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62. 2014.01.07 Hearing Transcripts_eng_ ............................................................................................................ 2
77. 2014.03.04 Hearing Transcripts_eng_.......................................................................................................... 44
83. 2014.02.14 Hearing Transcripts_eng_ .......................................................................................................... 74
127. 2014.09.18 Hearing Transcripts_eng_ ....................................................................................................... 131
153. 2014.10.14 Hearing Transcripts_eng_ ........................................................................................................ 155
164. 2014.10.23 Hearing Transcripts_eng_ ....................................................................................................... 216
178. 2014.11.05 Hearing Transcripts_eng_ ........................................................................................................286
261. 2015.03.09 Hearing Transcripts_eng_ .......................................................................................................325
264. 2015.03.16 Hearing Transcripts_eng_ .......................................................................................................378
289. 2015.05.27 Hearing Transcripts_eng_ ....................................................................................................... 401
316. 2015.08.13 Hearing Transcripts_eng_ .......................................................................................................423
340. 2015.09.02 Hearing Transcripts_eng_ .......................................................................................................448
372. 2015.10.01 Hearing Transcripts_eng_ .......................................................................................................460
395. 2015.10.13 Hearing Transcripts_eng_ .......................................................................................................475
424. 2015.11.06 Hearing Transcripts_eng_ .......................................................................................................483
426. 2015.11.02 Hearing Transcripts_eng_ .......................................................................................................536
432. 2015.10.20 Hearing Transcripts_eng_ .......................................................................................................542
438. 2015.11.19 Hearing Transcripts_eng_ ........................................................................................................556
446. 2015.11.13 Hearing Transcripts_eng_ ........................................................................................................572
448. 2015.11.09 Hearing Transcripts_eng_ .......................................................................................................593
470. 2015.11.30 Hearing Transcripts_eng_ ....................................................................................................... 611
483. 2015.12.03 Hearing Transcripts_eng_ .......................................................................................................649
490. 2015.12.07 Hearing Transcripts_eng_ .......................................................................................................667
496. 2015.12.11 Hearing Transcripts_eng_ ........................................................................................................675
504. 2015.12.14 Hearing Transcripts_eng_ .......................................................................................................690
513. 2015.12.18 Hearing Transcripts_eng_ ........................................................................................................709
515. 2015.05.03 Hearing Transcripts_eng_ .......................................................................................................739
517. 2015.12.28 Hearing Transcripts_eng_ .......................................................................................................750
527. 2016.01.06 Hearing Transcripts_eng_ .......................................................................................................755
533. 2016.01.12 Hearing Transcripts_eng_ .......................................................................................................767
549. 2017.01.25 Hearing Transcripts_eng_ .......................................................................................................783
569. 2017.02.17 Hearing Transcripts_eng_ ....................................................................................................... 811
662. 2017.04.05 Hearing Transcripts_eng_ .......................................................................................................854
723. 2017.05.03 Hearing Transcripts_eng_ .......................................................................................................899
728. 2017.05.11 Hearing Transcripts_eng_ ....................................................................................................... 981
Case 1:13-cv-06326-WHP Document 62 Filed 02/05/14 Page 1 of 42 1
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1 UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x

3 UNITED STATES OF AMERICA, New York, N.Y.

4 v. 13 CV 6326(TPG)

5 PREVEZON HOLDINGS, LTD,

6 Defendant.

7 ------------------------------x

8
January 7, 2014
9 2:51 p.m.

10
Before:
11
HON. THOMAS P. GRIESA,
12
District Judge
13

14 APPEARANCES

15 PREET BHARARA
United States Attorney for the
16 Southern District of New York
BY: PAUL MONTELEONI
17 CHRISTINE MAGDO
Assistant United States Attorneys
18
BAKER & HOSTETLER
19 Attorneys for Defendant
BY: MARK CYMROT
20 JOHN MOSCOW

21 BAKER BOTTS
Attorneys for Defendant
22 BY: SETH TAUBE

23

24

25

SOUTHERN DISTRICT REPORTERS, P.C.
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1 (In open court)

2 THE DEPUTY CLERK: Kiss of United States of America

3 vs. Prevezon Holdings, Limited.

4 THE COURT: We have a motion, right?

5 MR. CYMROT: Yes, your Honor.

6 THE COURT: Would you like to speak for the motion?

7 MR. CYMROT: Yes. Mark Cymrot, your Honor, for the

8 defendants.

9 THE COURT: Thank you. Go ahead.

10 It's better to sit down. I don't know how they've

11 designed this courtroom with these microphones, but it's better

12 to keep seated and I can hear you.

13 MR. CYMROT: All right. Is that mic on? That mic's

14 on.

15 Should I begin, your Honor?

16 THE COURT: Go ahead.

17 MR. CYMROT: Okay. This is a motion by the defendants

18 to vacate or modify a protective order that was entered in

19 September of 2013 as an ex parte order based upon an

20 application and a verified complaint from the government. The

21 order restrains the defendants, which include foreign companies

22 with new US operations and eight US real estate companies, from

23 transferring any and all assets that they have anywhere in the

24 world.

25 THE COURT: What is Prevezon?

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1 MR. CYMROT: Prevezon is a holding company.

2 THE COURT: What does that mean?

3 MR. CYMROT: Prevezon, the name?

4 THE COURT: Why was Prevezon formed? What business is

5 Prevezon in?

6 MR. CYMROT: Prevezon is in the real estate business.

7 It is a holding company for eight real estate projects in

8 New York. It formed eight New York limited liability

9 companies, and they own condominiums and other real estate in

10 New York.

11 THE COURT: Where do they get the money to form that?

12 MR. CYMROT: There was two sources of money. One was

13 a Russian investor by the name of Dimitri Petrov, and the other

14 money comes from the owner, Dennis Katsyv, K-A-T-S-Y-V.

15 THE COURT: What was the name?

16 MR. CYMROT: Dennis Katsyv, K-A-T-S-Y-V.

17 THE COURT: Who was he?

18 MR. CYMROT: He is a Russian citizen who invests in

19 real estate around the world. He's about 40, in his early 40s,

20 I believe. He was a young man, went out and had a business in

21 the transportation business. He sold that. He had some money

22 and he went into real estate, has real estate projects in

23 Russia. He's invested in real estate in Europe, and he decided

24 to invest in real estate in the United States.

25 THE COURT: Well, the complaint alleges -- I'm turning

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1 to paragraph 101 and so forth, pages 37 and so forth.

2 MR. CYMROT: Yes.

3 THE COURT: The essence of those allegations, if I'm

4 reading them right, is that Prevezon was in the business of

5 helping to launder the money from this Russian fraud. That's

6 what the government alleges, is that right?

7 MR. CYMROT: That is correct. That's what they --

8 THE COURT: Can I hear from the government?

9 MR. MONTELEONI: Yes, your Honor. Good afternoon.

10 Paul Monteleoni for the government. And with me at counsel

11 table is my colleague, Christine Magdo.

12 The complaint alleges that in addition to simply

13 holding real estate, one of the activities of Prevezon and the

14 Prevezon entities was the laundering of money. The complaint

15 doesn't make allegations about what percentage of their overall

16 business volume that was, but that that was an activity that

17 the business is engaged in.

18 THE COURT: Okay. Go ahead.

19 MR. CYMROT: Your Honor, what the complaint alleges is

20 that $857,000 of a $230 million fraud on the Russian treasury

21 was transferred through 90 different transactions and ended up

22 in Prevezon Holdings, according to the complaint. The

23 defendants deny that, but I'm going to put that aside and deal

24 with the money laundering issue, because once the money went

25 into Prevezon Holdings, the government alleges it was a money

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1 laundering operation. It was a business. If it was $857,000

2 that went in that turned out to be tainted money, then the

3 government could forfeit that.

4 But they're going further and they're claiming this is

5 a money laundering operation. And they don't have any

6 allegations that would support that allegation, the basis for

7 this protective order. They have no allegations that

8 Mr. Katsyv or anybody involved in the defendants were a member

9 of what they call the organization that committed the fraud.

10 They don't have any allegations that they knew any members of

11 the organization. They can trace members of the organization

12 back to 2006 at meetings in Cyprus. They have never made an

13 allegation that anybody associated with Prevezon had a

14 communication with or was a member of the organization or had

15 an agreement with the organization.

16 So this allegation that they were money laundering for

17 the organization has no factual basis in the complaint. There

18 are major holes in that, and let me give you one example.

19 There is no allegation that Prevezon had an agreement with any

20 member of the organization to invest their funds or to money

21 launder their funds. It's been six years since this money went

22 into Prevezon, and there hasn't been any tracing of money back

23 to any member of this alleged organization.

24 So there's no benefit to the organization from this

25 alleged money laundering, which would be a major indication

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1 that there was some agreement to money launder, but there is

2 none here. What the complaint alleges is that there was this

3 $857,000, and it went in a single transaction into an

4 investment in Germany. And it stayed in Germany. There was no

5 false statements made about it. It was a direct transaction.

6 It wasn't hidden in any way.

7 They then allege that between two and five years after

8 that German investment with the $857,000, they allege that

9 Prevezon Holdings began --

10 THE COURT: Where is the allegation of the 857,000 in

11 the complaint?

12 MR. CYMROT: It's 101. There's two deposits. One is

13 paragraph 101; it's $410,000. And then paragraph 102 is

14 $447,000.

15 THE COURT: Okay. Thank you.

16 MR. CYMROT: And then if you go to paragraph 103, they

17 say those funds went in as an investment in this German real

18 estate. And that's where the money stayed.

19 So then if you go to paragraphs starting with 107, I

20 think it is -- it's actually 111 -- they start investing it,

21 but it's two years later. Two to five years later they invest

22 in New York real estate. And there are eight investments in

23 New York real estate between 2009, November 2009, and 2012.

24 And there is no money that's been traced from that $857,000

25 into the New York real estate.

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1 And what's really telling, in the application, the

2 ex parte application for a protective order, they say the money

3 was commingled, the money for the New York investment was

4 commingled with the money, the $857,000. But in their brief in

5 response to our protective order, they say it may have been

6 commingled, that Prevezon Holdings may have accepted commingled

7 funds.

8 It's pure speculation, and there is no facts to back

9 it up, your Honor. There is nothing in this case that shows

10 that anybody involved with Prevezon had anything to do with the

11 organization, had anything to do with the theft of money in the

12 Russian treasury and had anything to do with members of the

13 organization ever communicated and had any agreement. And

14 there is nothing that shows that they treated the money any

15 different than any other real estate investment.

16 They compare -- the cases they cite compare Prevezon

17 Holdings to a chop shop where thieves would deliver cars. They

18 would get paid for them. They would get a benefit. And there

19 were false statements made in the books and records of the chop

20 shop and the cars were broken down into pieces so that the

21 theft could be hidden.

22 There's nothing like that in this case. They have

23 another case that talks about an arsonist who used his business

24 to make false insurance applications. There's nothing like

25 that here. This is a real estate company. It has been treated

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1 like a real estate company. There are no false statements

2 attributed to the defendants. There's no hiding. There's no

3 intent. There's no knowledge that it's been alleged that the

4 defendants knew about the Russian theft or knew any of the

5 people involved. There is no facts that would support an

6 allegation that they had intent to disguise the funds. They

7 didn't do anything to disguise the funds. There were nine

8 total transactions in this complaint, and they are all direct

9 purchases or investments in real estate. There is simply

10 nothing here that satisfies the requirements of 18, U.S.C.,

11 1956 or 1957.

12 If you look at the complaint, if you start looking at

13 the claims, for instance, starting on page 46, the claims, they

14 are nothing -- 45 and 46 -- they are nothing but quotes from

15 the statute. They haven't identified a specified unlawful

16 event. What specified unlawful event in the United States

17 would occur as a result of a theft on the Russian treasury?

18 They don't specify that. That's an element of the claim under

19 1956 and 1957. They don't specify any facts that would show

20 that the defendants knew about the fraud. They don't specify

21 any facts that show the defendants intended to promote the

22 fraud or to disguise the fraud or anything of that sort.

23 Most of these cases are brought after a criminal

24 indictment or a trial. There has been no criminal case here.

25 There's been no criminal case in Russia. This is a Russian

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1 citizen who has not been accused or investigated by the Russian

2 government for any participation in a theft on the Russian

3 treasury. It seems to me that's very telling that there is no

4 link here.

5 THE COURT: Can I get back to you?

6 But what's the government say?

7 MR. MONTELEONI: Well, your Honor, there are several

8 just factual corrections that I'd like to make to some of the

9 points that counsel raised.

10 First, his claim that the specified causes of action

11 actually don't include any facts is just incorrect. The first

12 paragraph of each of the causes of action incorporates by

13 reference the entire statement of facts. And I'm a little

14 surprised that he raised that standard pleading practice as a

15 problem.

16 THE COURT: Well, what are the factual allegations?

17 MR. MONTELEONI: That the --

18 THE COURT: How do you respond to what has just been

19 said?

20 MR. MONTELEONI: Yes, your Honor. The complaint

21 plausibly alleges that there was an elaborate Russian tax fraud

22 scheme, and that --

23 THE COURT: We're all familiar with that. The

24 question is about Prevezon.

25 MR. MONTELEONI: Yes, your Honor. Now, the tax fraud

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1 scheme --

2 THE COURT: And what we've got about Prevezon, as far

3 as I know, really begins with paragraph 101, isn't that right?

4 MR. MONTELEONI: Well, it does in the sense that

5 paragraph 101 describes when Prevezon began to receive the

6 fraud proceeds. The paragraphs preceding it do describe why

7 these are proceeds of a specified unlawful activity. The

8 specified unlawful activity is wire fraud under the Supreme

9 Court case of United States vs. Pasquantino --

10 THE COURT: Oh, please -- don't.

11 MR. MONTELEONI: I'm sorry.

12 THE COURT: I want to stick to the factual issues.

13 And the way I read it is that -- let's look at paragraph 101.

14 MR. MONTELEONI: Yes.

15 THE COURT: It says that on or about February 6, 2008,

16 the Bunicon Banco De Economi account made a wire transfer to

17 Prevezon. Now, is there anything about where in the complaint,

18 about where this money, this Bunicon money came from?

19 MR. MONTELEONI: Yes, your Honor.

20 THE COURT: Where is that?

21 MR. MONTELEONI: Paragraphs 77 through 94 --

22 THE COURT: Just a minute. Just a minute. Go ahead,

23 a little slower.

