Case 2:09-cr-00132-RLH -RJJ Document 167

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Daniel G. Bogden United States Attorney Timothy S. Vasquez Michael Chu Assistant United States Attorney 333 Las Vegas Boulevard South Suite 5000 Las Vegas, Nevada 89101 (702) 388-6336/Fax: (702) 388- 6418

UNITED STATES DISTRICT COURT

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DISTRICT OF NEVADA
8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 1. STATEMENT OF THE CASE By way of introduction, although this case is the culmination of a scheme to commit securities fraud on an extraordinary scale, it arises from a finite set of material facts. Briefly stated, the conspirators combined to fraudulently issue hundreds of billions of shares of stock The UNITED STATES, by and through its undersigned attorneys, hereby responds to defendant Ginger Gutierrez' Motion to Compel Discovery at Government Express [Docket No. 166]. As explained herein, the government has already provided discovery to defendant (and will continue to supplement its production as additional materials are received) in accordance with Federal Rule of Evidence 16. Defendants Motion to Compel should therefore be denied. vs. GINGER GUTIERREZ, Defendant RESPONSE TO DEFENDANT'S MOTION TO COMPEL DISCOVERY AT GOVERNMENT EXPENSE UNITED STATES OF AMERICA, Plaintiff 2:09-CR-00132-RLH-RJJ

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to themselves and their nominees which they subsequently sold to the investing public under false pretenses. 2. Although the fundamental facts are finite, multiple investigations by distinct agencies and entities have created a seemingly endless vortex of documents. In addition to the criminal investigation conducted by the Federal Bureau of Investigation (FBI) and the Criminal Division of the Internal Revenue Service (IRS), the Securities and Exchange Commission previously brought a civil enforcement action against several of the defendants herein (including defendant Gutierrez) and others not named in the indictment. Additionally, the current management of CMKM, Inc., collected tens of thousands of documents which it both obtained from and provided to the SEC. In the course of the criminal investigation, the FBI and IRS obtained hundreds of thousands of pages of (often cumulative) documents from both the SEC and CMKM, Inc. The government has previously provided discovery to the defendants regarding those materials. 3. Although the FBI and IRS previously requested and received thousands of documents o m r f the SEC, the FBI and IRS did not initially request or obtain all of the SEC's files. While the SEC previously provided relevant materials and information, the SEC maintained custody of the collection of documents amassed in its enforcement action. 4. Although the SEC's enforcement action was broader than the criminal investigation, and notwithstanding that the SEC had already provided relevant documents to the FBI and IRS, the SEC's files were arguably within the possession of the government. See United States v. Bryan, 868 F.2d 1032, 1036 (9th Cir.1989).1 Therefore, in an abundance of

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The government argues that even if the prosecutor must provide documents within the possession of closely connected investigative agencies, Rule 16(a)(1)(C) should not be construed to require the prosecutor to turn over documents obtained through separate investigations of the defendant conducted in other locations. W e agree that a federal prosecutor need not comb the files of every federal agency which

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caution, the prosecution apprised defendants of the existence of the full body the SEC's amassed documents. Further, the prosecution made arrangements to allow defense counsel to inspect and copy those documents while they remained in SEC custody in Los Angeles, California. Defense counsel were originally scheduled to review the SEC documents in Los Angeles on February 28, 2011. However, on February 8, 2011, defendant Gutierrez filed her first Motion to Compel Discovery Production at Government Expense [Docket No. 131]. Notwithstanding that defendant Gutierrez (and several of her co-defendants) declined to answer or defend against the SEC's complaint, she moved to compel the prosecution to scan the SEC's files for her. The SEC had obtained default judgments against defendants John Edwards, Urban Casavant, James Kinney, and Gutierrez (as well as other persons and entities not indicted in this case) in 2009. Earlier this year, the SEC obtained summary judgments against defendants Helen Bagley, Brian Dvorak and others.

