Parietti's Predicament And Prosecutors' Puzzling Principles

August 8, 2022

Imagine that Joe, Jack, and Jim are charged with a criminal conspiracy, but Joe and Jack refuse to plead guilty. In contrast, Jim fully cooperates against Joe and Jack. After getting their days in court, Joe and Jack are convicted and sentenced to prison. Although Jim becomes a convicted felon via his plea, he serves only one-day in prison but has to pay a $1 million fine. On appeal, Joe and Jack's convictions are reversed. Is Jim still guilty of being part of conspiracy despite the fact that the other two co-conspirators are not guilty of fraud? Does Jim have his felony plea dismissed? Does Jim get his $1 million fine back?

2016: Parietti Charged With Conspiracy to Commit Wire/Bank Fraud

In an Information filed in the United States District Court for the Southern District of New York ("SDNY"), Timothy Parietti was charged with conspiracy to commit wire fraud and bank fraud. United States of America v. Timothy Parietti, Defendant (Information, United States District Court for the Southern District of New York, 16-CR-373 / May 16, 2016)  In pertinent part, the Information alleged that:

2. It was part and an object of the conspiracy that TIMOTHY PARIETTI, the defendant, and other known and unknow, engaged in a scheme to manipulate and attempt to manipulate a benchmark interest rate known as the London Interbank Offered Rate (LIBOR), to which was tied the profitability of interest rate derivative trades in which the defendant and others had a financial interest. The scheme had an effect on one or more financial institutions, within the meaning of Title 18, United States Code, Sections 20 and 3293(2)

The full weight of the Department of Justice ("DOJ") came down upon Defendant Parietti, as evidenced by the names at the end of the Information: 
  • Andrew Weissmann, Chief, Fraud Section, Criminal Division
  • Jeffrey D. Martino, Chief, New York Office, Antitrust Division
  • Carol L. Sipperly, Senior Litigation Counsel; Alison L. Anderson; Richard A. Powers, Trial Attorneys, Criminal Division, Fraud Section
  • Daniel M. Tracer, Trial Attorney, Antitrust Division
2016: Connolly and Black Indicted for Conspiracy

In an Indictment/Superseding Indictment filed in SDNY, Matthew Connolly and Gavin Campbell Black were charged with one count of conspiracy to commit wire fraud and bank fraud, and 10 counts of wire fraud. 
United States of America v. Matthew Connolly and Gavin Campbell Black, Defendants (Superseding Indictment, SDNY, 16-CR-37 / August 18, 2016) In the 2016 Indictment, Defendant Parietti is referenced in part:

10. From at least in or about January 2005 through in or about March 2008, defendant MATTHEW CONNOLLY worked as the Director of Deutsche Bank's Pool Trading Desk in New York, New York. In that position, CONNOLLY supervised Timothy Parietti ("Parietti"), Trader 6, and others. During that period, certain traders that CONNOLLY supervised traded derivative products that referenced USD LIBOR, among other products. Because these trades were settled based on the published USD LIBOR, the profitability of CONNOLLY' s traders' trading positions depended on the direction in which USD LIBORs moved. 

. . .

26. From at least in or about 2004 through at least in or about 2011, CONNOLLY and BLACK, the defendants, together with Curtler, Parietti, Trader 2, Trader 3, Trader 4, Trader 5, Trader 6, and Submitter A, and others known and unknown to the Grand Jury, at times located in New York, New York, London, United Kingdom, and elsewhere, intending to manipulate and attempting to manipulate the benchmark interest rates referenced by derivative products throughout the financial industry to their advantage, engaged in a scheme to obtain money and property by making false and fraudulent USD LIBOR submissions to the BBA for inclusion in the calculation of USD LIBOR representing that the rates submitted were an unbiased and honest estimate of the bank's borrowing costs when in fact the submissions reflected rates that were designed to benefit their trading positions. The scheme had an effect on one or more financial institutions, within the meaning of Title 18, United States Code, Sections 20 and 3293(2). The conduct of the conspirators caused financial institutions to be susceptible to substantial risk of loss and to suffer actual loss. In particular, 1) financial institutions, including but not limited to Bank A, Bank B, Bank C, and Bank D, entered into trades throughout the relevant time period in which their positions were opposite to those of the defendants and their co-conspirators, and 2) Deutsche Bank conducted a substantial internal investigation, risked sustaining significant harm to its commercial and financial reputation, and agreed to pay approximately $625 million in penalties to the United States Department of Justice as a result of the conduct alleged in this Indictment, and DB Group Services UK Limited, one of its subsidiaries, agreed to pay an additional fine of approximately $150 million. Moreover, at all times material to this Indictment, the defendants and their co-conspirators knew and foresaw that Deutsche Bank had counterparties in the United States which had taken financial positions that would be negatively affected by the scheme to manipulate the USD LIBOR benchmark interest rate. At all times material to this Indictment, the defendants and their co-conspirators knew and foresaw that entities in the United States were trading derivative swaps, the profitability of which was linked to USD LIBOR. 

