The U.S. Solicitor General’s Office, in response to a request from the Supreme Court, Thursday filed a brief opposing a Long Island lawyer’s petition to review a series of orders barring him from divulging the contents of a government cooperator’s sealed criminal file.
The Solicitor General’s papers oppose Frederick M. Oberlander’s assertion of a First Amendment right to release sealed information claiming that the Long Island lawyer is unprotected by the Supreme Court’s prior jurisprudence because he had “knowingly violated” court orders.
Oberlander, in seeking leave to appeal, contends that the cooperator’s file was never subject to a valid sealing order and that the facts regarding his cooperation were already widely available from public sources. Read prior story
The Solicitor General’s brief comes in a case that has given rise to a pitched battle between Oberlander and the U.S. Attorney’s Office in Brooklyn and its cooperator, Felix Sater, who had plead guilty in 1998 to reaping $40 million in a pump-and-dump stock swindle.
Whatever the outcome of the certiorari petition, there are signs that the dispute has stirred greater judicial awareness of the ease with which cooperator’s files have been sealed and the problems they can cause for the administration of justice.
The battle erupted in May 2010 after Oberlander filed a civil racketeering complaint in the Southern District of New York, claiming that Sater’s ability to conceal his criminal past had enabled him to carry out a second $500 million real-estate fraud which included two deals—one in SoHo and one in Ft. Lauderdale—involving Donald Trump, or at least his name.
Mr. Oberlander’s filing of the racketeering complaint in the Southern District, in Kriss v. Bay Rock Group, 10-cv-3959, set off a furor because he annexed to it records from Sater’s sealed criminal file, including his pre-sentence report and cooperation agreement.
Within days, lawyers for the cooperator, who was subsequently identified as Sater, obtained sealing and gag orders from the Eastern District judge who had presided over Sater’s criminal plea and the Southern District judge to whom the Oberlander’s 2010 civil racketeering law suit was assigned.
The U.S. Court of Appeals for the Second Circuit affirmed Eastern District Judge I. Leo Glasser’s orders in two rulings issued in February and June of 2011. The Manhattan-based appeals court added its own restrictions on Oberlander and directed the appointment of a second Eastern District judge to enforce its own, and Glasser’s, orders.
The Second Circuit, stating that its “patience has been exasperated” by Oberlander’s litigation tactics, pointedly warned him that if he didn’t change his ways it might well treat him as a pro se litigant and require him to obtain permission before making further filings.
The circuit further ordered that Oberlander file any application to the Supreme Court under seal. But, the Court relaxed the circuit’s order and allowed Oberlander to file a public petition with certain required redactions. The government’s opposition papers contained only one redaction where the nature of Sater’s cooperation was apparently discussed.
Oberlander and his Lawyer Come under Fire
Meanwhile in March 2012, Eastern District Judge Brian M. Cogan, who was appointed as the enforcement judge pursuant to Second Circuit’s direction, ordered that both Oberlander and his lawyer, Richard E. Lerner, be investigated for criminal contempt. That investigation, which is being handled by the U.S. Attorney’s Office for the Northern District of New York, is ongoing. Eight months later, Glasser initiated a proceeding to hold Oberlander and Lerner in contempt of court for making a vexatious filing. That proceeding also remains pending.
Additionally in August 2012, while the certiorari petition was pending, Glasser unsealed the docket sheet of Sater’s criminal case showing that he had pled guilty in 1998 and that he had been sentenced to probation and a $25,000 fine 11 years later. Glasser cited a press release issued by the U.S. Attorney’s Office in 2000 under circumstances that strongly indicated that he was a cooperating witness. The release, alluding to Sater’s prior arrest, announced that 19 additional defendants had been charged in the pump-and-dump scheme.