24 MR. MONTELEONI: Sorry.

25 THE COURT: Where does it talk about Bunicon?

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1 MR. MONTELEONI: The first mention of Bunicon is

2 paragraph 91.

3 THE COURT: Let me find that. Okay. I see 91.

4 MR. MONTELEONI: And then paragraph 93 sets forth

5 grounds for believability that Bunicon is a shell company and

6 not a legitimate business entity.

7 THE COURT: Well, it would seem that if you look at

8 paragraph 91, etc., this is a pretty good allegation of money

9 laundering involving the Bunicon. And then --

10 MR. MONTELEONI: So next on paragraph 97, your Honor,

11 it describes that Bunicon sent funds not to Prevezon but to a

12 series of companies that sent the funds back to one of the tax

13 authorities that actually authorized the tax refund.

14 THE COURT: Say that again.

15 MR. MONTELEONI: So paragraph 97 and 98 indicate that

16 Bunicon sent out funds to a series of entities --

17 THE COURT: Bunicon?

18 MR. MONTELEONI: Bunicon did. And those entities --

19 THE COURT: Sent it to what?

20 MR. MONTELEONI: They sent out several hundred

21 thousand dollars to a series of entities, which transferred it

22 ultimately to the then husband of one of the tax officials who

23 approved the fraudulent refund. That is, we think, a clear

24 allegation of a kickback to the members of the organization.

25 THE COURT: I just have to say, Mr. -- is it Cymrot?

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1 MR. CYMROT: Yes, your Honor.

2 THE COURT: I just don't find it very -- let me put it

3 a different way. It seems to me that the complaint in the

4 action is completely different than what you've characterized.

5 The complaint in the action is an enormously detailed complaint

6 going back to the fraud on the Russian government, and then

7 carrying on with detailed allegations about money laundering.

8 And those detailed allegations about money laundering involve

9 Prevezon.

10 MR. CYMROT: No, your Honor. I'm sorry.

11 THE COURT: And that's what it says. And to sit there

12 and say it doesn't say that, it doesn't help me one bit.

13 MR. CYMROT: Your Honor, if I could try to help you.

14 They have $857,000 that they said went into Prevezon. If that

15 was what they had, they could forfeit $857,000.

16 We contest that's what they have. If you follow their

17 chart --

18 THE COURT: You're getting off on to something --

19 MR. CYMROT: No, no --

20 THE COURT: -- different from my question.

21 MR. CYMROT: Your question is why isn't Prevezon --

22 THE COURT: I'm not talking about 857,000. I'm

23 talking about the broader allegation of Prevezon participating

24 in money laundering in a broad sense, not about $857,000.

25 MR. CYMROT: All they trace into Prevezon is $857,000.

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1 And Prevezon is not alleged to have known about anything that

2 predates that. And they even acknowledge, if you look at

3 paragraphs 101 and following, Mr. Katsyv explained that they

4 got the money from an investor, Mr. Petrov. And that comes

5 from the -- is possible from the government's own chart.

6 If you would look at Exhibit B, your Honor, to the

7 complaint. This is the government's tracing. And it doesn't

8 involve Prevezon at all until the end. And there is no

9 allegation that Prevezon knew anything about what preceded the

10 $857,000 going into Prevezon.

11 And if you look at chart B, and you follow the

12 allegations -- if you remember, I handed up a chart, which I

13 can hand up again, which is our notes on this B. They trace

14 $47 million, the equivalent in rubles, into this Bank Krainiy,

15 which is down in the middle right above Bunicon in Elenast. Of

16 that, they admit $19.5 million is not treasury funds. It's

17 untainted funds by the fraud. And Prevezon says the $857,000

18 came from those funds or other funds that are not on this

19 chart.

20 This tracing does not trace money into Prevezon. It

21 requires -- and what the government said in their brief was

22 they don't have to use a consistent accounting to do this

23 tracing. In other words, they don't have any member of the

24 organization that stole the money directing money to Prevezon.

25 And no member of the organization ever got a benefit from

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1 transferring, supposedly transferring this money from Prevezon.

2 Prevezon got money from an independent investor, and this chart

3 would show that that's very possible; that there are

4 $19 million by the government's own counting that doesn't come

5 from the treasury.

6 What they have done is they have put on this complaint

7 a huge amount of details, you're correct, your Honor, about a

8 Russian fraud. Huge amount of details about that. But when it

9 gets to Prevezon --

10 THE COURT: Take a look at paragraph 103.

11 MR. CYMROT: Yes, your Honor.

12 THE COURT: That is clearly an allegation that

13 Prevezon was participating in money laundering, and it's very

14 detailed.

15 MR. CYMROT: I don't see that it says anything about

16 money laundering or anything about -- other than an investment

17 in Europe. It's exactly our point, your Honor. There was --

18 $857,000 went in. It went into a German real estate

19 investment, with a major partner. And we say that was for an

20 investor from unrelated funds. There's nothing here that says

21 that Prevezon knew that anything about the Russian fraud.

22 There's nothing here that says that they transferred or that

23 this transfer somehow benefited the Russian fraud and the

24 people who did it. That's our point.

25 THE COURT: I don't read the complaint the way you're

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1 reading it at all.

2 MR. CYMROT: Well, your Honor, what they say is that

3 Prevezon supposedly received this 857,000 from the Russian

4 treasury. We contest that. But find something in paragraphs

5 101 and further on that is a fact that says that anybody at

6 Prevezon knew anything about the Russian fraud. There's no

7 fact in there that says that. There's no fact that would

8 support a finding that they wanted to benefit the Russian

9 fraud. There's no fact in there that said that they did, in

10 fact, benefit the Russian fraud in any way.

11 So if you go from 101 on, that's exactly our point.

12 It's only 101, a few more paragraphs talking about Prevezon.

13 And none of it is facts that would support a finding that they

14 participated in any way in the Russian fraud. They transferred

15 money to Germany.

16 THE COURT: I just completely disagree with your

17 reading of the complaint.

18 MR. CYMROT: Well, I could go paragraph by paragraph,

19 your Honor.

20 THE COURT: Look, it may be true that there's certain

21 things that are not said, but a lot is said.

22 MR. CYMROT: Well, not about our clients, though.

23 THE COURT: Yes, it is.

24 MR. CYMROT: Well, let's look at 103.

25 THE COURT: These paragraphs are all about your

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1 client.

2 MR. CYMROT: Well, it says on May 23rd and June 23rd

3 of 2008, that Prevezon converted millions of dollars into

4 Euros. All they did was transfer dollars into Euros. That's a

5 normal commercial transaction, which were transferred to

6 Prevezon Holdings' 8170 account. In other words, they had two

7 accounts that UBSs -- or 8160 was a dollar account. 8170 is a

8 Euro account. It's nothing unusual about that.

9 Then they say Prevezon Holdings 8170 then transferred

10 over 3 million Euros to AFI Europe. AFI Europe is a major real

11 estate company with real estate investments all over the world.

12 It's not some shady company. It's a major real estate company.

13 You could look it up on the web. It has a website. It has

14 investments everywhere. So in order to purchase a 30 percent

15 interest in a Netherlands based company, and that company

16 invested in a German company, I mean, that's the way real

17 estate transactions work. There's nothing unusual about that

18 transaction.

19 THE COURT: Nothing unusual except where they got the

20 money is unusual.

21 MR. CYMROT: Well, that presumes that -- it presumes

22 two things, if I may, your Honor: One, that the money didn't

23 come from the $19 million of untainted, honest funds. And

24 Prevezon has an investor, Dimitri Petrov. He's a man, he lives

25 in Russia. He's somebody they knew. He was transferring

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1 money. It came in when he said it was coming in, and there's

2 nothing the government has said that excludes that from the

3 $19 million of honest fund money that went into the account.

4 THE COURT: What about the honest funds allegation?

5 Mr. --

6 MR. MONTELEONI: Yes, your Honor. Well, one very

7 clear indication that the funds that Bunicon had weren't honest

8 funds --

9 THE COURT: Were not?

10 MR. MONTELEONI: Were not honest funds is that they

11 transferred some of it as alleged in paragraph 97 back through

12 intermediaries to the tax official who authorized the corrupt

13 refund. That right there is ample evidence that the funds that

14 they had were not honest.

15 MR. CYMROT: But that has nothing to do with -- what

16 does that have to do with Prevezon?

17 MR. MONTELEONI: May I be heard?

18 THE COURT: Because the Bunicon money ultimately came

19 to Prevezon?

20 MR. CYMROT: No, no, no. They don't allege that.

21 They do not allege that. Let's look at 97. They don't allege

22 that.

23 THE COURT: I'm looking at paragraph 101.

24 MR. MONTELEONI: Your Honor, if I may be heard to

25 explain several additional facts.

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1 THE COURT: Right.

2 MR. MONTELEONI: I think that I may be able to clear

3 up some confusion Mr. Cymrot may have.

4 The funds that went from Bunicon back to the tax

5 officials in paragraph 97, those funds didn't go to Prevezon,

6 but those were funds received by Bunicon, and those were

7 clearly the proceeds of the fraud, because they went back to

8 one of the perpetrators of the fraud. But now, not all of

9 those funds went back to the perpetrators of the fraud. Some

10 funds that Bunicon had went to Prevezon, as we allege in

11 paragraph 101. And --

12 THE COURT: For what purpose?

13 MR. MONTELEONI: For what purpose? Well, your Honor,

14 the complaint sets forth three different theories of money

15 laundering. One possibility is concealment money laundering.

16 That, I think, is quite amply supported by the fact that --

17 THE COURT: Where is that alleged?

18 MR. MONTELEONI: That is in one of our claims for

19 relief. I think it -- simply, in our first in rem --

20 THE COURT: Is it in the complaint?

21 MR. MONTELEONI: Yes, your Honor, paragraph 122 and

22 121.

23 THE COURT: Go ahead, please.

24 MR. MONTELEONI: And one I think very telling fact

25 that gives rise to the inference of concealment money

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1 laundering is that AFI Europe is a large company that is

2 established in the legitimate economy. And I think that the

3 complaint sets forth a very fair inference that AFI Europe

4 probably wouldn't do business with Bunicon or Elenast. If you

5 look at Exhibit C and Exhibit D, these are companies that are

6 purportedly run out of dilapidated buildings in Moldova.

7 Prevezon has real real estate and is the type of company that

8 can partner with more legitimate funds. That gives rise to an

9 inference that the moving the funds into this more legitimate

10 seeming entity served to conceal.

11 Additionally, under Section 1957, which we cite at

12 paragraph 123, simply engaging in a financial transaction above

13 $10,000 involving a financial institution with criminally

14 derived property, that itself constitutes money laundering.

15 That is amply alleged by the complaint.

16 And then finally, the complaint alleges a promotion

17 theory, which is that the Prevezon entities did intend to

18 return the funds to further other specified unlawful activity.

19 Now, that, I think, that is a theory that would, I think,

20 require the most discovery to flesh out, but it does meet the

21 standard applicable here: That the facts in the complaint set

22 forth a reasonable belief that discovery would reveal evidence

23 of this for the following reasons.

24 One is that the very representative of Katsyv that

25 talked about these funds said these funds were eventually going

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1 to be returned to the Mr. Petrov. The funds came apparently

2 from a Mr. Petrov. Since we believe that these are treasury

3 funds, there's a reasonable inference that Mr. Petrov has some

4 type of association with the organization. The complaint

5 doesn't set forth definitively beyond a reasonable doubt what

6 his role is, but it raises an inference that there's a

7 reasonable belief that discovery will reveal evidence of that.

8 And another reason that supports that belief is the

9 transactions in paragraphs 97 and 98. The same company that

10 sent money to Prevezon also sent money to back through

11 intermediaries to the person who initiated the tax fraud in the

12 first place, and -- or one of the people, one of the tax

13 officials who approved a refund on the same day or the next

14 business day, and then didn't report a massive increase in her

15 wealth after the incident.

16 Additionally, there is reason to believe, as the

17 complaint alleged, that members of the organization continued

18 to engage in tax funds -- sorry, in tax frauds in 2009 and 2010

19 after these transfers. That also supports an inference that

20 the money going back to these participants would be used to

21 promote further unlawful activity.

22 Now, as to that, we think that the complaint sets

23 forth facts which give a reasonable belief -- not a certainty,

24 but a plausible inference -- that discovery would reveal

25 evidence of that type of promotion. But even if it didn't, the

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1 protective order would be amply justified on the theory of

2 concealment and on the theory of monetary transaction with a

3 financial institution with a value of over $10,000.

4 And I just would like to correct another statement

5 that was made by defense counsel that there's not an allegation

6 that goes to Prevezon's knowledge. I direct the Court both to

7 paragraphs 109 and 110, where a representative for Katsyv said

8 that after Katsyv's review of these transactions, Prevezon

9 didn't actually --

10 THE COURT: What paragraph?

11 MR. MONTELEONI: Sorry. Let's say 108, 109 and 110.

12 THE COURT: Okay. Go ahead.

13 MR. MONTELEONI: So the representative said Prevezon

14 did not actually have direct commercial relations with Bunicon

15 or Elenast. And paragraph 110 says that actually, the wire

16 transfers were described as prepayment for sanitary equipment.

17 So the actual descriptions of the funds that were wired to

18 Prevezon was false.

19 Additionally, the paragraph 93 and paragraph 94 and

20 Exhibits C and D showing the purported headquarters of Bunicon

21 and Elenast show that a plausible inference that these are

22 shell companies, which immediately raises an inference of

23 illegality for a supposedly legitimate --

24 THE COURT: What companies are shell companies?

25 MR. MONTELEONI: Bunicon and Elenast, the companies

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1 that directly wired the money to Prevezon. And for a

2 legitimate real estate company to receive third-party payments

3 from some unknown entities that don't actually have any real

4 business also gives rise to a suspicion of illegality.

5 And regarding the nature -- the level of knowledge

6 that needs to be proved, we think it's amply met here. Because

7 you might not know this from reading defendants' reply brief,

8 but the standard is just that they have to know or be willfully

9 blind to the fact that the funds constituted the proceeds of

10 some type of unlawful activity; not specified unlawful

11 activity, not a particular Russian tax fraud with all the

12 details. They just have to know or be willfully blind that

13 there is some type of illegality afoot in that it tainted the

14 funds coming in. And that knowledge can be satisfied by

15 willful blindness.

16 Willful blindness doesn't require certainty. Willful

17 blindness just requires awareness of a high probability of the

18 fact. So in this case, all that has to be shown in this

19 complaint is that the defendants were aware of a high

20 probability that these funds that came from shell companies

21 that were falsely described as prepayments for sanitary

22 equipment were the proceeds of some kind of unlawful activity.