2016: Parietti Pleads Guilty to Conspiracy

In the face of his Information, the various Indictments, and the DOJ firepower aimed directly at him, it's no small wonder that Parietti pled guilty in SDNY on May 26, 2016, to conspiracy to commit wire and bank fraud. 

2018: Parietti Testifies Against Connolly and Black

As part of his plea, Parietti testified at the 2018 trial of his alleged co-conspirators Connolly and Black, who were convicted by the federal jury. 

2019: DOJ Submits 5K Letter to SDNY on Behalf of Parietti

At Parietti's sentencing, in consideration of his "substantial assistance . . . provided in the investigation and prosecution of others," DOJ submitted a so-called "5K Letter" dated February 1, 2019, in support of a downward departure from the United States Sentencing Guidelines In pertinent part, the 5K Letter advised the Court that:

Mr. Parietti provided substantial assistance to the government in its investigation and prosecution of Mr. Connolly and Mr. Black, both before and throughout trial. Mr. Parietti's cooperation began in early 2016, when he made himself available for two proffer-protected interviews with the FBI and prosecutors, before ultimately pleading guilty in May 2016.

. . .

Mr. Parietti then submitted himself to twelve interviews and trial preparation sessions. Most of these were in-person sessions, which involved Mr. Parietti sitting for hours . . .

Mr. Parietti undertook countless hours of work in preparation for these sessions, listening to hundreds of hours of audio recordings and reviewing thousands of documents to identify those of most use to the government. He was responsive and diligent throughout this process and readily took on his role as a cooperator. . . .

at Pages 2 - 3 of the 5K Letter

In consideration of the charges against him and his cooperation with DOJ, SDNY sentenced Parietti to time served (one day) plus supervised release and ordered him to pay a $1 million fine. On April 26, 2021, Parietti's supervised release was completed.

2022: 2Cir Reverse Connolly and Black's Convictions -- Orders Acquittals

On January 27, 2022, the United States Court of Appeals for the Second Circuit ("2Cir") reversed Connolly's and Black's convictions and acquitted them on all counts. 
United States of America, Appellee-Cross-Appellant, v. Matthew Connolly and Gavin Campbell Black, Defendants-Appellants-Cross-Appellees (United States Court of Appeals for the Second Circuit, 19-CR-3806 / January 27, 2022) As set forth in the 2Cir's Syllabus:

Appeals from judgments entered in the United States District Court for the Southern District of New York following a jury trial before Colleen McMahon, then-Chief Judge, convicting defendants of wire fraud in violation of 18 U.S.C. § 1343 and conspiracy to commit wire fraud and bank fraud in violation of 18 U.S.C. § 1349,  in connection with the London Interbank Offered Rate ("LIBOR"), and sentencing  them principally to time-served and supervised release, including various periods in home confinement, and imposing monetary fines. On appeal, defendants contend principally that the trial evidence was insufficient to prove the falsity, materiality, or fraudulent intent elements of the offenses of which they were convicted.

Cross-appeals by the government to challenge the sentences imposed, contending principally that the district court failed to determine the availability of adequate monitoring for one defendant's home confinement and that that failure could result in punishment inadequate to reflect the court's assessment of the defendants' relative culpability. 

Finding that the evidence was insufficient as a matter of law to permit 16 a finding of falsity, we reverse the judgments of conviction and remand to the district 17 court for entry of judgments of acquittal. The government's cross-appeals with regard 18 to sentencing are thus moot.

Judgments reversed; cross-appeals dismissed as moot.

In summing up its findings, 2Cir noted in part that:

In sum, the government sought to prove falsity on the premise that the BBA LIBOR Instruction required DB to submit a particular interest rate, that such a rate was generated automatically by a DB pricer, and that LIBOR submissions that were influenced by requests from DB derivatives traders were false because those submissions were not the numbers automatically generated by the pricer. However, - the government's main fact witnesses at trial, the LIBOR submitters, testified that there were numerous ways in which the pricer did not generate such numbers automatically because those witnesses regularly altered pricer data and spreads manually; that the LIBOR submitters regularly deviated from the pricer output--even as affected by the submitters' manual adjustments--in order to make LIBOR submissions that reflected interest rate estimates they had received from independent brokers; and that the LIBOR submitters engaged in all of these practices even on days when they had no requests from DB derivatives traders.