might have documents regarding the defendant in order to fulfill his or her obligations under Rule 16(a)(1)(C). [G]iving government its broadest reading by expanding it to include all federal agencies (such as the IRS) would not only wreak havoc, but would give the defense access to information not readily available to the prosecution. Id. However, we do not believe that adopting a mechanical definition of government that would deny to the defendant documents accessible to the prosecution would reflect a fair balance of the competing concerns of the government and the defendant in this case. Id. Rather, we agree with Robertson that the scope of the government's obligation under Rule 16(a)(1)(C) should turn on the extent to which the prosecutor has knowledge of and access to the documents sought by the defendant in each case. Id. The prosecutor will be deemed to have knowledge of and access to anything in the possession, custody or control of any federal agency participating in the same investigation of the defendant. Bryan, 868 F.2d at 1036.

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Seeking to reduce the burdens upon the defendant, the prosecution endeavored to meet the defense half-way---or, more literally, in the Foley Federal Building. As litigation in the SEC's civil enforcement action drew to a close, the SEC permitted the FBI and IRS to take custody of the mass of SEC files. The government, at its own expense, transported 108 boxes containing materials gathered by the SEC in its investigations and enforcement actions regarding CMKM as well as inter-related actions pertaining to U.S. Canadian Minerals and St. George Metals. Of those 108 boxes, 27 contain SEC files pertaining to U.S. Canadian Minerals, 6 hold materials collected during the SECs action regarding St. George Metals,2 and 75 of the boxes contain SEC files devoted to its investigation of CMKM. Those files were transported from the SEC's facilities in California to the Foley Federal Building in Las Vegas, Nevada, where they have been made available to the defense.

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THE UNITED STATES HAS PROVIDED DEFENDANTS WITH FULL DISCOVERY PRESCRIBED BY FEDERAL RULE OF CRIMINAL PROCEDURE 16. The scope and manner of discovery in federal criminal proceedings is governed by the Federal Rules of Criminal Procedure. See generally, Fed.R.Crim.P. 1(a) ("These rules govern the procedure in all criminal proceedings in the United States district courts"). More particularly, Rule 16(a)(1)(e) delineates the government's obligations regarding discovery of documents and tangible items: Upon a defendant's request, the government must permit the defendant to inspect and to copy or photograph books, papers, documents, data, photographs, tangible objects, buildings or places, or

W hile both of those corporate shells feature in episodes of the CMKM saga and overlap with this case, the SEC enforcement actions regardnig U.S. Canadian minerals and St. George Metals also involved matters beyond the scope of this criminal action.

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copies or portions of any of these items, if the item is within the government's possession, custody, or control and: (i) the item is material to preparing the defense; (ii) the government intends to use the item in its case-in-chief at trial; or (iii) the item was obtained from or belongs to the defendant. Fed.R.Crim.P. 16(a)(1)(E) (emphasis added). Rule 16 does not entitle a criminal defendant to discovery of all documents in the government's custody or control. Rather, returning to the text of that rule, a defendant is entitled to inspect and copy three categories of items. A criminal defendant is entitled to inspect and copy: (i) items material to preparing the defense; (ii) items which the government intends to use in its casein-chief at trial; and (iii) items which were obtained from or belong to the defendant. These categories will be addressed in inverse order. While the bulk of the SEC files in question here were neither obtained from nor belong to the defendant, those files contain certain documents (e.g., brokerage account statements, bank account statements, invoices, opinion letters and correspondence) that defendant Gutierrez provided to the SEC in May and June 2005. The envelopes or folders containing those items have been clearly identified in the index of the SEC files provided to the defense. Next, Rule 16(a)(1)(E)(ii) entitles a defendant to inspect and copy documents which the government intend to use at trial. The government previously provided defendant with scanned copies of all of the material documents in the governments possession, If, in the course of its continuing trial preparations, the government identifies any previously undisclosed items among the recently-received SEC files which it intends to offer in its case-in-chief, the government will produce copies of any such items for the defendants. Rule 16(a)(1)(E)(ii) will therefore not sustain defendant's bid to compel the government to copy or scan the mass of SEC files.