23 Now, reading the complaint in the light most favorable

24 to the government, which is the applicable standard here, it

25 amply supports that level of knowledge.

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1 MR. CYMROT: Your Honor, may I go?

2 THE COURT: Yes.

3 MR. CYMROT: First of all, that is not the standard

4 for a restraining order. But let me put that aside.

5 Mr. Monteleoni points to paragraphs 121 and 122 as

6 allegations of concealment. They are nothing but quotes from

7 the statute.

8 So we go back to where he next went, to paragraph 97,

9 which is before Prevezon Holdings' involvement with anything

10 having to do with this. And this is transfers from Bunicon to

11 other people, that there's no allegation that Prevezon Holdings

12 had anything to do with it or knew about it. And it's not

13 money -- and I may have misheard him. That was going back into

14 Bunicon for people who were members of the organization. It

15 was going from Bunicon to other places. There is $47 million

16 that they have traced, but $19 million is untainted money. And

17 these paragraphs don't explain that.

18 This explains some of the $47 million. And it says

19 nothing about Prevezon Holdings. When the money gets into

20 Prevezon Holdings, starting on 101, there are no allegations

21 that Prevezon Holdings knew anything about what preceded it.

22 And as Mr. Katsyv said when he was approached by a reporter,

23 the money came from an investor, Mr. Petrov.

24 Now, Mr. Monteleoni just made a statement that he has

25 never made, the government has never made, in the application,

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1 in the complaint, in his brief, that Mr. Petrov must have had

2 something to do with the organization. It's all very circular.

3 And it is unsupported by any fact. It is not alleged in the

4 complaint. It wasn't in the application. It wasn't in the

5 reply brief. And there is not a single fact that would support

6 the idea that Mr. Petrov is anything other than a Russian

7 citizen who is investing in real estate.

8 So this is all new, and it tells you something. It

9 tells you that they realize they don't have a case here,

10 because they have just come up with something totally new, and

11 they can't find it anywhere.

12 THE COURT: Please. Please. Do you think I'm

13 somebody sitting here that can't read?

14 MR. CYMROT: No, your Honor.

15 THE COURT: What you say is -- it isn't that there's

16 no merit in anything you say, but most of it is contrary to

17 what is in the record, flatly contrary to what is in the

18 record. Do you think I can't read?

19 MR. CYMROT: Could Mr. Moscow address that, your

20 Honor.

21 THE COURT: This is just shocking.

22 MR. CYMROT: Your Honor, we put this together very

23 carefully, our position. And I haven't said anything --

24 THE COURT: It doesn't seem to me it's very careful at

25 all.

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1 MR. CYMROT: Well, I think what you've done, your

2 Honor, is you've accepted the idea that the government alleges

3 there is this huge Russian fraud.

4 THE COURT: No.

5 MR. CYMROT: Which they did in great detail.

6 THE COURT: Now, what I would like to get to is the

7 extent of the restraint, and is it too broad.

8 MR. MOSCOW: Might I speak to that, your Honor?

9 THE COURT: Yes.

10 MR. MOSCOW: John Moscow, also Baker Hostetler.

11 The restraint is of Prevezon Holdings, its assets

12 here, its assets abroad, any and all assets, whether known or

13 not known, specified or not. The restraint is of all of the

14 holdings of the domestic holding companies which are here and

15 are effectively restrained. The restraint is of the assets of

16 Ferencoi and Kolevins, whose actions in this complaint are that

17 they put money into Prevezon at some point. That is what is

18 alleged.

19 Now, that is not enough to restrain the assets, to

20 start with the easy ones, of Ferencoi and Kolevins. They are

21 foreign. The assets are unspecified and they did not launder

22 this money. They're not even accused in the factual

23 portions -- before you get to the legal conclusions, they are

24 not accused in the factual portions of this complaint of doing

25 anything but putting money into Prevezon. I suggest that the

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1 order should be modified to vacate the freeze on Ferencoi, on

2 Kolevins and on the foreign unspecified assets of Prevezon.

3 We were speaking in terms of the factual allegations

4 of the complaint before we got to the claims in paragraphs -- I

5 believe it's 120, 119. There we have conclusory language which

6 alleges all sorts of things. But if you look at the facts,

7 which are incorporated, as Mr. Monteleoni said, if you look at

8 the facts, they do not deal -- they do not set up any

9 knowledge, intent or anything else for the people involved.

10 But they don't set up anything at all for the foreign assets of

11 these companies. There's no substantive claim.

12 And to the extent that the Court is looking to modify

13 its order, as it should, the order should be modified to

14 exclude all assets other than those specified in the caption as

15 being in New York. The real estate and the banks --

16 THE COURT: What about the --

17 MR. MONTELEONI: Well, your Honor, I think that there

18 are two important questions here. One is can the United

19 States, if it prevails at a trial, ultimately forfeit all of

20 these assets? And the second is, can it restrain the assets

21 that it could ultimately forfeit before the trial?

22 As to the former, we set forth that when a business

23 entity facilitates money laundering and has a substantial

24 connection to that money laundering, it becomes property

25 involved in money laundering, and thus its assets are subject

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1 to forfeiture, subject both to the substantial connection

2 limitation and to ultimately the Eighth Amendment. And --

3 THE COURT: Well, what about assets located in a

4 foreign country?

5 MR. MONTELEONI: Yes, your Honor. So the defendants

6 have made a series of broad and categorical statements

7 regarding how the international aspects of this case work that

8 I don't think are really supported by the cases.

9 They initially stated that worldwide restraining

10 orders are not permissible in the United States, citing the

11 Grupo Mexicano case, which actually does not say that at all.

12 Then they say, well, the Maza case, where the Second

13 Circuit said that the only way to forfeit assets abroad is with

14 the cooperation of the foreign government. That's actually not

15 exactly what the Maza case said. What the Maza case said was

16 it analyzed this statute that had been enacted, 28, U.S.C.,

17 Section 1355, which appeared to provide worldwide jurisdiction

18 for forfeiture. But it said, you know, Congress can't have

19 intended to eliminate the traditional requirement that a court

20 have some -- excuse me, some actual or constructive ability to

21 actually affect the property, some way of having its orders be

22 enforceable. It said, we're going to continue to read that

23 into the statute.

24 And in that case there was cooperation of a foreign

25 government, even though the foreign government had no legal

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1 obligation to cooperate, but they said that's close enough.

2 Even though the foreign government doesn't have to cooperate,

3 it has indicated that it will cooperate.

4 So we feel that the property is sufficiently within

5 the control of the Court. What didn't come up in that case was

6 whether other means could be used to bring foreign assets

7 within the constructive control of the Court. And those other

8 means are in this case the restraining order. And the reason

9 that that didn't come up in the Maza case is because

10 18, U.S.C., Section 983(j), which allows for a restraining

11 order in these cases, hadn't been enacted when the Maza case

12 was decided. So at that time there wasn't any authority for

13 this type of broad pretrial restraint of assets subject to

14 forfeiture. So it had no occasion to address whether or not

15 some statute that would be enacted five or so years later would

16 eventually provide another --

17 THE COURT: That statute is applicable here, right?

18 MR. MONTELEONI: Yes, your Honor. The protective

19 order is authorized pursuant to -- it says protective order

20 pursuant to 18, U.S.C., Section 983(j)(1). Section 983 was

21 enacted in 2000 as part of the Civil Asset Forfeiture Reform

22 Act. So it gives the courts a power that just didn't exist in

23 forfeiture cases at the time that Maza was decided.

24 And what does that power allow? Well, in criminal

25 cases, analogous forfeiture language has been authorized to

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1 allow a Court to order a defendant who is before the court to

2 take actions to bring the defendant's assets abroad back into

3 the United States, to repatriate assets. We haven't even asked

4 for that in this case, but that's something that courts in

5 criminal cases have found that the analogous language conveys.

6 We've just asked at this time for a restraint, to preserve the

7 status quo pending the ultimate outcome.

8 Now, there's an additional case that supports that

9 broad statutory grants of pretrial restraint authority can

10 reach assets abroad when those assets are controlled by people

11 within the personal jurisdiction of the Court. And that's the

12 First City National Bank case.

13 And in that case there was a different statute. It

14 was a tax statute which also provided for broad pretrial

15 restraint authority. And in that case the property that the

16 government wanted to reach was in a foreign bank account, and

17 the Court authorized an order directed at the bank which had a

18 branch in the US to restrain those foreign funds. And it says

19 as long as the Court has personal jurisdiction over the person

20 to be restrained, can stop that person, that person who's

21 before the Court, from dissipating assets that are outside of

22 the country. And it did that, even though there was a question

23 whether the United States would eventually be able to get that

24 money. There's a question whether the defendant who owned

25 those funds would ever be effectively served with process, but

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1 they said, well, we're not going to let the assets be

2 dissipated in the meantime. So that, I think, very clearly

3 stands for the proposition that the Court has the authority to

4 issue orders to people who are before the Court. All of the

5 defendants here are subject to the personal jurisdiction of the

6 Court.

7 As to the nine Prevezon entities, that's quite simple,

8 because they actually own real estate that's sitting here in

9 Manhattan, or did recently own that real estate and sold it.

10 As to Ferencoi and Kolevins, they put money of theirs

11 into New York real estate in transactions that we allege are

12 money laundering transactions. So they are subject to at the

13 very least transactional personal jurisdiction. And the case

14 for personal jurisdiction here is actually much more compelling

15 than in the Licci v. Lebanese Canadian Bank case that we cite

16 in our brief. There they found that a bank that just had a

17 correspondent account in New York and used a correspondent

18 account a few dozen times, that that could be the basis for

19 personal jurisdiction where the case was about those uses of

20 the correspondent bank.

21 THE COURT: All right. All right. What I am asking

22 is, is there any -- let me scratch that.

23 Contrary to what the defense argues vigorously, the

24 Court believes that the government has come forward in the

25 complaint and other papers with allegations which are

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1 sufficient for present purposes to the effect that the

2 defendants, Prevezon entities, Ferencoi, Kolevins, participated

3 in laundering of funds which were originally obtained from the

4 Russian government through fraud. Now, however -- starting

5 again.

6 That is the basis properly for believing that the

7 government can ultimately obtain forfeiture, and in the

8 meantime, it is the basis for restraint. But what I'm asking

9 is, is there anything that is reached by the current order

10 which is lawful business? I do not want to restrain lawful

11 business. And is there anything that is lawful business that

12 is now being restrained?

13 MR. MOSCOW: Yes, your Honor.

14 THE COURT: Who's speaking?

15 MR. MOSCOW: John Moscow.

16 THE COURT: What is that?

17 MR. MOSCOW: Without beginning to describe all the

18 properties, there is at least one property in Russia which is a

19 functioning business, which is on the face of this order

20 subject to this order. You issued an order barring

21 transactions in the business of a hotel. I don't think you

22 were told that. I don't think you were told it was in Russia,

23 but that's the import of what you have decided. And I say no

24 more.

25 There are other properties outside the United States.

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1 I don't want to go through them. I'm not prepared to list them

2 all. When we say it's a large real estate holding company, we

3 really do mean it's a large real estate holding company. The

4 AFI relationship in Europe is mirrored by the AFI relationship

5 in New York, where they were buying apartments in an AFI

6 building. This is a genuine investment. It has many different

7 areas, and I don't want to list for the United States where the

8 properties are, but, yes, there are many such properties.

9 MR. MONTELEONI: Your Honor, if I might make a

10 suggestion. We do agree that the restraining order has some

11 effect on legitimate businesses. It quite undoubtedly has an

12 effect on the pieces of real property that are here in the

13 United States. And the way that we have been handling it so

14 far is with the United States properties, defendants have been

15 willing to present us with indications of what their expenses

16 are, their necessary expenses. And we've authorized them under

17 paragraph 3 of the order, which gives us the authority to do

18 that without making any applications to you every time. We've

19 authorized the release of the funds so that they can continue

20 to make their order and necessary payments, but we do that when

21 they can document, we do have an expense, here's what it is,

22 and under that we've authorized over $100,000 of funds to be

23 released. We actually did it while this very motion was

24 pending and in the works. And that's something that we'll

25 obviously continue to do in good faith when we're presented

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1 with an indication of a lawful business activity, of a lawful

2 business activity that has necessary expenses.

3 And defendants haven't provided us with that

4 information for property outside the United States, I assume

5 because they -- I think counsel just said they don't want it to

6 be restrained. They want to keep it from the jurisdiction of

7 the Court. I don't think that that is a legitimate basis for

8 them to withhold it, but perhaps if they do have any expenses

9 that they want to present to us, we will look at it in good

10 faith. If we can't agree on an appropriate restraint, then we

11 can come before the Court and the Court can adjudicate whether

12 these are legitimate lawful expenses, whether it is appropriate

13 for them to be paid during the pendency of the case.

14 But I think that it would be premature, when they're

15 not disclosing cases -- where they're not disclosing assets,

16 rather, so that they can be hidden from the Court essentially

17 to simply issue a blanket lifting of these funds. So I just

18 think it's a little premature to address this as to the

19 unspecified properties.

20 THE COURT: What about the hotel in Moscow?

21 MR. MONTELEONI: We've never heard of this hotel

22 before. If they indicate to us what the expenses are and

23 provide some documentation, invoices, that type of thing, we

24 will definitely work with them in good faith.

25 MR. MOSCOW: They allege this is a money laundering

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1 business. In fact, they don't know what the business is. Your

2 Honor, with due respect, there is a law which says that they

3 have to specify what the assets are that they're seeking to

4 forfeit. That's in Rule 5 -- G5, I believe, subdivision C. If

5 the order that you issued were to be limited to those

6 properties specified, that would be consistent with that rule

7 which governs the conduct of our own government. I think that

8 that would be appropriate at this time.

9 I disagree, obviously, with the Court's understanding

10 of the complaint, but I understand the Court's current position

11 to be what it is. I would ask that the order be modified to be

12 limited to those properties specified as required by Rule --

13 I'm sorry, it's G2C. And that will take care of the

14 properties, the offshore properties of Ferencoi, which is

15 challenging jurisdiction; Kolevins, which is challenging

16 jurisdiction; and Prevezon, which is not challenging

17 jurisdiction but which has assets outside the United States, as

18 I've already specified some of them in the complaint. That

19 would be my request.

