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Case 2:09-cv-01510-GMS Document 104 Filed 01/13/11 Page 1 of 9



DENNIS K. BURKE
United States Attorney
District of Arizona

DENIS J. MCINERNY
United States Department of Justice
Chief
Criminal Division, Fraud Section

PATRICK F. STOKES (Maryland Bar Member)
Deputy Chief, Fraud Section
JENNIFER R. TAYLOR (DC Bar # 497349)
ANDREW H. WARREN (DC Bar # 503003)
Trial Attorneys, Fraud Section
United States Department of Justice
Criminal Division, Fraud Section
1400 New York Ave NW
Washington, DC 20005
Telephone: 202-305-4232/3611/4002
Email: [email protected]

[email protected]

[email protected]


UNITED STATES DISTRICT COURT

DISTRICT OF ARIZONA

Plaintiff,

SECURITIES AND EXCHANGE
COMMISSION,




DON W. WATSON, et al.,


Defendants.

SECURITIES AND EXCHANGE
COMMISSION,




MAYNARD L. JENKINS,




Defendant.

Plaintiff,


v.






v.

Case No. CV-09-443-PHX-GMS

UNITED STATES’ REPLY
MEMORANDUM IN SUPPORT OF
MOTION TO STAY CERTAIN
DEPOSITIONS PENDING CRIMINAL
DISPOSITION

Case No. CV-09-01510-PHX-GMS

UNITED STATES’ REPLY
MEMORANDUM IN SUPPORT OF
MOTION TO INTERVENE AND TO
STAY CERTAIN DEPOSITIONS
PENDING CRIMINAL DISPOSITION





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Case 2:09-cv-01510-GMS Document 104 Filed 01/13/11 Page 2 of 9





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The United States submits this reply memorandum in support of its motion
to intervene and to stay certain depositions pending criminal disposition.
Defendants O’Brien and Opper do not oppose this motion. Defendants Watson
and Jenkins have opposed the motion. For the reasons expressed below and in the
United States’ Supporting Memorandum (Dkt. #173), the United States requests
that the Court grant its motion to intervene and stay certain depositions.

ARGUMENT

A.

Discovery in the civil proceedings is being used to obtain
information for the criminal case against Watson.

In his opposition, Watson asserts that the United States seeks to “maintain a
tactical advantage over Mr. Watson in the criminal matter.” (Watson Opp., at 6)
(Dkt. #174). Protecting the integrity of criminal investigations and prosecutions
by limited discovery consistent with the Federal Rules of Criminal Procedure does
not provide the United States a “tactical advantage” in the criminal case. Those
rules were drafted by the United States Supreme Court, approved by the United
States Congress, and the interpretation of them is well-established in the United
States Courts of Appeals, including the Ninth Circuit.

The real issue before the Court is the use of the civil discovery rules to
obtain what the criminal discovery rules purposefully avoid. Courts have
repeatedly held that parties should not be permitted to use the civil discovery
process to subsume or circumvent the more limited discovery permitted in
criminal matters. See, e.g., Campbell v. Eastland, 307 F.2d 478, 487 (5th Cir.
1962) (“A litigant should not be allowed to make use of the liberal discovery
procedures applicable to a civil suit as a dodge to avoid the restrictions on criminal
discovery and thereby obtain documents he would not otherwise be entitled to for
use in his criminal suit.”); SEC v. Nacchio, 2005 WL 1799372, *5 (D.Col.
2005)(granting stay of discovery because defendants “might be able to obtain
discovery and disclosure of documents that they would not otherwise be entitled to

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receive through criminal discovery.”); SEC v. Downe, 1993 WL 22126, *14
(S.D.N.Y. 1993)(recognizing the inherent danger of permitting discovery to
proceed in the civil action and staying not only discovery directed to cooperating
witnessed but also to all discovery); SEC v. Chestman, 861 F.2d 49, 50 (2d Cir.
1988)(stating that “the government has an interest to prevent discovery in the civil
case from being used to circumvent the more limited scope of discovery in the
criminal matter” when granting motion to intervene); United States v. Steward,
872 F.2d 957, 962-63 (10th Cir. 1989).

Watson is not simply seeking discovery related to the civil proceeding.
Rather, he is attempting to obtain information to advance his defense in the
criminal case. His own document subpoenas to witnesses, along with his requests
to this Court, expose this motivation. For example, Watson has already used the
civil discovery process to obtain Giglio/impeachment material long before he is
entitled to do so in the criminal case. Watson subpoenaed the proffer/immunity
agreements between the United States and several witnesses. Immunity
agreements between the United States and witnesses in the criminal matter are
irrelevant to the civil proceeding and have little to do with Watson attempting to
clear his name in the civil proceeding. However, they are relevant in the criminal
proceeding and that appears to be purpose of the subpoenas. United States District
Judge Susan Bolton ordered the disclosure of such materials in the criminal case
as of April 8, 2011. Watson has now successfully used the civil discovery process
to circumvent Judge Bolton’s order and obtained these criminal-case agreements
four months early.