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Although the provision in Rule 16(a)(1)(E)(i) for discovery of items "material to preparing the defense" is quite broad, it is not a license for unlimited or vexatious discovery. Rather, "[m]ateriality is a necessary prerequisite to discovery," United States v. United States Dist. Court, 717 F.2d 478, 480 (9th Cir.1983), and a defendant seeking discovery must demonstrate the materiality of his or her request. To obtain discovery under Rule 16, a defendant must make a prima facie showing of materiality. United States v. Little, 753 F.2d 1420, 1445 (9th Cir.1984); United States v. Cadet, 727 F.2d 1453, 1468 (9th Cir.1984). Neither a general description of the information sought nor conclusory allegations of materiality suffice; a defendant must present facts which would tend to show that the Government is in possession of information helpful to the defense. See Little, 753 F.2d at 1445; Cadet, 727 F.2d at 1466-68. .... While the Federal Rules of Criminal Procedure do not set the outer limits of permissible discovery, see Cadet, 727 F.2d at 1466; United States v. Richter, 488 F.2d 170, 173 (9th Cir.1973), ordering production by the government without any preliminary showing of materiality is inconsistent with Rule 16. See Richter, 488 F.2d at 174 & n. 14 (construing former Rule 16(b), predecessor to current Rule 16(a)(1)(C)). Particularly where, as here, the government has shown that complying with the request would be unduly burdensome, it is incumbent on the district court to consider the government interests asserted in light of the materiality shown. See Cadet, 727 F.2d at 1468. Without a factual showing there is no basis upon which the court may exercise its discretion, and for it to ignore the requirement is to abuse its discretion United States v. Mandel, 914 F.2d 1215, 1219 (9th Cir.1990). Although the government has borne burden of obtaining the SEC files and transporting them to Las Vegas to make them available to the defense, rather than availing herself of the opportunity to inspect and copy the SEC files, the defendant---after a cursory survey of those files--brought the present motion. Indeed, had defendant inspected the files, she would have quickly recognized that scanned copies of many of the materials contained in the SEC files have already 6

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been produced in discovery. For example, of the 75 boxes containing SEC files devoted to CMKM, 43 of those boxes hold voluminous stock transfer records that were originally provided by CMKMs current management. Those stock transfer records were previously scanned and digital copies have been produced in discovery. The remaining 35 boxes also contain other voluminous bank account and brokerage account records supplied by CMKMs management and previously produced in discovery. In short, the bulk of the documents contained in the SEC files devoted to CMKM have already been produced in discovery. In any case, the SEC files have been made available to the defense for inspection and---if they deem it appropriate or necessary---copying. Absent a showing of materiality, Rule 16 does not entitle defendant more---let alone to compel the government to copy or scan the whole of the SEC files.3 Although district courts have broad discretion to supervise discovery, such discretion is not unlimited. A district court's inherent supervisory power "does not include the power to develop rules that circumvent or conflict with the Federal Rules of Criminal Procedure." Carlisle v. United States, 517 U.S. 416, 426 (1996). The Federal Rules of Criminal Procedure are "as binding as any statute duly enacted by Congress, and federal courts have no more discretion to disregard the Rule[s'] mandate than they do to disregard constitutional or statutory provisions. The
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In United States v. Tyree, the United States District Court for the Eastern District of Pennsylvania observed that a similar motion to compel presented fiscal and budgetary questions to be resolved by Congress: In the institutional context before us now, we are presented with a policy question of which federal institution should bear the burden of copying costs for indigent defendants in federal prosecutions. The contenders are, in fiscal reality, the United States Department of Justice and the Article III Branch, the latter through the Defender Services part of its appropriation from Congress each year. In our view, the ultimate arbiter of such a policy question must, each year, be Congress. United States v. Tyree, 236 F.R.D. 242, 244 (E.D.Pa. 2006). As discussed infra, Congress has mandated in Rule 16(a)(1)(E) that "the government must permit the defendant to inspect and to copy" specified items and did not task the government with the burden of producing copies of such items for the defense. In any event, regardless of the nature of the appropriation, public funds should not be expended absent a demonstration of the materiality of the bulk or mass of the SEC files.