20 MR. CYMROT: Your Honor, I would add one more point

21 that would specify in excess of between 15 and 20 million

22 dollars based upon this $857,000 transfer. That would leave as

23 restraint 15 to 20 million dollars, based upon this transfer of

24 $857,000. That is more than sufficient for what the government

25 ever would be entitled to in this case.

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1 MR. MONTELEONI: Your Honor, if I may, as we set forth

2 in our brief, the forfeiture of a business entity and the

3 description of its assets as any and all assets of that

4 business entity are sufficient, as you can tell by the Second

5 Circuit case of United States vs. All Assets of GPS Automotive

6 Company. You know, this isn't a case where there's actually

7 confusion of what assets are restrained. It's not like we went

8 up to a car dealer and said, United States vs. five cars but

9 we're not going to describe the cars. It's quite clear what

10 we're seeking to forfeit. And all of the purposes of

11 specificity are satisfied by this pleading, as is consistent

12 with the Second Circuit's holding.

13 MR. MOSCOW: There is no specificity. That's nothing.

14 When he says any and all, he doesn't know, for example, that it

15 includes a hotel in Russia. And I trust I didn't say Moscow,

16 in Russia.

17 To the extent that the government has to specify, it's

18 because they've had to do the work to get the information.

19 They have done a huge amount of work without tying it to our

20 guys. They don't know what these companies own, and they

21 should not be interfering with their business operations at

22 this time.

23 I would ask that the motion to vacate the protective

24 order as to Kolevins and Ferencoi and as to the unspecified

25 assets, only the unspecified assets of Prevezon, be granted.

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1 THE COURT: Well, as so often happens, there are

2 issues of fact. And it seems to me that what should be done is

3 to figure out a way to ascertain more of the relevant facts.

4 The government, obviously, is not as specific in some areas as

5 in others, but I think the government is as specific as it can

6 be with its knowledge of the facts. But I'm not satisfied on

7 the present record -- and what I'm referring to is I'm not

8 satisfied that the present order does not reach legitimate

9 business activities, but I'm not ready to do something and take

10 some step when I don't know the facts.

11 MR. MOSCOW: Perhaps we could have a hearing, your

12 Honor. Perhaps the agent could get on the stand and explain

13 the facts that underlie the forfeiture of the properties and

14 specify which ones he's talking about.

15 THE COURT: Say it again.

16 MR. MOSCOW: Perhaps the agent could get on the stand

17 and explain in terms of the complaint and the order which

18 properties he's talking about and how they relate to

19 the complaint.

20 THE COURT: No. No, that's not a helpful suggestion.

21 What I believe is necessary -- let me ask the government: How

22 do you respond to the problem I'm raising? How do you respond

23 to that?

24 MR. MONTELEONI: I think that you're exactly right

25 that we don't know enough about the defendants' assets for the

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1 Court to take a position on whether the restraint is excessive

2 as to them.

3 THE COURT: Say it again. I'm not hearing.

4 MR. MONTELEONI: Sorry. I think that you're right

5 that we don't know enough about the defendants' assets and

6 their needs for money and the burdens that the order is causing

7 for the Court to take a position one way or another on whether

8 there are aspects of the order that are excessive and overly

9 burdensome with respect to the defendants. And we would

10 suggest that the defendants have an opportunity to present the

11 Court with any information that they think justifies the

12 modification of the order for specific assets because of

13 specific needs and specific hardships, and that provides

14 adequate assurances that the property won't just simply be

15 dissipated, and so that both sides can have an opportunity to

16 comment on it and perhaps both sides will make an agreement.

17 And if not, the Court won't be ruling in a vacuum. I do think

18 that that is the --

19 THE COURT: Look, the proceeding that we're dealing

20 with, the order was entered in the fall. And the question of

21 whether that order remains, this is not going to turn into the

22 history of the world. I'm not going to have a huge, huge

23 proceeding about it. But what I would think is that with

24 some -- and I do not believe that the two sides are probably

25 willing to cooperate in arriving at some stipulation of facts.

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1 You're very far apart in your view of the merits of this, which

2 means, it seems to me, that some limited discovery on the part

3 of the government to deal with the question that I'm raising

4 should be carried out. I don't know any other solution.

5 And I also want to address this -- well, I won't go

6 any farther.

7 Now, where does this case go? We're now dealing with

8 an order. Where does it go now? Where does it go now to

9 conclude this case? Finish it up?

10 MR. MOSCOW: Your Honor, we have a motion on behalf of

11 Kolevins and Ferencoi to dismiss, which has been put off.

12 Government response on January 28th and our reply a couple of

13 weeks thereafter. We have motions to dismiss on behalf of the

14 other defendants. I believe they're on the same schedule.

15 After the motions to dismiss, if the Court grants

16 them, it's over. If the Court denies them, we would answer and

17 we would be moving for a -- if the property is being held, we

18 will be seeking -- I say this now so it's clear -- we would be

19 seeking an immediate trial, because we are confident that there

20 is a major disconnect between the incredibly detailed

21 investigation the government has as to the commission of the

22 crime and the 60/40 split in the money that went to our client

23 and any allegation that our client knew that this was dirty,

24 which he didn't.

25 So we want a trial. We want the properties. We want

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1 this lifted, but we want the trial. So I would ask, as we are

2 here today, if perhaps we could take three minutes to talk with

3 the government and see if we can arrange a trial schedule. And

4 if not, then we will simply make our separate applications.

5 But the way this will end, agreeing with your view on

6 the difference of opinion on the facts, the way it will end is

7 in a trial. So let's schedule it and let's get it started. I

8 don't think these properties should be restrained. I've said

9 that. I don't think that the government should act unlawfully

10 in failing to specify which properties. And the idea to say

11 everything you own, and since you know whether or not you own

12 it, therefore, we don't need to specify further, that's a very

13 cavalier attitude to take. So I look forward to a trial.

14 THE COURT: I'm not backing up such a -- I think if

15 you would -- what I've tried to say is that even as to the

16 restraint, there should be more facts presented to the Court.

17 Now --

18 MR. MOSCOW: We didn't bring on the ex parte

19 application --

20 THE COURT: Please, let me finish.

21 But the restraint is not the end of the line, as you

22 have very, very well stated. There does need to be -- unless

23 all or part of the case is dismissed on motion, there will need

24 to be a trial. But in the meantime, what I have asked the

25 government to do is to take some limited discovery to help the

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1 Court out with the facts relevant to the restraint.

2 You understand that, right?

3 MR. MONTELEONI: I think so, but let me suggest what I

4 understand it to be, and you can tell me if I'm getting it

5 wrong.

6 I think that we would request the documents evidencing

7 business operations that are unduly restrained and what

8 expenses they have that -- the restraint needs to be lifted to

9 allow them to pay. And based on that presentation, we would

10 take a position on whether we thought that we could agree to

11 just lift it without the need for further application to the

12 Court; or if there was a disagreement, then the Court could

13 view it and rule on it. And that additionally might allow

14 further specificity in the listing of the assets.

15 MR. MOSCOW: Your Honor, could I take a moment.

16 THE COURT: Yes, thank you. (Pause)

17 MR. MOSCOW: I just wanted to check to see what the

18 volume was. We have a company, a set of companies that take up

19 more than five stories. I don't know how many yet, with

20 employees keeping track of the records of the various

21 businesses. This is not a small enterprise. I just say I

22 hear -- when someone says that they're freezing all the assets

23 of a company, as I view the word "all," that means all. And

24 that has a certain carry-on impact for every company that does

25 business with. And the impact of this order exists, and I just

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1 think that it's proper to vacate the order.

2 THE COURT: I wish both lawyers would just listen.

3 Listen. As I said, we're not going to turn this restraint

4 issue into the history of the world. It's got to end.

5 But it's not, in my view, it's not ending this

6 afternoon in a satisfactory state. I believe there is a strong

7 possibility that some of what I have restrained is legitimate

8 business. I do not know the facts about that. I've said that.

9 I've asked the government to engage in some limited

10 discovery -- not some complicated arrangement that you just

11 mentioned, but some limited discovery to get me the facts. And

12 if you don't, then there's trouble with the government

13 application, because I do not want to restrain legitimate

14 business activity. And I'm concerned that I'm doing that to

15 some extent now.

16 You have the burden. You've got to clarify that with

17 some discovery or whatever means you can.

18 Now, that's the way we're going to leave it. I want a

19 further -- somehow further submission on this restraint on the

20 facts, and that's the way we'll leave it this afternoon.

21 Thank you very much.

22 MR. CYMROT: Your Honor, could we have a schedule,

23 just some general idea, because -- you know, how long this is

24 going to go on? Government discovery could take months or it

25 could take days or week. Could we have some limit on that in

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1 terms of time?

2 THE COURT: As soon as possible.

3 MR. CYMROT: Thank you, your Honor.

4 MR. MONTELEONI: Your Honor, might I inquire, just

5 what are we allowed to do in the discovery? I suggested

6 document requests because I think they're usually faster and

7 less burdensome than interrogatories.

8 THE COURT: You know what discovery means; document

9 requests, deposition. You know what discovery is.

10 MR. MONTELEONI: Understood. We will do it quickly.

11 (Adjourned)

12

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25

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1 UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
2 -------------------------------x

3 UNITED STATES OF AMERICA,

4
Plaintiff,
5
v. 13-cv-6326 (TPG)
6
PREVEZON HOLDINGS Ltd., et al.,
7
Defendants.
8
-------------------------------x
9
New York, N.Y.
10 March 4, 2014
2:25 p.m.
11

12 Before:

13 HON. THOMAS P. GRIESA

14 District Judge

15
APPEARANCES
16
PREET BHARARA
17 United States Attorney for the
Southern District of New York
18 BY: CHRISTINE I. MAGDO, ESQ.
ANDREW C. ADAMS, ESQ.
19 Assistant United States Attorney

20 BAKER HOSTETLER
Attorneys for Defendants
21 BY: MARK A. CYMROT, ESQ.
JOHN W. MOSCOW, ESQ.
22 -and-
BAKER BOTTS LLP
23 Attorneys for Defendants
BY: SETH T. TAUBE, ESQ.
24

25 Also Present: Gabriella Volshteyn, ESQ.
Defendant Representative

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1 (In open court)

2 THE COURT: Let me start by talking about the trial

3 date. Last time, in response to a defense request for a very

4 prompt trial, I set a trial date of March 31. Now, in the

5 materials that I've gone over since and so forth, the issues

6 are not so simple and the government objects to such an early

7 trial date. And I think the government's objection is well

8 founded. There are issues here which have to be developed.

9 And so I'm not, we're not going to have any trial on March 31.

10 Now, what other matters, if any -- I think there are

11 some other matters, but let's start with what the counsel, what

12 counsel want to bring up.

13 MS. MAGDO: Good afternoon, your Honor.

14 THE COURT: Please keep seated, because the

15 microphones are not the best.

16 MS. MAGDO: Good afternoon, your Honor. Assistant

17 United States Attorney Christine Magdo and Assistant United

18 States Attorney Andrew Adams on behalf of the government.

19 Your Honor, the government has two pending

20 applications before the Court, one of which your Honor has

21 addressed. It was a motion or a request that the Court

22 reconsider the trial date of March 31st and that it enter a

23 discovery schedule in accordance with an adjourn trial date.

24 The second application that the government has pending

25 is an application to file an amended complaint, proposed

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1 amended complaint. The file was attached to the government's

2 submission of February 18, 2014. The amended complaint would

3 significantly narrow the scope of the assets that the

4 government seeks to forfeit. The government would then, if the

5 Court granted the government's request to file the amended

6 complaint, the government would then ask the Court to approve

7 an amended protective order that would reflect the narrowing of

8 the complaint.

9 The government believes that such an amendment is

10 appropriate because it would streamline the case. It would

11 focus the case. It would negate any claims that the defendant

12 has, that the defendants have that they are suffering from a

13 hardship to their legitimate businesses as a result of the

14 current protective order that is in place.

15 And the government also has one issue that it wishes

16 to raise with the Court. It's a conflict-of-interest issue.

17 It's not an application or a motion. It's just something that

18 the government wishes to bring to the Court's attention. It

19 was the subject of a letter that the government submitted to

20 the Court this morning.

21 THE COURT: Let's start with, have you gone over the

22 proposed amended complaint and the proposed revised protective

23 order? Have you gone over those things with defense counsel?

24 MR. ADAMS: No, your Honor. Those were submitted

25 without discussing the specific documents with defense counsel.

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1 That said, the gist of the --

2 THE COURT: You haven't shown the proposed order --

3 MR. ADAMS: Oh, yes. They have a copy of the proposed

4 amended complaint.

5 THE COURT: But you had no discussion with them?

6 MS. MAGDO: Your Honor, we had discussions about

7 trying to find an amicable amendment to the protective order

8 that would alleviate the defendants' concerns about

9 interference with their legitimate business. The defendants

10 did not wish to engage in any negotiations or discussions of

11 that sort with the government. So based on that, we are now

12 asking the Court for leave to file the amended complaint.

13 In their letters to the Court they have also

14 repeatedly opposed the government's request for leave to file

15 an amended complaint.

16 THE COURT: Can I hear from Mr. Moscow?

17 MR. MOSCOW: Your Honor, well, I was going to address

18 it.

19 MR. CYMROT: Mark Cymrot, your Honor.

20 THE COURT: Whoever. Either one.

21 MR. CYMROT: Thank you. Your Honor, we do object.

22 Yesterday we took a 30(b)(6) deposition of the government

23 witness. They designated Agent Hyman. And it is clear now

24 that --

25 THE COURT: And was his deposition productive?

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1 MR. CYMROT: Yes, your Honor. It was very productive

2 because he admitted the government has no witnesses, no

3 admissible documents, and no facts to support many of the

4 allegations in the complaint, absolutely no facts to support

5 allegations. As the assistant admitted last time we were here,

6 there are no facts to support an inference that the defendants

7 knew about that they promoted or they concealed a scheme to do

8 a $230 million theft on the Russian treasury. This case is

9 about $857,000. The tracing that was done was done not by the

10 government subpoenaing documents, by partial bank records that

11 were given to the government that they can't authenticate.

12 Essentially, Judge, if you went to trial tomorrow there would

13 be no witnesses the government could call and no documents they

14 could submit. And the amended complaint is frankly an

15 irresponsible pleading, as irresponsible as the original

16 pleading.

17 We submitted the transcript to you -- I sure you

18 haven't had time to read it -- in a letter today.

19 THE COURT: Can I interrupt you?

20 MR. CYMROT: Yes, sure.

21 THE COURT: What's the name of the witness?

22 MR. CYMROT: It was Special Agent Todd Hyman. He was

23 designated.