The government failed to produce any evidence that any DB LIBOR submissions that were influenced by the bank's derivatives traders were not rates at which DB could request, receive offers, and accept loans in DB's typical loan amounts; hence the government failed to show that any of the trader-influenced submissions were false, fraudulent, or misleading. While defendants' efforts to take advantage of DB's position as a LIBOR panel contributor in order to affect the outcome of contracts to which DB had already agreed may have violated any reasonable notion of fairness, the government's failure to prove that the LIBOR submissions did not comply with the BBA LIBOR Instruction and were false or misleading means it failed to prove conduct that was within the scope of the statute prohibiting wire fraud schemes.
at Pages 53 - 54 of the 2Cir Opinion

Parietti's name comes up eight times in the 2Cir's Opinion reversing the Defendants' convictions. Notably, 2Cir stated that:

Parietti was a DB derivatives trader supervised by Connolly. He testified that Connolly had instructed him that if "[y]ou have a big position fix into LIBOR," you should "[s]end an email to the cash guys in London, let them know which way around and how much you have, and then just let them do whatever they do." Tr. 1047.) Curtler testified that when he and King received such requests, he would expect King to take them into account (see, e.g., id. at 1626), "[b]ecause that's what we did" (id. at 1618). They would typically adjust the LIBOR submission by half a basis 2 point. (See id. at 1616, 1646.)

at Pages 19 - 20 of the 2Cir Opinion

All three cooperators testified that they "knew" the practice of altering DB's LIBOR submissions to benefit DB trader positions was "wrong" at the time they engaged in it. (E.g., Tr. 278 (King); id. at 1009 (Parietti); id. at 1788 (Curtler).) King stated that "[i]t's intuitively wrong because we are, you know, as I say, taking advantage of the position. We are benefiting. There was a counterparty on the other side who doesn't know what we're doing and is being affected negatively by what we're doing." (Id. at 278.) Parietti testified that "even if [LIBOR is] imprecise, hard to estimate, or vague, . . . it's still wrong to base your submission on your bank's position instead of information about the cash market." (Id. at 1377.) All three cooperators testified that they never contemporaneously told anyone that they thought the practice was wrong. (See, e.g., id. at 529 (King); id. at 1196 (Parietti); id. at 1912 (Curtler)).

at Pages 20 - 21 of the 2Cir Opinion

SIDE BAR: Parietti's Predicament:
   When given the option of pleading out and cooperating with DOJ, or, in the alternative, digging in and defending himself in court, Parietti opted for the former. To be clear, the cost of defending oneself in a federal criminal case typically runs in the high six-figures and could easily bankrupt any defendant. So . . . you always have the so-called "businessman's decision" of doing what's pragmatic even at the cost of clearing your name. 
   But beyond merely pleading guilty and taking his lumps, Parietti cooperated in the development of DOJ's case against Defendants Connolly and Black, and he testified against them during their trial. Further, Parietti's cooperation and/or testimony materially assisted DOJ in convincing the jury to convict the Defendants, which is exactly what happened. 
   After honoring the terms of his Plea Agreement, Parietti was sentenced, did his one-day-time-served time, and paid a whopping $1 million fine. 
   Of course, in retrospect, it's a puzzle as to what exactly did Parietti plead guilty to in SDNY given that the 2Cir subsequently found that DOJ produced insufficient evidence to support Connolly and Black's convictions?  Was Parietti guilty of being part of a conspiracy if the government failed to prove any "falsity" was perpetrated by the alleged conspirators? And what about the fact that Parietti had cooperated in the government's now-failed effort -- does he get a refund of his million dollar fine?  Finally, is Parietti still guilty of the crime that he pled to committing despite the fact that the conspiracy was not found to have conspired to do anything illegal? 

2022: Coram Nobis

Parietti filed a Motion for a Writ of Error Coram Nobis in SDNY arguing that the 2Cir's Opinion meant that the there was no factual and legal theory now supporting the very basis upon which he chose to plead guilty.
Timothy A. Parietti, Petitioner, v. United States of America, Respondent (Opinion and Order, United States District Court for the Southern District of New York, 16-CV-373) SDNY set out the three-point test that had to be met for relief coram nobis:

1) there are circumstances compelling such action to achieve justice, 2) sound reasons exist for failure to seek appropriate earlier relief, and 3) the petitioner continues to suffer legal consequences from his conviction that may be remedied by the granting of the writ. . .

at Page 2 of the SDNY Opinion

SDNY found that in the interests of justice allowing Parietti's conviction to stand would "work a profound injustice," at Page 6 of the SDNY Opinion. SDNY concedes that 2Cir "conclusively" established the insufficiency of DOJ's proof of the very scheme to which Parietti had pleaded guilty; however:

Although Parietti's admission during his plea proceeding, standing alone, would have supported the entry of judgment against him for conspiracy to commit wire and bank fraud, the Government proffered that it had sufficient evidence to support such a conviction. . . .

at Page 3 of the SDNY Opinion

Or, put another way "if my aunt were a man, she'd be my uncle."  After all, Parietti's plea was accepted by the Court based upon DOJ's assurance that it would prove its fraud case; however, DOJ didn't prove its fraud case, and, as such, although Parietti's plea was voluntary, it was premised on a false assumption that DOJ had the very proof that it said it had but 2Cir said that it didn't despite the jury finding that it did. As such, SDNY found that it would be unjust to maintain Parietti's conviction given that his plea was based upon DOJ's proffer, which turned out to be false. 

