Prosecutors Dropped Stock Manipulation Case When Defense Picked Out Rare Error

Federal prosecutors in California dropped criminal charges against nine defendants in a white-collar stock-manipulation case after concluding that investigators had made errors in obtaining court approval to make wiretap recordings of the defendants’ conversation during preliminary investigations.

The misstatements had rendered the key evidence obtained from three years of investigation unusable at trial. According to US Attorney Andre Birotte Jr, investigators had relied heavily on wiretap evidence – something that is rarely used in white-collar cases.

When prosecutors found omissions and misstatements in the application seeking court approval to record the suspects’ telephone calls, they concluded the wiretap evidence was inadmissible and moved to drop the charges against Sherman Mazur and eight other accomplices. 

The defense had challenged the wiretap evidence on the basis that officials misstated the necessity for the recordings. Primarily considered a significant intrusion of privacy, especially in California, criminal justice agencies can only perform wiretaps after exhausting all other means of investigation.

According to Mazur’s attorney, an agent of the Federal Bureau of Investigation had applied for permission to conduct a wiretap because investigators had no reliable informants. Meanwhile, a suspect who knew about the scheme had cooperated with the investigators until then.

The defense argued that the key legal term for granting a wiretap was “necessity” and that investigators failed to meet this requirement by withholding information the judge could have used in assessing and granting the request.

Prosecutors admitted that the error and dismissals were an embarrassing setback.

While praising prosecutors for the move to dismiss despite the embarrassing setback, former prosecutor and Loyola Law School professor, Laurie Levenson, pointed out that it is extremely rare for a criminal case to break down because of clerical errors.

“It does not mean that somebody intentionally lied, but [prosecutors] lost confidence in their investigators and lost confidence in their case,” said Levenson.

The defense retorted that dismissing the charges was not based on a mere technicality. Since investigators had deliberately withheld critical information while seeking to use a highly invasive investigative technique – one that is statutorily permitted only under extenuating circumstances – the only legal recourse was excluding the [fraudulent] evidence.

In a press release, the Department of Justice had indicted Mazur and his posse of stock traders of fraudulently inflating stock values and laundering profits through offshore accounts. The defendants had allegedly promoted worthless stocks to more than 20,000 investors worldwide who were victims of an elaborate pump-and-dump scheme. 

Birotte had described Mazur as a serial market manipulator. Convicted of bankruptcy fraud and tax evasion in 1993, Mazur had bagged a six-year prison sentence – only to pick up where he left off on a grander scale upon release. 

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