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Securities and Exchange Comm'n v. Johnson

February 13, 2008

SECURITIES AND EXCHANGE COMM'N, PLAINTIFF,
v.
CHARLES JOHNSON, JR., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Gladys Kessler United States District Judge

MEMORANDUM OPINION

This matter is before the Court on Defendant Benyo's Motion in Limine to Preclude Admission of Material Subject to Federal Rule of Evidence 410 [Dkt. No. 240], Plaintiff's Fifth Motion in Limine (for Ruling that Statements by Defendant Benyo are Admissible) [Dkt. No. 248], and Defendant Kent D. Wakeford's Motion in Limine for a Trial Severance from Defendant Christopher Benyo or, in the Alternative, to Preclude Evidence as Unduly Prejudicial [Dkt. No. 257]. Upon consideration of the Motions, Oppositions, Replies, and the entire record herein, and for the reasons stated below, Defendant Benyo's Motion in Limine to Preclude Admission of Material Subject to Federal Rule of Evidence 410 [Dkt. No. 240] is granted, Plaintiff's Fifth Motion in Limine [Dkt. No. 248] is denied, and Defendant Wakeford's Motion in Limine for a Trial Severance [Dkt. No. 257] is denied as moot.

I. BACKGROUND

Plaintiff Securities and Exchange Commission ("SEC") brings this action against four individual Defendants (John Tuli, Kent Wakeford, Christopher Benyo, and Michael Kennedy, collectively "Defendants"), alleging a fraudulent scheme to materially and improperly inflate the announced and reported revenues of PurchasePro.com, Inc. ("PurchasePro"). The facts of this case are set forth in detail in the Court's Memorandum Opinions of January 16, 2008, denying Defendants' respective motions for summary judgment, and will not be repeated herein.

On December 28, 2007, Defendant Benyo and Plaintiff The Securities and Exchange Commission ("SEC") moved in limine for a ruling from this Court with respect to the admission of evidence of alleged statements Benyo made during two meetings with criminal prosecuting authorities in 2003. Defendant Wakeford also has moved for a trial severance should such evidence be admitted.

The statements at issue were given by Benyo to prosecutors and FBI agents on August 25 and September 12, 2003.*fn1 Benyo met with these Government representatives pursuant to a proffer agreement dated August 25, 2003, which was entered into between (i) the United States Attorney's Office for the Eastern District of Virginia and the Department of Justice, Criminal Division, and (ii) Benyo and his counsel.

The meetings were initiated by Assistant U.S. Attorney Claudius Modesti, who contacted Benyo through his counsel, Terrance Reed, in the early summer of 2003. According to Reed,*fn2 Modesti informed him that a grand jury criminal investigation of PurchasePro and its officers and employees, including Benyo, was then taking place. Pl.'s Mot. in Limine, Ex. 1 at ¶5 ("Reed Decl."). During the summer prior to August 25, 2003, Modesti also informed Reed that he would like to initiate plea bargaining negotiations with Benyo.

Reed stated that Modesti was conducting plea bargain negotiations with several PurchasePro personnel, and that Benyo would receive more favorable treatment if he engaged in similar negotiations before all of the other negotiations were finalized. Id. at ¶6. Modesti also indicated that he was discussing pleas of guilty to serious felonies with other PurchasePro personnel, and that the plea negotiations with Benyo might result in a similar plea proffer from him. Id. at ¶7. According to Reed, Modesti represented that his office had calculated the Sentencing Guideline range for the alleged securities violations under investigation. Because the Guidelines were mandatory at that time, and the alleged securities losses were substantial, Modesti calculated that the potential sentences for all charged PurchasePro personnel was twelve years of incarceration.*fn3 Id.

Modesti told Reed that in order to pursue the plea negotiation process, Benyo would have to agree to meet and talk with the prosecutors pursuant to a proffer letter agreement, a signed version of which he forwarded to Reed for Benyo's counter signature. Id. at ¶¶8-9. Reed and his client executed a copy of the proffer agreement at the commencement of their August 25, 2003 meeting with prosecutors and the FBI at the U.S. Attorney's office in Alexandria, Virginia. Id. at ¶10. After the conclusion of the meeting, Reed was told that Benyo would need to meet with prosecutors again to complete the plea negotiation process, and that the next meeting would be subject to the same proffer letter.

Id. at ¶10. A follow-up meeting was conducted at the U.S. Attorney's office on September 12, 2003. Id. at ¶10.

Following these meetings with Benyo, the FBI agents who were in attendance prepared memoranda, known as FBI Forms 302, memorializing their recollection of statements made by Benyo during these interviews. Special Agent Regina K. Burriss attended Benyo's August 25, 2003 interview, took contemporaneous notes, and, approximately three months later, used her notes and "parts of the interview . . . still fresh in [her] memory" to draft a Form 302. Pl.'s Fifth Mot. in Limine, Ex. 2. Special Agent Mary Jo Ervin attended the September 12, 2003 interview, took contemporaneous notes, and drafted a Form 302 documenting her recollection of the interview. That Form 302 was drafted approximately a month after Benyo's second interview, on October 14, 2003.*fn4 See Pl.'s Fifth Mot. in Limine, Ex. 3. Ervin prepared the Form 302 using her memory of statements made by Benyo in the interview, and later compared it to her contemporaneous notes to confirm its accuracy. Id.

At some point in the discussions between Benyo's counsel and the U.S. Attorney's office, the prosecuting authority made offers to Reed to have Benyo plead guilty. Id. at ¶12. A few weeks before the return of the indictment in the Department of Justice's case against various PurchasePro personnel, Benyo was given a deadline of January 10, 2005 in which to accept the proposed plea. Id. at ¶12. Benyo declined to accept the plea, but various other PurchasePro personnel did, entering into agreements with the U.S. Attorney's office by which they either were not charged or pled to felonies for which the sentencing exposure was less than five years. Id. at ¶15. See also Rosenthal Decl.

II. ANALYSIS

Federal Rule of Evidence 410 provides that "any statement made in the course of plea discussions with an attorney for the prosecuting authority which do not result in a plea of guilty" is not admissible against the defendant who participated in the plea discussions. Because the statements allegedly made by Benyo in the August and September 2003 meetings and memorialized in the ...


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