Similarly, Watson’s request that the United States provide a list of its
critical witnesses and a substantive explanation of why the United States deems
them critical is another example of Watson attempting to use the civil proceeding
to discover information related to the criminal case. (Watson, Opp., at 8) (Dkt. #
174). Watson erroneously asserts that the United States is required to give such

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information to the defense by February 7, 2011. The scheduling order in the
criminal case requires the United States to provide its initial list of witnesses to the
defense on that date. The United States is not required to identify who on this list
is critical or provide an explanation of why a particular witness would be viewed
as critical to the prosecution. That information is not discoverable.

The United States is not required to provide the defense a roadmap of how
it intends to present the criminal case during trial or to reveal its prosecution
theories. The United States is also not required to reveal that information when
seeking a stay in a civil proceeding. The United States has identified a limited
number of witnesses and described precisely how pre-trial civil depositions of the
United States’ witnesses in a criminal trial will harm its ability to effectively
prosecute the criminal case. While the defendants argue that the United States has
provided generalized assertions of harm, the additional specificity sought by the
defendants would require the United States to reveal its prosecution theories and
strategies, as well as the mental impressions of members of the prosecution team.
Jenkins asserts in his opposition that a stay is inappropriate because he will
not seek to obtain prosecution theories, noting that there is no criminal case
against Jenkins “thus no road map to uncover.” (Jenkins, Opp., at 12-13) (Dkt.
#96). The civil case against Jenkins requires the SEC to show that misconduct
occurred at CSK, and Jenkins is challenging that. The Indictment alleges that
Watson was involved in this misconduct. It does not matter that Jenkins was not
charged. Nor is it dispositive of the motion before the Court. The Court must
consider the harm to the civil defendant and balance that harm with the harm to
the United States. Here, the harm to Jenkins is merely postponing certain
depositions until after trial. The harm to the United States is impairment of a
criminal case involving serious allegations of securities fraud, mail fraud, and
other securities-related violations. While civil litigants, such as Jenkins, that have
not been charged criminally may have an interest in getting their cases resolved,

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that “goal, however, must be reconciled with the public interest in ensuring that
the criminal process is not subverted. . . . [T]he individual may be required to
submit to delay not immoderate in extent and not oppressive in its consequences.”
United States v. Nacchio, 2005 WL 1799373, *5. At this time, the United States
has only requested that five depositions be postponed until after trial. That is not
oppressive to Jenkins. Further, the results of the trial should have a significant
impact on how Jenkins chooses to resolve the civil case.

The opportunity to take depositions of and cross-examine the United States’
critical witnesses provides unfair advantage to Watson that substantially harms the
criminal case and is against the public interest in protecting the criminal justice
system. Watson should not be permitted “to use the pendency of [the civil] action
to gain advantage that is not ordinarily afforded to subjects of criminal
investigations.” SEC v. Beacon Hill Asset Mgmt. LLC, 2003 WL 554618
(S.D.N.Y. 2003). Accordingly, the Court should grant the United States’ motion
to stay certain depositions.

B.

The United States’ interests will not be adequately protected
during the depositions.

Watson and Jenkins argue that the United States’ interest is adequately
protected by counsel for the SEC and counsel for the deponents. This is wrong.
Only the prosecution can adequately protect the United States’ interest in
protecting the criminal process and the criminal prosecution of Watson.

Throughout his opposition, Watson conflates the SEC and the Department
of Justice by referring to them as “the government.” Jenkins claims that the SEC
can adequately protect the United States’ interests because they share an “ultimate
objective.” (Jenkins, Opp., at 7) (Dkt. #96). Obviously, the SEC and the
Department of Justice are components of the United States’ government and
enforce federal law (like all government agencies); however, they are separate
agencies and have different interests and specific roles. The SEC and the

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Department of Justice have “different public responsibilities, the SEC to protect
the integrity of the securities markets and, in some instances, to seek compensation
on behalf of victims of violations of our securities laws” and the Department of
Justice or United States Attorney to “detect and prosecute criminal violators of
those laws.” SEC v. Beacon Hill Asset Mgmt. LLC, 2003 WL 554618. While the
SEC is represented by qualified counsel, its sole interest is to effectively enforce
civil securities laws. The SEC attorneys are not privy to prosecution theories and
strategy, and certainly they do not answer to the Department of Justice. Thus,
their status as “government” attorneys is hardly a basis for making them the
protectors of the United States’ interest in a criminal prosecution in which they are
not involved.

Further, the Department of Justice and the SEC’s interests are not always
aligned. In the instant case, for example, the SEC sought a stay of the deposition
of Aimee Hudson, while the Department of Justice on behalf of the United States
did not. The United States had no interest in that deposition as it had been advised
that Hudson intended to assert her Fifth Amendment right against self-
incrimination. As such, there would be no potential harm to the criminal case. As
explained by the SEC, however, the deposition could injure the civil proceeding
by allowing the defense to seek a witness preclusion order.