24 THE COURT: Mr. Hyman.

25 MR. CYMROT: Mr. Hyman, yes. He was designated by the

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1 government as their witness, under Rule 30(b)(6).

2 They have no case here, your Honor. We've been saying

3 that all along.

4 THE COURT: Wait a minute. Mr. Hyman.

5 MR. CYMROT: Yes.

6 THE COURT: Who was Mr. Hyman?

7 MR. CYMROT: He is the verifying witness on the

8 complaint. He is the special agent who leads the purported

9 investigation here. And we issued a notice, a 30(b)(6) notice,

10 to say what's the basis for these allegations, and he testified

11 for about four hours, and he acknowledged there are no

12 competent witnesses, that they have no documents they can

13 authenticate, that the tracing was done on incomplete bank

14 records, that they can't authenticate, that they have no facts

15 that would lead to an inference that the defendants knew about

16 and promoted or concealed a scheme to engage in a theft from

17 the Russian treasury.

18 Judge, if you read the transcript, it will shock you.

19 THE COURT: It seems to me that you're not talking

20 about the issue.

21 MR. CYMROT: What issue? I'm sorry, your Honor. I

22 think --

23 THE COURT: The issue is whether -- maybe I didn't

24 understand you, but it seems to me that you're saying that the

25 witness showed that the government had no case as far as

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1 participating in the original fraud on the Russian government.

2 Is that what you've just said?

3 MR. CYMROT: That's one thing, your Honor. But

4 they --

5 THE COURT: I don't think the government --

6 MR. CYMROT: But there was no --

7 THE COURT: Excuse me. I don't think the government,

8 to my knowledge, has ever charged that the defendants here

9 participated in that tax fraud. Am I right?

10 MR. CYMROT: That they knew about. Each claim in the

11 complaint alleges that they knew about the fraud, that they

12 intended to promote or conceal the fraud. Each claim in the

13 complaint alleges that. And last time you were questioning the

14 government and they said, we don't know anything about the

15 defendants' state of mind. That's one thing.

16 THE COURT: You know, we're not getting anywhere right

17 now. In the first place, I think it was a waste of time to

18 take -- I think it was a mistake for the government to

19 designate that person as the witness. And I think it was a

20 waste of time to take his deposition. And so it seems to me

21 we've got to get this litigation on track. And the kind of

22 discussion we're having right now is not on track. My

23 understanding of what this case is about is the claim that the

24 defendants participated in money laundering.

25 MR. CYMROT: Correct, your Honor.

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1 THE COURT: I don't understand the government to claim

2 that the defendants participated in or engineered or conceived

3 of or anything like that the original tax fraud on the Russian

4 government. Can the government attorney respond? Am I right?

5 MS. MAGDO: That's correct, your Honor.

6 THE COURT: All right. Now, what the case against

7 these defendants is that, it starts with the idea that after

8 the $230 million was stolen from the Russian government there

9 was, as could be expected, efforts to launder those proceeds.

10 Now, the government does not contend, as far as I

11 know, that it has a claim or a basis to claim that these

12 defendants laundered all of the $230 million, or anything other

13 right now, except the specific claim that these defendants

14 participated in the laundering of, what is obviously a very

15 small part of the $230 million, the sum of -- I never can

16 remember -- $875,000.

17 MR. CYMROT: 857, your Honor.

18 THE COURT: -- 857,000. And that right now is what

19 the government is claiming. Am I right?

20 MS. MAGDO: Yes, your Honor.

21 THE COURT: And I think there's information in the

22 record, whether it's correspondence or what, that the $857,000

23 came into the hands of the defendants through to shell

24 companies from a place, is it Moldavia or Moldava or what?

25 MS. MAGDO: Moldova.

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1 THE COURT: Moldova. Am I right?

2 MS. MAGDO: Yes. That's one of the allegations.

3 THE COURT: And so that's what this case is about.

4 MR. CYMROT: Your Honor, each of the claims say that

5 the defendants -- allege that the defendants knew about a

6 specified unlawful activity, which is the $230 million fraud.

7 Each of the claims says that --

8 THE COURT: If you want to make a bigger claim than

9 the government is making, that's a curious way for --

10 MR. CYMROT: Well, but that's what the amended

11 complaint says, your Honor. And that's what the complaint

12 says. That's what the complaint says. They allege that they

13 had knowledge of a specified unlawful activity, which is the

14 $230 million fraud, that they intended to promote it or conceal

15 it. Each of the claims says that. And what they're seeking in

16 the complaint, and in the amended complaint --

17 THE COURT: Can I interrupt you? Does the government

18 claim, now, that these defendants participated in any way in

19 the $230 million fraud on the Russian government? Has the

20 government claimed that?

21 MS. MAGDO: The government does not have, currently

22 have a basis for alleging that the defendants directly

23 participated in the $230 million theft of the Russian taxpayer

24 money from the Russian treasury.

25 THE COURT: Can you just answer my question simply?

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1 MS. MAGDO: Yes, that's correct.

2 THE COURT: Does the government now claim -- look, you

3 know as well as I do that there can be a great difference

4 between a crime, such as selling drugs or defrauding investors,

5 and reaping some amount of money from that crime. There can be

6 a big difference between such a crime and participating in the

7 laundering of the proceeds of that crime. Which are you

8 charging here? One or both?

9 MR. ADAMS: Your Honor, principally it is, as you say,

10 that they laundered the proceeds of a spec --

11 THE COURT: I don't want to hear about "principally."

12 I want to hear about what we're claiming.

13 MR. ADAMS: There are both claims in the complaint.

14 What we are, have been saying and what I believe Assistant U.S.

15 Attorney Monteleoni said last time is that there is currently,

16 before any discovery has been offered, no facts in our

17 possession that show actual knowledge of the particular

18 defendants of the $230 million fraud. There is some

19 circumstantial evidence that that might be true, that might be

20 developed through discovery. But to succinctly answer your

21 question, the complaint does allege both of those tinction.

22 MR. CYMROT: And they're seeking $230 million or more

23 from the defendants arising from the alleged money laundering

24 of $857,000. And each of the claims -- and there are seven --

25 claim that they knew about the specified unlawful activity,

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1 which is the $230 million, and they intended to promote or

2 conceal it. And they have not walked away from that. The

3 amended complaint says the same thing, your Honor. So we're

4 facing the 230 million on an admission that they have no basis

5 to make allegations about knowledge or intent. They have said

6 it repeatedly, your Honor.

7 MR. ADAMS: Your Honor, two points. First, Ms. Magdo

8 wanted to make a point about what's being sought.

9 THE COURT: You seem to me to want to make a big case.

10 I want to make a case that is properly presented to a court.

11 And in order to make a claim in a case, there has to be some

12 basis for that claim. Pleadings can contain all kinds of

13 things. They can often be very different from what a plaintiff

14 ends up claiming.

15 MR. ADAMS: Your Honor, if I may --

16 THE COURT: I feel that this is a very strange

17 procedure because the defense lawyers want to insist on the big

18 claim.

19 MR. CYMROT: We want you to dismiss the big claim.

20 They say it's included in the complaint. We want it dismissed.

21 We want the whole case dismissed because there is no factual

22 basis to make allegations. But certainly we want you to

23 dismiss the $230 million part of it, because they have

24 repeatedly admitted they have no facts. It's not that they

25 have no evidence. They have no facts. They have no basis for

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1 making the allegations. This was clear from the deposition

2 yesterday.

3 THE COURT: I don't think the deposition probably

4 solved anything.

5 MR. MOSCOW: Your Honor, if I might?

6 THE COURT: I think it was a waste of time to take

7 that deposition.

8 MS. MAGDO: Justify to clarify, your Honor, the

9 government, in its proposed amended complaint that it submitted

10 to the Court on February 18th and which defense counsel has a

11 copy, no longer seeks damages in the amount of at least $230

12 million. It seeks monetary damages in an amount to be

13 determined at trial.

14 So we do not claim that, at this point, that we have a

15 basis for saying the defendants were involved in the entire

16 $230 million fraud. But as your Honor points out, the

17 defendants keep trying to set up a straw man, where they set up

18 a case that the government is not trying to make. They say

19 that the government does not allege the defendants to be

20 members of the organization, the complaint does not allege that

21 they were involved in the death of Sergei Magnitsky. The

22 government does not need to allege that. Money laundering

23 doesn't require that a participant know all the upstream

24 participants or even the nature of the crime that generated the

25 money that's being laundered. And furthermore, knowledge may

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1 be shown by proof of willful blindness, deliberate ignorance,

2 or conscious avoidance. They are attempting to set up a straw

3 man that they are able to easily knock down.

4 MR. MOSCOW: Your Honor, if I might, this amended

5 complaint goes into the existence of an organization as

6 defendants in this case. It goes into the existence of the

7 arrangements. So it goes into the death of Sergei Magnitsky.

8 And the government now says that their case has nothing to do

9 with any of those. There is perhaps a case that they could

10 bring if they had the evidence, which they don't, if they had

11 witnesses, which they swore under oath yesterday they do not.

12 And this is a designated witness selected by the government,

13 who said, we don't have competent witnesses and we don't have

14 any verified evidence, and we've not yet sought to get evidence

15 from Russia.

16 These are the points that their witness made under

17 oath, binding the United States, as I reminded him he was

18 doing. So they want an amended complaint based on the

19 defendants' knowing something where they have no witnesses and

20 they say so. You can't do that. You can't accuse people in

21 this scandalous way and have nothing. This is totally without

22 basis. And I find it shocking, as you will when you read the

23 transcript, that this would proceed in this way. The

24 investigation was not conduced. They did not get the evidence,

25 if it exists. They did not get witnesses. And my clients

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1 assure me that there are no such witnesses because they did not

2 know that this crime was taking place.

3 THE COURT: What about the shell companies? What

4 about those?

5 MR. MOSCOW: Let me address that, very clearly. About

6 half the money that went through those companies, if the

7 government's numbers were correct, which I have -- they have no

8 basis for, but if they were, half the money came from the

9 Russian treasury and half did not. Money came in to an account

10 in Switzerland. The money which arrived was described in a

11 bank statement, in English, which was not given to the people

12 running the companies for months. It was a Coldmail account.

13 THE COURT: You're not answering my question.

14 MR. MOSCOW: I'm sorry. I'm attempting to. The two

15 companies which sent the money in were acting at the request of

16 Mr. Kim, who was sending money to Prevezon for the benefit of a

17 Mr. Petrov. That's what the government understood the

18 situation to be.

19 THE COURT: Why did he have to use two shell

20 companies?

21 MR. MOSCOW: My clients are none of them. My clients

22 were the guys who got the money --

23 THE COURT: You're not answering my question now. Why

24 did they have to use that? Why can't they -- in other words,

25 if you've got a legitimate investor, why the legitimate

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1 investor makes out a check to Prevezon?

2 MR. MOSCOW: The answer, your Honor, would be in the

3 mind of Mr. Petrov. But in my experience in dealing with

4 businessmen from Russia and other countries, some of them are

5 not wholly enthusiastic about letting their holdings be known

6 in their country. So they use secrecy jurisdictions to conceal

7 their assets. And that is how they do business. And when you

8 have an agreement with a Mr. Petrov and you know who he is and

9 you know his father and you know of him and he makes an

10 investment and the money comes in as he said it would, you do

11 not go to the bank statement, to your banker and say, could you

12 check to see from whom this money came, to see if they were

13 genuine. You simply say, OK, the money arrived.

14 This is a businessman. The money was promised. It

15 arrived. It was invested. So the guys at Prevezon did not go

16 upstream to see where the money came from. That was not their

17 job. Their job was to invest the money, which they did. Real

18 estate in Europe.

19 THE COURT: The thing is, what you say may be

20 absolutely the entire relevant facts. It may be. But there

21 are issues. And the government contends that something

22 different happened. And who is right, we'll either have a

23 dispositive motion later or we'll have a trial.

24 MR. MOSCOW: Sure.

25 THE COURT: And we're not going to have a trial today.

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1 Now, to get this back on track, number one, there will

2 be no trial on March 31.

3 (Pause)

4 THE COURT: We have at least said there will be no

5 trial starting March 31. The next thing to be discussed is the

6 proposed amended complaint. I take it that the defendants have

7 had the proposed amended complaint for --

8 MS. MAGDO: Roughly two weeks.

9 THE COURT: What?

10 MS. MAGDO: Roughly two weeks.

11 THE COURT: All right. You have a right to file

12 objections to that proposed amended complaint. Do you wish to

13 do that?

14 MR. CYMROT: Yes, we do, your Honor.

15 THE COURT: Then why don't you do it.

16 MR. CYMROT: Yes, your Honor.

17 THE COURT: And then the amended complaint will either

18 be approved or not approved. After that, if it's approved, I

19 imagine some form of amended complaint will be approved, and

20 then we have the issue of whether there will be an amendment to

21 the protective order.

22 MR. MOSCOW: Your Honor, the government's request to

23 amend protective order could be granted today. It is

24 independent of the amendment to the complaint. The protective

25 order could be limited today without waiting.

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1 MR. CYMROT: It should be limited, your Honor, to

2 $857,000. That's what you've repeatedly said this case is

3 about. And we object to any protective order. We think there

4 is no basis for it. But if you're going to have protective

5 order, it shouldn't be beyond that.

6 THE COURT: Apparently you do not have any proposed

7 amended or revised protective order.

8 MR. CYMROT: We have a motion pending to vacate, your

9 Honor.

10 THE COURT: It's really not in response to what I was

11 saying.

12 MR. CYMROT: I'm sorry.

13 MR. MOSCOW: Your Honor, we will submit by tomorrow

14 morning a proposed amended protective order.

15 THE COURT: That will be very good.

16 So then before the Court will be the proposed amended

17 complaint, proposed by the government, and a proposed amended

18 protective order, proposed by the defense. And each side can

19 respond.

20 Now, let's come to the issue of discovery. What

21 discovery does the government plan to engage in?

22 MR. ADAMS: Your Honor, we have already served our

23 document requests on the defendants. We are also anticipating

24 the need to engage a few expert witnesses and translators of

25 voluminous Russian documents. We are in the process with the

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1 Office of International Affairs of the Department of Justice in

2 preparing a number of mutual legal assistance treaty requests.

3 THE COURT: To prepare what?

4 MR. ADAMS: Some MLAT requests, your Honor, some

5 mutual assistance treaty requests to a number of different

6 countries, including Russia, Moldova, and Dubai. And we are

7 expected to have those approved finally by --

8 THE COURT: An not clear. What is it you're

9 requesting approval of?

