Hedge-Fund Case Could Prove Fresh Black Eye for U.S. Prosecutors

A federal judge in Manhattan demanded answers from prosecutors after a hedge-fund founder and trader convicted of mismarking securities produced documents they say show the government concealed evidence that might have cleared them.

U.S. District Judge Katherine Polk Failla said on Friday she intended to hold a hearing on the matter, with the strong possibility of witness testimony. Saying the two men had asked her to “make some very very serious factual conclusions about the conduct of the government,” she gave federal prosecutors a month to make a full review of their handling of the case.

“I need to understand what happened,” the judge said in court Friday.

The allegations raise the prospect of another major black eye for Manhattan federal prosecutors, who handle some of the nation’s most politically charged investigations. Barely a week ago, a judge dismissed the conviction of businessman Ali Sadr Hashemi Nejad for Iran-sanctions violations after the government admitted failing to turn over exculpatory evidence to the defense.

A second setback would be a blow to an office that has long prided itself on its independence and thoroughness.

A spokesman for Acting U.S. Attorney Audrey Strauss, who assumed office last month after Attorney General William Barr ousted her predecessor, Geoffrey Berman, declined to comment.

The case before Failla was touted by the government as “one of the largest mismarking schemes ever prosecuted.” Anilesh “Neil” Ahuja, the co-founder of the defunct hedge fund Premium Point Investments, and one of its traders, Jeremy Shor, were convicted last July of scheming to overstate the value of the company’s holdings by more than $100 million to attract new investors and prevent withdrawals.

Ahuja was sentenced to spend 50 months in prison and Shor received nearly 3 1/2 years.

But earlier this month, defense attorneys for the two men said documents they recently uncovered through a Freedom of Information Act request show that one of the government’s key cooperating witnesses read an allocution, or sworn statement of facts, when he pleaded guilty to a role in the scheme that was virtually identical to one drafted by prosecutors.

Ahuja and Shor say this shows the cooperating witnesses were willing to say whatever prosecutors wanted. They asked the judge to let them seek more evidence, including records of oral communications with lawyers for the witnesses, and hold a hearing to ensure that the government has met its obligation to turn over anything that might potentially clear them.

“We are entitled to know what else is out there,” Richard Tarlowe, an attorney for Ahuja, told the judge during a conference on Friday. “The emails do quite clearly in our view show that there was a deliberate effort taken to avoid putting things in emails to avoid disclosing them.”

Assistant U.S. Attorney Andrea Griswold on Friday acknowledged that prosecutors didn’t hand over to the defense all of the evidence that they should have, but said what they did produce reflected a “careful review” of its file in the case.

Griswold also said there was nothing improper about prosecutors providing input to defense lawyers on cooperating witness’ allocutions. She said Ahuja and Shor’s lawyers were simply trying to find anything they could to attack the government.

The case is U.S. v. Ahuja, 18-cr-00328, U.S. District Court, Southern District of New York (Manhattan).

©2020 Bloomberg L.P.

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