Similar to the SEC, Watson notes that many of the witnesses in this case
are represented by well-qualified criminal counsel, and asserts that they will
appropriately prepare witnesses for depositions. While the witnesses have
retained qualified counsel, they cannot adequately protect the interests of the
United States in the criminal proceeding. Their role is to protect the interests and
rights of their clients, not the United States. Similar to the SEC, they are not part
of the prosecution team and are not privy to the United States’ prosecution
theories. There is no question that counsel will endeavor to prepare their clients
for depositions. However, they are not a replacement for prosecutors who will not

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be present at the depositions. Moreover, that witnesses may be represented by
qualified counsel does not remedy the harm caused by Watson obtaining discovery
in the criminal case to which he is not entitled.

C. Watson’s decision to testify before the SEC is irrelevant to the

United States’ motion to stay certain depositions.

Watson appears to assert that he is entitled to no timing restrictions on
depositions because he earned it by not asserting his Fifth Amendment rights.
First, Watson’s decision to testify is irrelevant to the United States’ motion to stay
certain depositions, as he can continue to prepare his defense in the civil
proceeding with appropriate limitations imposed by the Court.1 The United States
is not asking that all depositions be stayed but is simply asking that certain
depositions be postponed until after trial, which is five months away. Second, the
United States reviewed Watson’s testimony, and, while he did in fact testify, he
had significant gaps in memory. The question is not whether Watson has “earned”
the right to depose witnesses. He has that right. What is at issue is the timing of
some of the depositions while balancing all the parties’ interests. Delaying five
depositions until after the criminal trial is not substantial and will not impede both
Watson’s and Jenkins’ abilities to effectively resolve the civil proceedings.

D.

The proposed stay will not interfere with speedy resolution of
the civil proceedings.

The defendants assert that staying the five depositions subject to the United


1 Watson criticizes the timing of the filing of the motion for a limited stay.
However, he ignores that the government had no basis to stay Watson’s deposition
as it would not harm the United States’ case. See Keating v. Office of Thrift
Supervision, 45 F.3d 322, 324 (9th Cir. 1995). The government’s interest is in
preventing use of the civil discovery process to harm its case, not Watson’s. That
harm was only triggered by Watson testifying and obtaining the authority to issue
deposition notices. Putting aside that during the SEC investigation Watson had
claimed he would testify only to invoke his Fifth Amendment privilege at the time
of his testimony, the United States appropriately waited until the danger of harm to
specific witnesses was identifiable. Certainly, Watson’s own interests have been
thoroughly considered by his sizeable team of civil and criminal defense lawyers.

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States’ motion will interfere with their interest in speedy resolution of the civil
proceedings. That is not the case. There is sufficient time to conduct the
depositions at issue in the United States’ motion. Trial in the criminal matter is
only five months away and the discovery in both matters does not close until
afterwards. Jenkins does not have a scheduling order in place, and dispositive
motions in the Watson case will not be submitted until March 2012. Delaying five
depositions until after the June 2011 trial will have little impact on the current
schedule for the civil proceedings.

E.

The United States’ motion to intervene in the Jenkins civil
proceeding is appropriate.

Jenkins challenges every relevant factor relating to intervention but
highlights the timing of the United States’ motion, arguing that it should be denied
as untimely. The United States’ motion is not untimely and intervention is
appropriate. “Determination of the timeliness of a motion to intervene depends
upon (1) the stage of the proceeding, (2) the prejudice to other parties, and (3) the
reason for and length of delay.” Day v. Apoliona, 505 F.3d 963, 965 (9th Cir.
2007). While it was filed in 2009, the case is still in discovery and notices of
depositions were not issued until November 2010. Thus, the deposition stage is
just now beginning. There is no trial date in the case, discovery is not closed, and
the United States filed its motion to intervene shortly after Jenkins served
deposition notices. The timing of the motion, which Jenkins implies is nefarious,
results from the United States reviewing deposition notices and thoroughly
considering their impact on the criminal case, rather than simply moving to
intervene and requesting a blanket stay of all depositions. At this stage in the case,
Jenkins will not be prejudiced by the United States intervening and seeking a
limited motion to stay. In fact, postponing depositions and avoiding the costs
associated with them, may be beneficial to Jenkins because the outcome of the
criminal case will likely impact how he proceeds in the civil matter.

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CONCLUSION

For the foregoing reasons and those expressed in its motion and supporting

memorandum, the United States requests that the Court grant its motions to
intervene and stay certain depositions pending criminal disposition.









DATED: January 13, 2011


































Respectfully submitted,

DENNIS K. BURKE
United States Attorney

DENIS J. MCINERNY
Chief, Fraud Section
/s/ Patrick F. Stokes





Patrick F. Stokes
Deputy Chief
Jennifer R. Taylor
Andrew H. Warren
Trial Attorneys

United States Department of Justice
Criminal Division, Fraud Section





CERTIFICATE OF SERVICE


This is to certify that a copy of this the United States’ Notice of Motion and
Motion to Intervene and to Stay Certain Depositions Pending Criminal Disposition
has been furnished to counsel of record by filing with ECF.





/s/ Jennifer R. Taylor
Jennifer R. Taylor



















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