10 MR. ADAMS: It's a mechanism for document discovery in

11 other countries. It requires the approval of the Department of

12 Justice in Washington. And they have the final say on this

13 request. They have them currently. And we're hoping to get

14 those out the door shortly. And they will be delivered on the

15 central authority for the three countries I mentioned. And

16 then we get responses back within a number of months usually.

17 My understanding, from Russia, is that when things are working

18 smoothly and diplomatic relations are not as frayed as they

19 might be currently, six months is the typical turnaround.

20 MR. CYMROT: I pose the possibility that things aren't

21 working smoothly.

22 MR. ADAMS: I would agree with that.

23 MR. CYMROT: And we question, your Honor, why this

24 wasn't done four months or even before their investigation.

25 Because they brought this case without documents and without

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1 witnesses. And now they're saying it will take six months or

2 more to get documents or witnesses. It's just irresponsible,

3 your Honor. It's been irresponsible from day one.

4 MR. MOSCOW: The request to Russia may take very long.

5 The request to Moldova, I don't know. The request to Dubai, if

6 they're seeking records that are discussed there, are

7 irrelevant to our clients. I think that this is an attempt to

8 stall the case.

9 The government is lacking what it needed to bring the

10 complaint. And when they say that they are -- I have not seen

11 what they told the Dutch court. And I would ask you to, rather

12 than have it turned over to us, I would ask you to ask the

13 government to make available to you what the Department of

14 Justice told the Dutch authorities to get them to freeze the

15 assets there, as opposed to what they told you. I'm going to

16 ask you to look at that.

17 This case is lacking in the minimum necessary to bring

18 a case. They have money coming from Moldova, of which half, by

19 their version, is from the treasury and half is not. We say we

20 know nothing about the treasury and we expected to get it from

21 Petrov. They say, we know nothing about your intentions, we

22 know nothing about your knowledge, so we will freeze your

23 properties in the United States and worldwide, and make you

24 come into the United States to defend an expensive lawsuit

25 because we don't have any evidence of your intent or your

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1 knowledge, but you do have property here, so we can move

2 against it.

3 That's not what the law provides for. That's not what

4 Rule G provides for in the in rem. That's not what the rules

5 on sanctions provide for. You can't bring a case on nothing.

6 And when they produce a 30(b)(6) witness to speak for the

7 United States and he says, no, we have no competent witnesses,

8 no, we do not have any authentic records, then you can

9 understand my client's frustration at having to defend this

10 lawsuit. This really calls out for separate action.

11 And we will be submitting a proposed order, as I said

12 we would. We will be responding to their proposed amended

13 complaint. But read the complaint as though it was addressed

14 to you and say, jeez, it talks about an organization, it talks

15 about organized crime, it talks about associates, it talks

16 about the death of Magnitsky and acts of Congress, and none of

17 it has anything to do with you; what you did was, you got some

18 money in an account in Switzerland when you were living in

19 Russia, and because of that we're going to accuse you of all

20 ambitious things -- which, by the way, ruin your bankability

21 everywhere in the world. That's harsh. It is savage. And

22 it's undirected. That's just not right. And it shouldn't be

23 put up with.

24 So we will go forward, because I understand Court has

25 procedures and everything has to be analyzed. But I believe

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1 you'll be shocked when you read the deposition. It is not a

2 waste of time. These are binding admissions on the United

3 States. This was not the agents of the verifier. This was a

4 deposition directed to the United States. And the United

5 States made admissions which, frankly, were shocking.

6 MR. CYMROT: And, your Honor, the amended complaint

7 contains all those same allegations. It names the allegations

8 about the $230 million fraud, about the death of Magnitsky,

9 about the statute. They say all they want. They're not

10 accusing our clients of being involved in that. But what's it

11 doing in the complaint then? And how is a businessman, a

12 banker anywhere in the world supposed to read that other than

13 the other than the United States associating our clients with

14 those events? And even they have admitted twice in writing to

15 your Honor that our clients have nothing to do with the death

16 of Magnitsky. It is still in the amended complaint. How is

17 anybody in the world supposed to read that except the United

18 States is accusing them of participating in that? It is

19 outrageous and irresponsible, and if you read that transcript

20 from yesterday, you will be shocked, I guarantee you.

21 THE COURT: Look, we sort of go around in circles. We

22 have a hearing. We have very strenuous protests from the

23 defense side that they had nothing to do with money laundering

24 and all that happened was a legitimate investment. And those

25 protests are made with great fervency by the counsel, and

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1 requests for a quick trial. The government does not respond in

2 kind. The government doesn't stand up here in court and argue

3 its case, because this is not the way things are generally

4 done. I imagine if the government could tell of what

5 investigation it made, of what it did within the U.S.

6 Attorney's Office or with other agencies to prepare for the

7 filing of this case, we would hear a lot of interesting things.

8 But that isn't the way it's done here.

9 Now, we have motions that can be made. The government

10 has -- I'm not sure it was a formal motion, it doesn't make any

11 difference -- the government has proposed an amended complaint.

12 The Court hasn't approved that. And the defendants have a

13 right to object to that, which you can do. We've talked about

14 that.

15 There is a protective order. The defense can move to

16 vacate or amend the protective order, which you will do. We've

17 talked about that. And the lawyers for the defense know, as

18 well as I know, there are motions available under the federal

19 rules, including a motion for summary judgment. But we're not

20 going to really continue having the merits of the case argued

21 informally in court. We're going to start being more formal

22 and we will expect, if someone wants to make a motion, they

23 will make a motion. And then the other side can respond, in an

24 orderly way.

25 On the issue of discovery, it doesn't help at all for

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1 the defense lawyers to say, the government should have done it

2 a long time ago. That doesn't get anywhere. When should the

3 government conduct investigation and so forth? The Court

4 doesn't really get into that. The Court deals with what's on

5 the record. You have an opportunity to address that. If the

6 government serves requests for documents, the defense has an

7 opportunity to object to that. This is all in the rules. If

8 the government engages in any other form of discovery and the

9 defense objects to it, those objections can be made under the

10 rules.

11 So I think this is all we can do this afternoon.

12 MR. CYMROT: Your Honor, can I make a request?

13 THE COURT: Yes.

14 MR. CYMROT: That you set a time when they will report

15 on the MLATs.

16 THE COURT: A time that they will what?

17 MR. CYMROT: Report on the status of the MLATs, that

18 you will set a discovery cutoff of a reasonable amount of time,

19 and that we'll set a trial quickly. Because we are now already

20 six or seven months into this case and they haven't done

21 anything. And I think, your Honor, I sympathize with your

22 statement that you've assumed there was a lot going on behind

23 the scenes where the government can't talk about it. But the

24 deposition yesterday said they haven't done anything. They

25 accepted information from a source. And that's it. And they

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1 identified the source. And they haven't checked on the

2 adequacy or accuracy of the information. And we have no

3 discovery we can take. There are no witnesses here for Russia

4 who can talk about this fraud. There are no witnesses from

5 these banks. They don't have authentic bank records. What can

6 we do? We want an early trial because there is no discovery we

7 can take of a fraud that occurred in Russia. There is no

8 discovery you can take of banks in Russia. And they haven't

9 done it and they should have done it. And you're presuming

10 that they acted responsibly. And I am telling you, you'll be

11 shocked when you hear what they've done. You will be shocked.

12 THE COURT: You have an opportunity to make a motion.

13 MR. CYMROT: We will, your Honor.

14 THE COURT: And the advantage of making a motion is

15 the government can -- that will be an orderly -- if you file an

16 appropriate motion, you're filing an appropriate motion and the

17 government will have the opportunity to respond. And this is

18 all much superior to the kind of discussion we get here of

19 accusations and so forth. I can't deal with that.

20 MR. CYMROT: I understand, your Honor. We will file

21 the motion.

22 THE COURT: As long as we're taking the time, what is

23 the problem about the alleged conflict of interest?

24 MR. CYMROT: Your Honor, several years --

25 THE COURT: The government has sent a letter. What's

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1 the issue there?

2 MS. MAGDO: Your Honor, the government wishes to bring

3 to the Court's attention a prior-client conflict that's based

4 on the prior representation of Hermitage by Baker Hostetler and

5 specifically by Mr. Moscow. As your Honor may recall,

6 Hermitage was the company whose subsidiaries had their

7 corporate identities stolen. And that was the beginning of the

8 $230 million Russian tax fraud.

9 Hermitage and its founder and chief executive officer,

10 William Browder, engaged Baker Hostetler in late 2008 and early

11 2009 in connection with the very same subject, it is the

12 government's understanding based on what it knows, as the

13 matter currently before the Court.

14 The government believes that --

15 THE COURT: Wait a minute. Baker Hos -- what is it?

16 The firm name is what?

17 MS. MAGDO: Baker Hostetler.

18 THE COURT: Baker Hostetler. They, that firm was

19 retained by Hermitage when?

20 MS. MAGDO: In late 2008 and early 2009.

21 THE COURT: And do you know for what purpose?

22 MS. MAGDO: It's the government's understanding from

23 speaking with representatives of Hermitage that Baker Hostetler

24 was engaged to defend against the ongoing fraud in Russia and

25 the false allegations that were being made against

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1 Mr. Magnitsky, who was an attorney working for Hermitage and

2 against Hermitage itself in Russia. And one of the tasks that

3 Hermitage asked Baker Hostetler to undertake was to attempt to

4 unravel the flow of money from the Russian fraud scheme to

5 trace the money, to try to figure out who the beneficiaries

6 were worldwide. And Baker Hostetler did in fact assist them

7 with that. Apparently they came up with the strategy of

8 issuing subpoenas and tracing the money, a strategy that led to

9 Hermitage obtaining some of the very same documents as the

10 government is currently using as a basis for its complaint.

11 THE COURT: Baker & Hostetler will be the attorney on

12 this?

13 MS. MAGDO: Yes. That's government's understanding.

14 Again, the government is not taking a position on it.

15 It just believes that it has an obligation to bring this matter

16 to the Court's attention and that the Court has the authority

17 to investigate and to issue a ruling on what it finds with

18 respect to this matter.

19 MR. ADAMS: The government, at what became very clear

20 at yesterday's, the first half of a deposition that was held

21 yesterday --

22 THE COURT: Who is speaking now?

23 MR. ADAMS: It's Andrew Adams, your Honor. William

24 Browder and the principals at Hermitage will be key witnesses

25 in this case. In particular, worrying about the possibility of

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1 a short time frame for depositions and trial, we put it in our

2 letter because we felt that this issue was now coming to a

3 head. But as Ms. Magdo said, our interest is in raising it in

4 order to make for a smooth process. But we're not taking a

5 position as to whether there is in fact a conflict.

6 THE COURT: Mr. Moscow?

7 MR. CYMROT: I'll respond, your Honor. It's

8 Mr. Cymrot. Your Honor, we were retained in 2008 for a very

9 limited purpose of doing a 1782 subpoena request, which we

10 ended up not doing. And that related to a company called

11 Renaissance. We were retained by Hermitage to get information

12 about a prior tax fraud related to a company called

13 Renaissance.

14 We only acted in that respect for a very short time.

15 For various reasons I won't get into right now, at the time

16 that we were approached to take on this representation, we

17 carefully reviewed whether there was a conflict.

18 THE COURT: The prior representation.

19 MR. CYMROT: The current representation. When we were

20 approached by Prevezon, we carefully reviewed whether we had a

21 conflict. And we came to the conclusion that we didn't have a

22 conflict. And we maintain that right now, that we have no

23 conflict. Hermitage has filed a bar complaint with the

24 Appellate Division of the New York State Supreme Court and I'm

25 told, by reading in the newspaper, with the Southern District

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1 of New York, but we haven't been served with anything by the

2 Southern District.

3 THE COURT: Repeat that last. Who filed a complaint

4 with the state bar?

5 MR. CYMROT: One with the Appellate Division of the

6 New York Supreme Court. We are told, although we haven't seen

7 it, that Hermitage submitted it to the Southern District of New

8 York here, to a disciplinary committee. We haven't been served

9 with anything by the Southern District.

10 THE COURT: Hermitage has filed something with the

11 state court?

12 MR. CYMROT: Yes. And we're responding to that.

13 THE COURT: Complaining of what?

14 MR. CYMROT: Complaining -- they are claiming -- well,

15 the complaint has shifted over time, your Honor. They are now

16 saying that we, Mr. Moscow and our firm, are involved in

17 tracing the funds from the Russian treasury. That's simply not

18 true. And we have investigated our files. That was not our

19 retention and we didn't do it. So this is something, if your

20 Honor wants to hear it, I think we should have something other

21 than a government letter. We need a motion of some sort.

22 Because it's not before your Honor now. And I want to know

23 what their basis for saying what the government just said is,

24 because it is inaccurate in many ways, particularly the scope

25 of our representation, which was very limited, to getting

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1 subpoenas relating to Renaissance.

2 THE COURT: What is Hermitage?

3 MR. CYMROT: Hermitage owned funds, hedge funds or

4 private equity funds, in Russia. At one point it was the

5 largest hedge fund in Russia.

6 THE COURT: I'll tell you, I'll tell you, the

7 government is not requesting the Court to do anything, and it

8 would be completely inappropriate for me to take any action or

9 voice any vow. And I will not do it at this time.

10 The issue in this case is whether Baker Hostetler can

11 properly represent its client in this case, Prevezon. Thus

12 far, that firm has vigorously and skillfully done such

13 representing. That's what I know, from observation. And it is

14 inconceivable that I would -- and nobody is even suggesting

15 this, but it's inconceivable that I would give any

16 consideration to what Heritage, or Hermitage, whatever the --

17 Hermitage?

18 MR. CYMROT: Hermitage.

19 THE COURT: -- might be filing in the state court.

20 And so right now, as far as I'm concerned, Baker Hostetler is

21 properly representing its clients in this case, and that's the

22 way we'll leave it. If there's some other development that

23 changes things, well, that's something that I do not know

24 anything about right now.

25 The way I think we've left it, there can be motions on

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1 the subject I've talked about, and let's leave it for the day.

2 Thank you.

3 MR. ADAMS: Thank you, your Honor.

4 MS. MAGDO: Thank you, your Honor.

5 MR. CYMROT: Thank you, your Honor.

6 o0o

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1 UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x

3 UNITED STATES OF AMERICA,

4 Plaintiff,

5 v. 13 CV 6326(TPG)

6 PREVEZON HOLDINGS, LTD., et
al.,
7
Defendants.
8
------------------------------x
9 New York, N.Y.
February 14, 2014
10 12:10 p.m.

