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United States v. Goldfarb

United States District Court, Ninth Circuit

September 25, 2013

UNITED STATES OF AMERICA, Plaintiff,
v.
LAWRENCE R. GOLDFARB and BAYSTAR CAPITAL MANAGEMENT, LLC, Defendants.

ORDER RE MOTION TO PRECLUDE ENFORCEMENT OF THE DEFERRED PROSECUTION AGREEMENT

WILLIAM ALSUP, District Judge.

INTRODUCTION

In this alleged investment scam prosecution, the immediate issue is whether a deferred prosecution agreement must be vetted under Federal Rule of Criminal Procedure 11 in order to render admissible statements and admissions made therein by an accused.

STATEMENT

The background of this action has been set forth in a prior order (Dkt. No. 38). In brief, the United States has filed an information charging defendants with wire fraud. Indictment having been waived, the information alleges that investors were defrauded when defendants did not disclose distributions and reinvested those distributions in other entities, some of which defendants owned.

The SEC has also filed a parallel complaint against defendants alleging similar conduct. See Securities and Exchange Commission v. Lawrence R. Goldfarb and Baystar Capital Management, LLC, CV-11-0938 WHA (N.D. Cal. Mar. 1, 2011). In that civil action, the SEC filed written consents to the proposed entry of judgment, which defendant Lawrence R. Goldfarb signed on behalf of himself and defendant Baystar Capital Management, LLC. On March 16, 2011, judgment was entered in the civil action.

On March 1, 2011, both defendants and the United States signed a deferred prosecution agreement ("DPA"), wherein the United States agreed to dismiss the criminal charges pending by way of information if defendants complied with the terms of the DPA. Defendants were represented by experienced and sophisticated counsel, who also signed the DPA along with their clients. The whole purpose of the DPA was to provide defendant Goldfarb, an experienced and sophisticated business person who graduated from Georgetown University Law Center, an opportunity to avoid a criminal record. This was done to extend leniency and to provide an incentive for restitution.

Under the provisions of the DPA, defendants agreed "to pay restitution of $12, 112, 416 pursuant to the terms of the Judgment in Securities and Exchange Commission v. Lawrence R. Goldfarb and Baystar Capital Management, LLC, CV-11-0938 (N.D. Cal. Mar. 1, 2011)" (DPA ¶ 5). Defendants also agreed that if they committed a material and knowing breach of the DPA, the government could prosecute them for the conduct alleged in the information ( id. ¶ 11). Significantly, the DPA included paragraph 14:

In the event of a breach of this Agreement and any resulting prosecution for the charges in the Information and any other charges, the defendants agree, in the trial or adjudication of those charges:
a. To stipulate to the admissibility into evidence of the Statement of Facts and agree not to offer any contradictory evidence or arguments;
b. To stipulate to the admissibility of all statements made by the defendants (including all statements made during so-called proffers sessions and notwithstanding any other agreements made at the time of those proffer sessions and including this Agreement) and agree not to offer any contradictory evidence or arguments;
c. To waive any claim under the United States Constitution, Rule 410 of the Federal Rules of Evidence, or any other rule, that statements made by the defendants prior to or subsequent to this Agreement, or any leads derived therefrom, should be inadmissible or should be suppressed.

The judgment in the related SEC case scheduled payment of over $14 million in five installments, with defendants paying the balance no later than March 15, 2012. Defendants timely paid three of the payments in the amounts of $30, 000, $25, 000, and $25, 000, with interest, on March 24, June 14, and December 13, 2011, respectively. Nevertheless, defendants did not pay the $1, 025, 000 amount due on September 15, 2011, or the balance due on March 15, 2012. In June 2012, now more than a year ago, defendants were found to be in civil contempt for their failure to comply with the SEC judgment. The government claims that defendants have paid $80, 000 toward that judgment but have failed to pay $13, 984, 094 plus interest.

On March 16, 2012, the government notified defendants that they were in material breach of the DPA. On April 23, 2012, defendants were arraigned on the information and they formally waived their right to prosecution by indictment. Defendants then filed a motion to dismiss the criminal charges against them, which was denied by ...


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