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balance struck by the Rule between societal costs and the rights of the accused may not casually be overlooked 'because a court has elected to analyze the question under the supervisory power.'" Bank of Nova Scotia v. United States, 487 U.S. 250, 255 (1988) (citation omitted). Applying these principles to discovery under the Federal Rules of Criminal Procedure, courts have enforced the burdens and boundaries of discovery delineated in Rule 16. The Court of Appeals for the Eleventh Circuit's opinion in United States v. Freedman is instructive: Although this court recognizes the discretionary latitude which the trial court possesses with regard to discovery matters under Rule 16, the court is not inclined to view this discretion as unbridled. The trial court ordered the government to make three sets of the requested documents which would cost several thousand dollars. To mandate that the government expend both its valuable time and funds in copying documents which the defendants have requested, when Rule 16 does not expressly require such, constitutes an abuse of the trial court's discretion and places an unjustifiable expense on the United States government. Rule 2, Federal Rules of Criminal Procedure provides that all of the Rules of Criminal Procedure should be construed to eliminate unjustifiable expense. The trial court has not only failed to eliminate unjustifiable expense, it has created an excessive expense on the government by ordering it to furnish three copies of the requested documents when Rule 16 does not expressly obligate the government to make even one copy of the documents. United States v. Freedman, 688 F.2d 1364, 1366 (11th Cir. 1982). See e.g. United States v. Tyree, 236 F.R.D. 242, 244 (E.D.Pa. 2006) ("Thus, a fair examination of the four corners of Fed.R.Crim.P. 16 reveals no affirmative duty on the Government to pay for copying. Rather, its only duty is to make documents 'available for inspection, copying or photographing' or to allow the defense 'to inspect and to copy or photograph' documents and things"); United States v. Long, 817 F.Supp. 79, 80 (D.Kan. 1993) (It is the government's responsibility to make these materials available to the defendant for inspection. The defendant, upon inspection, has the option of

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copying or photographing those materials the defendant and his attorney deem necessary or helpful to his defense). Cf. Fed.R.Crim.P. 16(a)(1)(D).4 Under the express language of Rule 16, it is incumbent upon "the defendant to inspect and to copy" materials made available by the government. While the government has in many cases gratuitously provide copies of material documents in the government's possession to the defense, such a courtesy does not alter or expand the Congressionally prescribed burdens and boundaries of Rule 16.5 In this case, the government has previously provided defendants with scanned copies of documents which it believes to be material to this action, and it will endeavor to produce copies of any additional items which it hereafter determines that it will offer in its case-in-chief a trial. Further, the government pro-actively obtained the body of the SEC files and the defendants (like the government) have the opportunity to inspect and copy any items which they may deem material. In sum, the government has thus provided defendant with all discovery prescribed under Rule 16(a)(1)(E).

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In marked contrast to Rule 16(a)(1)(E), Rule 16(a)(1)(D) provides: Upon a defendants request, the governm ent m ust furnish the defendant with a copy of the defendants prior criminal record . . . . Fed.R.Crim.P. 16(a)(1)(D) (emphasis added). The disparate language in Rule 16(a)(1)(E) attests to Congresss intent that defendants bear the burden of copying documents and items discoverable under that subsection. Congresss intent to allocate the cost of copying documents to criminal defendants is also evident in 28 U.S.C. 1918 and 1920. Section 1918(b) provides that [w]henever any conviction for any offense not capital is obtained in a district court, the court may order that the defendant pay the costs of prosecution." Section 120 specifies that such recoverable costs include [f]ees for exemplification and copies of papers necessarily obtained for use in the case. W hile the default judgment previously entered against defendant Gutierrez in SEC civil enforcement action in the aggregate sum of $4,940,149 paradoxically inoculates her from financial responsibility in this case, 1918 and 1920 underscore Congresss intentions.

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 10 /s/ Timothy S. Vasquez Assistant United States Attorney DANIEL G. BOGDEN United States Attorney RESPECTFULLY SUBMITTED this 10th day of November 2011. WHEREFORE, defendant's Motion to Compel should be denied.