11 Before:

12 HON. THOMAS P. GRIESA,

13 District Judge

14 APPEARANCES

15 PREET BHARARA
United States Attorney for the
16 Southern District of New York
BY: ANDREW C. ADAMS
17 PAUL M. MONTELEONI
Assistant United States Attorneys
18
BAKER HOSTETLER
19 Attorneys for Defendants
BY: MARK A. CYMROT
20 JOHN W. MOSCOW
- and -
21 BAKER BOTTS LLP
BY: SETH T. TAUBE
22

23

24

25

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1 (Case called)

2 COURT CLERK: Is plaintiff ready?

3 MR. ADAMS: Good morning, your Honor. Andrew Adams

4 and Paul Monteleoni for the United States.

5 COURT CLERK: Is defendant ready?

6 MR. CYMROT: Mark Cymrot with John Moscow, Baker

7 Botts, and Seth Taube for the defendants.

8 MR. MOSCOW: Good morning, your Honor.

9 THE COURT: What are the issues for this morning?

10 MR. ADAMS: Your Honor, we're principally here on the

11 government's request for a protective order regarding the

12 noticed deposition of Special Agent Todd Hyman, that was

13 previously noticed. It was supposed to be happening today.

14 Because of the weather, it's been pushed to next week.

15 You have our letter of February 6th and the

16 defendants' letter of February 10th.

17 And essentially what the government is --

18 THE COURT: Well, it's a request for a deposition and

19 documents, so what?

20 MR. ADAMS: Today what we're asking for is just a

21 protective order regarding the timing of the deposition of

22 Special Agent Hyman.

23 THE COURT: What do you mean, the timing?

24 MR. ADAMS: We don't have an objection to Agent Hyman

25 being deposed in this matter, obviously he's the affiant on the

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1 verified complaint. Our concern that we tried to set out in

2 the letter has to do with the rationalization of this discovery

3 process. Special Agent Hyman is being deposed before any

4 documents have been turned over. We will be turning over

5 documents shortly in this case. That is one thing I want to

6 clarify, it may be I think somewhat confused in the defendants'

7 letter.

8 We're not asserting privilege or some right not to

9 turn over a huge category of documents at all. What we're

10 concerned about is questions about the sources of information

11 that underlie Agent Hyman's verification of the complaint, with

12 respect to what we believe are credible law enforcement

13 privileged claims over the sources of those information --

14 THE COURT: I'm going to interrupt you.

15 MR. ADAMS: Yes, sir.

16 THE COURT: You can sit down.

17 MR. ADAMS: Sure.

18 THE COURT: As far as I can see, the deposition of the

19 person who signed the complaint has no particular utility at

20 all in the case.

21 Now what has utility and what we've got to explore is

22 where this case goes, and that doesn't depend on the timing of

23 depositions or the order of discovery. That is substantial,

24 and that's what I want to talk about today. And we'll talk I'm

25 sure further in further times. But it's not clear to me where

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1 this litigation is going.

2 We have allegations of money laundering, but then we

3 end up with an allegation of, I don't know, 800,000-odd dollars

4 worth of property in New York City, and none of that really

5 indicates to me ultimately where the government wants to go

6 with this litigation.

7 The government can't just file a lawsuit talking in

8 kind of general terms about money laundering. The litigation

9 has to do something about the money laundering, or else money

10 laundering is obviously of interest and important, but this

11 litigation has to do something about it.

12 So where is this litigation going? And as far as I'm

13 concerned, it's really got nothing to do with the deposition at

14 all. I'm just going to order the deposition notice set aside.

15 We're going to get to the really more, in my view, substantial

16 matters.

17 Okay. What does the government say?

18 MR. MONTELEONI: If I may be heard, your Honor?

19 THE COURT: Why don't you use the lecturn.

20 MR. MONTELEONI: Yes, your Honor.

21 The parties have --

22 THE COURT: Why don't you use the lecturn.

23 MR. MONTELEONI: Oh, the lecturn, I'm sorry.

24 THE COURT: That's all right.

25 MR. MONTELEONI: Thank you, your Honor.

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1 The government believes that now that the defendants

2 have withdrawn their motion to dismiss with respect to certain

3 of the defendants, it's clear that discovery has to happen, and

4 the discovery schedule has to be set. Though there is still a

5 motion to dismiss pending as to certain defendants, but

6 whatever happens with that motion, the case will proceed with

7 respect to the others.

8 Now, the parties have had a Rule 26 (f) conference to

9 discuss a discovery schedule. We've each made proposals --

10 THE COURT: Look, I'm not talking about scheduling

11 discovery. I want to know substantially, in substance, what

12 the government is trying to do in this case.

13 MR. MONTELEONI: The government --

14 THE COURT: And it is not a matter of scheduling

15 discovery or whatever you're talking about.

16 MR. MONTELEONI: Yes, I'm sorry if I misunderstood

17 your Honor.

18 The government is seeking to forfeit the assets of the

19 defendant companies' property involved in money laundering.

20 THE COURT: What assets?

21 MR. MONTELEONI: Well, there is real property in

22 New York and there are funds in bank accounts in New York,

23 there are also funds now that are restrained in the

24 Netherlands. Additionally, the complaint does apply to other

25 further assets of the defendants that are abroad, and this is

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1 something that was raised, but not yet resolved, in the

2 protective order motion.

3 As to those assets, we've been discussing proposals

4 that would lift the restraint on large numbers of them, so long

5 as there is sufficient property restrained in the United States

6 that the government has confidence that any forfeiture order

7 will ultimately be enforceable.

8 THE COURT: Well, what property is there in the United

9 States?

10 MR. MONTELEONI: There are currently I believe four or

11 five pieces of real property with values amounting to about

12 $6 million. There are bank accounts with about $300,000, a

13 little more than that. And then there are 3 million Euros that

14 are not in the United States, but they're being restrained by

15 the Dutch authorities in cooperation with the government, and

16 they certainly --

17 THE COURT: In cooperation with the U.S. government?

18 MR. MONTELEONI: Yes, pursuant to a formal request,

19 the government of the Netherlands has restrained those funds.

20 And we would obviously transmit to the government of the

21 Netherlands any orders that this Court might enter with respect

22 to the disposition of the properties, and we would hope and

23 expect that they would honor them. They've been cooperating

24 with us pursuant to our requests.

25 So those are the properties that are actually

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1 restrained.

2 There's also the question about the properties that

3 are subject to the protective order, but not specifically

4 enumerated, and not in the United States.

5 The defendants wanted to lift the restraint on all of

6 those properties. The government is willing to lift the

7 restraint on certain of them, but requested, and would continue

8 to request, that certain additional funds be transferred into

9 the United States such that the total amount of assets

10 restrained is $15 million. This is, by the way, the

11 $15 million that at the last conference defendants said would

12 remain restrained if all of the overseas assets were lifted.

13 The only issue is that actually there aren't quite as many

14 assets in the United States as they believed at the conference.

15 So that's what we would like to happen, would be to

16 resolve the protective order motion with an order that would

17 direct that if the defendants subject several additional

18 million dollars to restraint in the United States the

19 protective order will be lifted as to all of the other

20 properties, and then we can proceed with the case seeking to

21 forfeit the --

22 THE COURT: Well, what is the case for forfeiture?

23 MR. MONTELEONI: Well, the case for forfeiture is that

24 an elaborate tax fraud was committed in Russia. The proceeds

25 of that fraud were distributed to a number of places across the

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1 world in a large coordinated pattern of money laundering, and a

2 portion of those proceeds were distributed to the defendant

3 companies, the defendant companies commingled those funds into

4 their real estate operation to allow those funds to move out of

5 the world of shell companies --

6 THE COURT: Let me back up.

7 MR. MONTELEONI: Sorry.

8 THE COURT: You've got the tax fraud in Russia.

9 MR. MONTELEONI: Yes.

10 THE COURT: And then there were proceeds of the tax

11 fraud, what 250 million or --

12 MR. MONTELEONI: $230 million was --

13 THE COURT: $230 million, U.S. dollars equivalent?

14 MR. MONTELEONI: Yes.

15 THE COURT: All right. Now, then that money has to go

16 somewhere.

17 MR. MONTELEONI: That's correct.

18 THE COURT: Now, it might go somewhere, over which a

19 U.S. court had no -- in a way that a U.S. court had no

20 jurisdiction. If it was all going through India or Germany or

21 whatever, then you might have a very interesting money

22 laundering operation, but it might not be within the

23 jurisdiction of a U.S. court.

24 MR. MONTELEONI: That's absolutely right, your Honor.

25 THE COURT: Now what is it that gives the U.S. court

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1 jurisdiction in this case, what is it?

2 MR. MONTELEONI: Well, the $857,000, a little more, of

3 proceeds of the fraud was transferred to Prevezon Holdings, the

4 parent company of most of the defendants. And Prevezon

5 Holdings invested that $857,000 into buildings that are right

6 here in New York, with the cooperation of the other defendants,

7 Ferencoi and Kolevins, which also commingled their own funds to

8 allow the real estate purchases.

9 The complaint alleges that the proceeds of the fraud

10 are, in part, right here in the Southern District of New York,

11 and the complaint also does allege that some funds were

12 transferred to the Netherlands, and those funds are now subject

13 to the constructive control of the Court because the government

14 of the Netherlands is cooperating with the Court's restraint.

15 So as to those funds in the Netherlands and as to the

16 funds in the United States, should the government prevail at

17 trial and should the court order forfeiture, those orders would

18 be fully enforceable.

19 THE COURT: Why does the cooperation of the

20 Netherlands confer any jurisdiction on this court?

21 MR. MONTELEONI: Well, the Second Circuit in the Meza

22 case which was discussed in the protective order arguments

23 actually held that it does, that property, in order to be

24 within the jurisdiction of the court, only has to be under the

25 constructive control of the court. And a pattern of

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1 cooperation by a foreign government, with indications that it

2 will cooperate in the future, is sufficient to assure the U.S.

3 courts that any order that a court might make, with the

4 disposition of the property, will be honored. And so there's

5 both the Second Circuit's holding there and also the

6 jurisdictional statute that the Second Circuit was

7 interpreting, give U.S. courts jurisdiction with respect to

8 certain properties that are abroad. And that's -- by the way,

9 that's an amendment that addressed concerns that had been

10 raised in the previous regime that courts didn't have the power

11 to give any orders regarding property outside of their

12 district. Congress wanted to change that, it wanted to give

13 the courts broader territorial authority.

14 It passed a statute that did that, and the Second

15 Circuit interpreted it to say that certainly where a foreign

16 government is cooperating, that property abroad is fully within

17 the control of the court.

18 So, as to the funds in New York and the funds in the

19 Netherlands --

20 THE COURT: Let's wait a minute.

21 MR. MONTELEONI: Okay.

22 THE COURT: It might be true that there are

23 circumstances which give a federal court jurisdiction over

24 funds, but there has to be a cause of action that would be

25 appropriately enforced by such jurisdiction, there has to be a

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1 cause of action. The mere existence of funds -- there are a

2 lot of funds in New York City that the --

3 MR. MONTELEONI: Absolutely, and we're not looking to

4 forfeit all of those ones. There is a cause --

5 THE COURT: No, I'm just making a point.

6 What is the cause of action against these defendants

7 in this court, what is the cause of action against them?

8 MR. MONTELEONI: Well, there's two.

9 As against the defendant properties, the cause of

10 action is an in rem action, under the statutes that grant

11 district courts the authority to order forfeitures where crimes

12 have been committed and forfeiture statutes authorize that. So

13 the cause --

14 THE COURT: Well, let me interrupt you. Crimes have

15 been committed? So do you allege that the defendants have

16 committed crimes?

17 MR. MONTELEONI: Well, technically what has to be

18 alleged is that the property that is an in rem defendant has a

19 certain connection to the crime. Under 18 United States Code

20 Section 981(a)(1)(A), the connection is that the defendant

21 property has to have been involved in the crime of money

22 laundering.

23 And yes, the complaint does allege that the in rem

24 defendant property is involved in money laundering.

25 Money laundering is a criminal offense under Title 18.

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1 THE COURT: In other words, those properties were used

2 for the money laundering?

3 MR. MONTELEONI: Yes.

4 THE COURT: That's what you're saying, right?

5 MR. MONTELEONI: Yes, that is the allegation as to the

6 in rem part of the complaint.

7 There's also another cause of action, if you wish me

8 to get to that.

9 THE COURT: Yes, please.

10 MR. MONTELEONI: So the other cause of action is in

11 personam. That is a suit against the defendants, which are

12 corporations, for civil money laundering penalties.

13 That cause of action is set forth in Title 18 United

14 States Code Section 19- --

15 THE COURT: Well, the cause of action is not -- in

16 other words, the complaint in this case alleges that these

17 defendants participated in money laundering, right?

18 MR. MONTELEONI: Yes.

19 And in addition to criminal penalties, Section 1956 of

20 Title 18 actually provides a civil cause of action for civil

21 money laundering penalties.

22 Only the United States can be the plaintiff in that

23 type of civil suit, but it also -- it's one of the remedies

24 that the Money Laundering Control Act enacted. And we are also

25 making those claims.

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1 So that if we were successful, we would obtain a money

2 judgment against the defendant corporations.

3 THE COURT: All right. Look, let's go back.

4 You have the tax fraud in Russia, and $230 million

5 proceeds of that tax fraud in terms of American dollars.

6 Now, money laundering means, to use that shorthand, it

7 means laundering the money that was the proceeds of the fraud,

8 right?

9 MR. MONTELEONI: Yes.

10 THE COURT: Okay. Now, the fraud was against Russia,

11 the proceeds of the fraud against the Russian government. And

12 I think you indicated, and I guess the record shows at least

13 that the government alleges, that as far as the government

14 knows there have been efforts to launder money in various

15 countries, right?

16 MR. MONTELEONI: Yes.

17 THE COURT: Okay.

18 Now, an effort to launder money in India would not be

19 a violation of U.S. law, right?

20 MR. MONTELEONI: Yes, if it had no connection to the

21 United States.

22 In this case, however, the money laundering --

23 THE COURT: Let's not go in this case.

24 MR. MONTELEONI: Oh, sorry. Yes. If there's no

25 connection to the United States, then that's not something that

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1 would give rise to forfeiture of civil money laundering

2 penalties.