SDNY Remembers the 5K Letter

Then SDNY is forced to untie a vexing knot. The very convictions of Connolly and Black arose because, unlike Parietti, they did not cooperate in DOJ's investigation and prosecution:

The Government's § 5K1.1 sentencing letter, in fact, extensively lauded Parietti's cooperation, including for his having participated in 12 proffer sessions, some lasting multiple days and some occurring several hundred miles away from his home; for his having used his expertise to help the Government "understand the mathematics behind various calculations" in this case; for his having been "responsive and diligent throughout [the] process"; for his having been a "persuasive" trial witness as evidenced by the verdicts against Connolly and Black; and from his having, through his cooperation, "made his best efforts to provide substantial assistance in connection with the investigation and prosecution." . . .

at Pages 3 - 4 of the SDNY Opinion

DOJ Seems to Forget the 5K Letter

Among the more infuriating -- I would argue disgusting -- aspects of this case is that DOJ argued to SDNY that Parietti should have filed his petition challenging his guilty plea at a much earlier date. In withering style, SDNY brands that argument "as unpersuasive as the grudging quality of the Government's opposition to Parietti's plainly meritorious petition is disappoint." at Page 4, Footnote 1. 

SIDE BAR: American Bar Association Model Rule of Professional Conduct Rule 3.8: Special Responsibilities of a Prosecutor -- Comment 

[1] A prosecutor has the responsibility of a minister of justice and not simply that of an advocate. This responsibility carries with it specific obligations to see that the defendant is accorded procedural justice, that guilt is decided upon the basis of sufficient evidence, and that special precautions are taken to prevent and to rectify the conviction of innocent persons. The extent of mandated remedial action is a matter of debate and varies in different jurisdictions. Many jurisdictions have adopted the ABA Standards of Criminal Justice Relating to the Prosecution Function, which are the product of prolonged and careful deliberation by lawyers experienced in both criminal prosecution and defense. Competent representation of the sovereignty may require a prosecutor to undertake some procedural and remedial measures as a matter of obligation. Applicable law may require other measures by the prosecutor and knowing disregard of those obligations or a systematic abuse of prosecutorial discretion could constitute a violation of Rule 8.4.

. . .

[7] When a prosecutor knows of new, credible and material evidence creating a reasonable likelihood that a person outside the prosecutor's jurisdiction was convicted of a crime that the person did not commit, paragraph (g) requires prompt disclosure to the court or other appropriate authority, such as the chief prosecutor of the jurisdiction where the conviction occurred. If the conviction was obtained in the prosecutor's jurisdiction, paragraph (g) requires the prosecutor to examine the evidence and undertake further investigation to determine whether the defendant is in fact innocent or make reasonable efforts to cause another appropriate authority to undertake the necessary investigation, and to promptly disclose the evidence to the court and, absent court-authorized delay, to the defendant. Consistent with the objectives of Rules 4.2 and 4.3, disclosure to a represented defendant must be made through the defendant's counsel, and, in the case of an unrepresented defendant, would ordinarily be accompanied by a request to a court for the appointment of counsel to assist the defendant in taking such legal measures as may be appropriate.

[8] Under paragraph (h), once the prosecutor knows of clear and convincing evidence that the defendant was convicted of an offense that the defendant did not commit, the prosecutor must seek to remedy the conviction. Necessary steps may include disclosure of the evidence to the defendant, requesting that the court appoint counsel for an unrepresented indigent defendant and, where appropriate, notifying the court that the prosecutor has knowledge that the defendant did not commit the offense of which the defendant was convicted.

[9] A prosecutor's independent judgment, made in good faith, that the new evidence is not of such nature as to trigger the obligations of sections (g) and (h), though subsequently determined to have been erroneous, does not constitute a violation of this Rule.

Collateral Damage: SEC, FINRA, and CFA

SDNY acknowledges that Parietti continues to suffer the consequences of his conviction;

As Parietti's declaration explains, as a result of the conviction, he became disqualified under SEC and FINRA rules from holding any of his prior registrations and licensees . . . He had also been a Chartered Financial Analyst ("CFA"), but upon his conviction, he had lost his right to use the CFA designation. . . .

at Page 5 of the SDNY Opinion

Never Mind

Accordingly, SDNY vacated Parietti's guilty plea and judgment of conviction, and ordered the return of his $1 million fine. Pursuant to a July 25, 2022, agreement between Parietti and the United States of America, he agreed to forego civil claims against the Government upon return of his fine.

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