Additionally, Glasser referred to newspaper reports of Sater’s cooperation. One such article appeared in the New York Times in 2007, three years before Oberlander filed the racketeering suit in the Southern District. The final straw for Glasser was that the Eastern District clerk’s office mistakenly made Sater’s entire criminal file available for about a week last August on PACER, the vehicle the courts use to disseminate court documents on the Internet.
Lerner had been a partner at Wilson Elser Moskowitz Edelman & Dicker through Glasser’s decision in August to release Sater’s docket sheet. But he left the firm to continue his representation of Oberlander after the firm insisted that he shed Oberlander as a client. Read prior story He continues to represent Oberlander on the Supreme Court petition and other related matters.
Glasser’s decision to release Sater’s docket sheet prompted the Solicitor General’s Office to argue that Oberlander’s request for Supreme Court review is moot. Oberlander counters that the orders issued in his case to protect a cooperator’s file are subject to repetition and likely to evade judicial review. Proceedings are ongoing as the government, Sater’s lawyers and Glasser, in an ex-parte proceeding, sort through which of the underlying documents in the case can be released.
Problems with Secrecy for Cooperators
Since Oberlander’s bold, some might say risky, challenge in May 2010 to the secrecy accorded to Sater for his cooperation, there have been several indications that judges are paying closer attention to problems that can arise from shielding cooperators.
In a case involving another cooperator involved in a different pump-and-dump scheme, Glasser told a lawyer in March 2011 that “the whole area of sealing has become very, very sensitive and a difficult one,” according to a court transcript in U.S. v. Palogonia, 00-cr-196. Lawyer Joseph V. DiBlasi responded, “I know.” DiBlasi had asked for confidentiality so that his client’s business would not be adversely affected. The government opposed the sealing application. After a lengthy delay due to a lapse in chambers, Glasser denied the motion to seal.
In November 2010, Eastern District Judge Nicholas G. Garaufis had before him a case with parallels to Sater’s. At sentencing in US v. Gushlak, 03-833, Garaufis excoriated defendant Myron Gushlak for making “a fortune” by continuing to use a company “for several years” after he had pled guilty to having made it a site for pump-and-dump trading. Also Garaufis stated, Gushlak had funneled $50 million into a trust for his children putting those funds beyond the reach of the court to reimburse his victims.
Garaufis called Gushlak’s actions “a brazen example of “a defendant’s efforts to take advantage of the secrecy of his cooperation.” Garaufis sentenced Gushlak to 6 years in prison, a $25 million fine and $17.5 million in restitution.
The victims of the $40 million fraud that Sater pled guilty to in 2009 were never provided with the notice of their right under federal crime-victims laws to seek restitution as a part of sentencing. The reason for that is not known. The crime victims statutes allow for judges to dispense with victim-notification if there are too many victims to make restitution “practicable” or the issues so complex as to make restitution burdensome. However, it would appear to be impossible for the government to comply with a sealing order while at the same time notifying crime victims of the their rights to seek restitution at the sentencing of a cooperator.
A 2011 ruling by Eastern District Judge Raymond J. Dearie made clear that identifying the victims of stock fraud can be a mammoth undertaking. In a pump-and-dump case involving an estimated $190 million in investor losses, Dearie reported that a special arm of the National Association of Securities Dealers (NASD), set up to determine the extent of losses in stock fraud cases, had identified 9,000 defrauded investors in a 1,718 page report.
But Judge Dearie’s ruling in U.S. v. Ageloff, 98-cr-2011, did not come until eight years after the Second Circuit had reversed his initial order setting restitution at $80 million. The circuit had reversed that order because he had issued it without first identifying those investors who had been defrauded and the extent of their losses.
There were several factors that caused the lengthy delay, including Dearie frankly admitted, his own “regrettable failure to press for closure.” In affirming Dearie’s use of the NASD report, the Second Circuit also noted Dearie’s having taken “ultimate” responsibility for the delay. Other judges could well read those expressions of regret over the delay as a signal that they pay closer attention to victims’ right to restitution.