Rule 16(a)(1)(G) mandates that the United States make an expert disclosure that includes as relevant here, first, “a complete statement of all opinions that the government will elicit from the witness,” and, second, “the bases and reasons for” the opinions. The advisory committee note to the amendment makes clear that the first requirement does not require a verbatim recitation of an expert’s anticipated testimony.
This amendment was based on Civil Rule 26(a)(2) and largely, but not entirely, imported from civil practice involving expert disclosures. One important aspect of expert practice in civil cases not included in the amendment to Rule 16 is the self-executing sanction of exclusion for failure to make the required disclosures. Instead, Rule 16(d)(2) gives the Court discretion to fashion an appropriate remedy under the circumstances.
Case Details:
| Case Caption: | USA V. Spivak, et al. |
| Docket Number: | 1:21cr491 |
| Court: | United States District Court, Ohio Northern |
| Order Date: | August 12, 2024 |
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