3 THE COURT: Now, given that the fraud was against

4 Russia, the Russian government, the attempt to launder the

5 proceeds goes on in various countries, what is it that you

6 allege in connection with money laundering that is within --

7 you probably said it, but just please repeat it.

8 MR. MONTELEONI: Certainly.

9 THE COURT: What is it that gives rise to jurisdiction

10 of this Court?

11 MR. MONTELEONI: Absolutely.

12 With respect to the fraud against Russia, the U.S.

13 wires were used in furtherance of that fraud scheme, as the

14 complaint alleges.

15 And the Second Circuit and the Supreme Court have both

16 held that a fraud against a foreign government for tax revenue

17 that involves the use of the U.S. wires is wire fraud, and the

18 courts of the United States have jurisdiction over the wire

19 fraud and over money laundering based on the wire fraud.

20 So that's as to the fraud scheme.

21 THE COURT: So you allege wire fraud in the complaint

22 here?

23 MR. MONTELEONI: Yes.

24 THE COURT: All right. Go ahead. Go ahead.

25 MR. MONTELEONI: And as to the money laundering, the

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1 money to be laundered, or at least portions of it, actually was

2 invested in the United States and is, according to the

3 statements of a representative of the defendants, sitting in

4 United States properties. That is our allegation and --

5 THE COURT: And that's $845,000?

6 MR. MONTELEONI: Yes. The $857,000, or portions of

7 it.

8 THE COURT: $857,000. I'm sorry.

9 MR. MONTELEONI: But, yes. Our allegation is that

10 some of these laundered proceeds are right here in this

11 district, in the form of real estate.

12 THE COURT: So you're alleging that the defendants

13 participated in money laundering of the money obtained by

14 fraud, and that some phase of that participation has occurred

15 in New York through investments in New York, right?

16 MR. MONTELEONI: Yes, that is our allegation.

17 THE COURT: Now, I take it the defendants deny that

18 they engaged in money laundering, right?

19 MR. ADAMS: That's correct.

20 THE COURT: Mr. --

21 MR. CYMROT: Cymrot. Yes, your Honor.

22 THE COURT: Now, look, what I'm interested in, in

23 other words, what your clients are saying is we have engaged in

24 legitimate real estate businesses and other investments, and we

25 did not participate in any money laundering of the proceeds of

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1 a fraud against the Russian government, right?

2 MR. CYMROT: Correct. And we never received any of

3 the proceeds, this $857,000 was not proceeds from the Russian

4 Treasury.

5 THE COURT: Okay. Now look, let me go back to the

6 government.

7 MR. CYMROT: Sure.

8 THE COURT: How can we -- see, what I don't want to do

9 is to spend a lot of time on peripheral things. It seems to me

10 what we ought to do is to see how we are, either through trial

11 or motion practice, how we get to the essential, in other

12 words, did the defendants participate in money laundering? Now

13 how do we get there?

14 MR. MONTELEONI: Yes, your Honor. I believe we get

15 there through discovery, because there are factual disputes.

16 THE COURT: Discovery does not resolve the case. Do

17 we have a trial?

18 MR. MONTELEONI: Yes. A discovery schedule that would

19 lead to a time for filing motions for summary judgment in case

20 discovery reveals a basis for such motions, or a trial date, if

21 no such motions are filed or if they're denied.

22 THE COURT: Well, what is the discovery you're talking

23 about?

24 MR. MONTELEONI: Well, we have some information which

25 we intend to be disclosing to defendants in response to their

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1 discovery requests, those are due fairly soon, and we'll be

2 producing that. We also will be seeking documents from the

3 defendants that will bear on the question of whether they're

4 engaged in money laundering. And we also are in the process,

5 though unfortunately it's lengthy process, of enlisting or

6 attempting to enlist the aid of foreign governments in

7 providing other documents or information that will help

8 establish this.

9 THE COURT: How do you deal with the foreign

10 governments?

11 MR. MONTELEONI: Well, we --

12 THE COURT: In the form of requests or what?

13 MR. MONTELEONI: We think that for the purposes of

14 obtaining information that we can easily with no issues use as

15 evidence, we intend to proceed by mutual legal assistance

16 requests. If we were a private party we might ask the Court

17 for letters rogatory, but as the government we can make treaty

18 requests which are, though somewhat slow, still faster than

19 letters rogatory. And unfortunately, that's a lengthy process

20 and we have been --

21 THE COURT: How lengthy is lengthy?

22 MR. MONTELEONI: It's hard to predict with confidence.

23 We are preparing this as expedited requests, but they require

24 multiple layers of review within the United States governments,

25 and then they require the cooperation of the foreign

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1 governments.

2 We have been working diligently to prepare them, but

3 we have a proposed discovery schedule which we hope will

4 accommodate that time and set forth a matter of months for them

5 to respond, and we hope that we can secure their cooperation on

6 that type of expedited basis.

7 THE COURT: Within what period of time?

8 MR. MONTELEONI: Well, our proposal is that would set

9 forth that document discovery be complete by August 1st. And

10 we hope that is possible, but again we can't control what

11 response foreign governments will give and when.

12 THE COURT: This is request of foreign governments for

13 documents?

14 MR. MONTELEONI: Well, our proposed schedule would say

15 that the exchange of documents between the parties and the sort

16 of obtaining of other documents we hope can be complete by

17 October 1st -- by August 1st. Sorry. And then there would

18 be --

19 THE COURT: Say that just once more.

20 MR. MONTELEONI: Our proposal is an August 1st

21 deadline for document discovery, which would include documents

22 exchanged between the parties and documents that we would

23 obtain through the mutual legal assistance requests and then,

24 to the extent they're discoverable, turn them over to the other

25 side.

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1 We can't predict the future, but we think that that's

2 a realistic estimate of a good case scenario if we get

3 favorable responses to our requests for expedition.

4 THE COURT: All right. Now, what motions are still

5 pending before the Court?

6 MR. MONTELEONI: The defendants have pending a motion

7 to dismiss two companies, Ferencoi and Kolevins, from the

8 complaint, both the in rem claims against their assets and the

9 in personam claims for money laundering penalties against them,

10 based on the defendants' contention that the complaint fails to

11 state a claim with respect to them and that this Court has no

12 jurisdiction over them.

13 We have responded to that. The defense reply is due I

14 think in two weeks, and then that issue will be --

15 THE COURT: So that will dispose of pending motions?

16 MR. CYMROT: Well, there's the motion to vacate the

17 protective order, your Honor.

18 THE COURT: The what?

19 MR. CYMROT: The motion to vacate your restraining

20 order, that is still pending. You asked us to produce some

21 additional information to the government which we will be doing

22 promptly. We've been working on that, but you have not

23 formally ruled on that.

24 THE COURT: All right.

25 MR. CYMROT: Can I speak about his schedule issue?

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1 THE COURT: And the government needs to answer that

2 motion, right?

3 MR. MONTELEONI: That motion is fully briefed. We had

4 oral argument on it on January 7th. And at that time the

5 motion was a two-part motion, to vacate the protective order

6 or, in the alternative, to modify it. And I believe that from

7 the bench you stated that you did not see a basis to vacate the

8 protective order, but you authorized the government to seek

9 expedited discovery on whether it should be modified so that it

10 doesn't have as broad a scope of restraint.

11 And the government has a proposal for modification

12 that -- the government agrees that some modification would be

13 appropriate. However, the government could make a more

14 informed -- the government and the Court can make more informed

15 judgments on this once we receive the responses to the

16 discovery that you authorized, which I understand will be

17 forthcoming.

18 THE COURT: And those responses coming from what?

19 From whom?

20 MR. MONTELEONI: We've issued discovery requests to

21 Prevezon. Prevezon has said that they will respond to them and

22 provide us with information.

23 THE COURT: So we've got some motion practice and some

24 discovery relating to the motion practice, and then you've got

25 the discovery relating to the basic merits of the parties where

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1 the merits will be tried or subject to summary judgment motion.

2 It seems to me we're on about as good a schedule as we

3 can be on.

4 Please.

5 MR. CYMROT: Your Honor, our clients are adamant that

6 they received no money from the Russian Treasury fraud, that

7 they've done nothing wrong, and they want an early trial date.

8 The discovery that we had planned to take of the agent

9 was really the only witness who could give us any information

10 about this case.

11 The fraud occurred in Russia. We are not likely to be

12 able to take any deposition in the underlying fraud.

13 The tracing of funds went through eight banks, five of

14 them in Russia, two of them in Moldavia, and one in

15 Switzerland.

16 We have no basis of getting any information from the

17 Russian banks, and unlikely from the Moldavian banks. So we

18 asked the government to produce a witness who could tell us

19 what was the basis of their accounting, and we asked them for

20 the agent. He is the only one who is available to tell us do

21 they have bank records, what accounting assumptions did they

22 use? It is fundamental to our defense to be able to show that.

23 When I pointed out that their own chart shows

24 $19.4 million of non-Treasury funds, and you asked Mr.

25 Monteleoni about that, he never answered that question.

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1 When you asked Mr. Monteleoni --

2 THE COURT: I asked him what? Refresh my memory.

3 MR. CYMROT: Yes.

4 If you look at Exhibit B to the complaint, it is the

5 purported tracing of funds from the Russian Treasury through

6 five Russian banks into two Moldavian banks and then into --

7 THE COURT: Is it an exhibit to the complaint?

8 MR. CYMROT: That's Exhibit B to the complaint.

9 THE COURT: All right.

10 MR. CYMROT: And then it goes in, $857,000 allegedly

11 goes in to the Prevezon Holdings' account at UBS in Zurich.

12 And we pointed out that if you follow the tracing

13 there's, on the face of it, a lot of problems, including the

14 fact that $19.4 million of the money they allege went through

15 these accounts was money that did not go through, come from the

16 Russian Treasury.

17 MR. MOSCOW: By their version.

18 MR. CYMROT: By their version of events. Yes, this is

19 all their version of events.

20 So we say, well, why couldn't the $857,000 that we say

21 came from an investor, who we've identified, why couldn't the

22 857 be among the $19.4 million of untainted money? And they

23 never answered that.

24 Now the agent verified the complaint --

25 THE COURT: Wait, I'm lost.

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1 MR. CYMROT: Yes. I'm sorry, your Honor.

2 THE COURT: Go back.

3 MR. CYMROT: Okay.

4 THE COURT: $19 million, who's been talking about

5 $19 million this morning or --

6 MR. CYMROT: Not this morning, no. This was back in

7 early January, your Honor.

8 THE COURT: Okay.

9 MR. CYMROT: We have a chart that -- we analyzed their

10 tracing, based upon Exhibit B. And there's more money on their

11 tracing than money they traced from the Russian Treasury.

12 They don't say all of the money that went through

13 these bank accounts came from the Russian Treasury.

14 $19 million did not come from the Russian Treasury, it

15 was not as a result of the theft.

16 THE COURT: Just please refresh my memory.

17 MR. CYMROT: Yes.

18 THE COURT: How does the $19 million get into the

19 case? I'm --

20 MR. CYMROT: Only on their own chart, your Honor.

21 Let me, if I could show you -- one second.

22 MR. MOSCOW: Your Honor, I think on Exhibit B the

23 numbers are in rubels, and the amount would be 487 million

24 rubles, which we translated to roughly 19.4 million.

25 THE COURT: Oh, I see.

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1 MR. CYMROT: Is that the same one?

2 COURT CLERK: It's in color.

3 MR. CYMROT: Okay.

4 THE COURT: I see it but --

5 MR. CYMROT: What we do is we're just using their

6 numbers, your Honor. We're adding up their numbers, and we

7 show that into the what's called Bank Krainiy Sever --

8 THE COURT: What?

9 MR. CYMROT: There's a bank there, Bank Krainiy Sever,

10 which is an account at Alfa Bank, these are all Russian banks.

11 And if you add up the numbers that come through their chart --

12 we're just using their numbers -- there's 19- -- the equivalent

13 of $19.4 million of money that is not accounted for as coming

14 from the fraud on the Russian Treasury. And we pointed that

15 out to you. You asked Mr. Monteleoni, what about that?

16 He doesn't explain how they can say that the money

17 that we say came from our investor isn't among the

18 $19.4 million of clean money, on their own chart.

19 And we have nobody we can ask that other than the

20 agent, because the agent verified it was true.

21 THE COURT: I'm just sitting here and --

22 MR. CYMROT: Yes.

23 THE COURT: -- obviously not having in mind all the

24 details all of you have, but you've got 230 million was the

25 fraud.

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1 MR. CYMROT: They don't trace all of the 230 million,

2 your Honor. What they do is they trace a piece of it through

3 these five Russian banks into Moldavia, into Switzerland.

4 That's what --

5 THE COURT: The piece being?

6 MR. CYMROT: The piece being the $857,000 that they

7 say came from the Russian Treasury.

8 They have a larger amount that goes into that --

9 THE COURT: You mean in dollars, that's dollars?

10 MR. CYMROT: That's converted to dollars, yes.

11 So they have a larger amount --

12 THE COURT: Wait a minute, wait a minute.

13 MR. CYMROT: Yes.

14 THE COURT: The 857, is that rubles or dollars?

15 MR. CYMROT: The 857 is converted -- is actually

16 dollars received. In other words, when our clients got it, it

17 was dollars.

18 THE COURT: You're what?

19 MR. CYMROT: When our clients received the money, it

20 was in dollars. They received deposits of dollars.

21 THE COURT: And did they only receive $857,000?

22 MR. CYMROT: Well, they received more money from their

23 investors. They had their own money, and that's the money they

24 invested.

25 But from the Russian Treasury --

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1 THE COURT: That's the 19 million?

2 MR. CYMROT: No. No, no. That money went to any

3 number of people. We don't know where that money went, your

4 Honor, we don't know where the Russian Treasury money went, we

5 don't know where the $19 million went. All they say is they've

6 traced $857,000 into our clients' accounts.

7 THE COURT: That's the money that came to New York?

8 MR. CYMROT: Well, they say the money went to Germany.

9 We agree, the money went to Germany.

10 They then somehow use the statement from what they

11 call Representative 1 to say some of that money got invested in

12 New York. But the bank accounts show either the money stayed

13 in Switzerland or it was invested in an investment that our

14 clients made with another company in Germany.

15 So we don't think they ever came -- our clients did

16 buy real estate in New York, there's no dispute about that.

17 They bought eight pieces of real estate in New York, but they

18 didn't buy it with the $857,000. And they have a real estate

19 business, they own an office building, they have a hotel in

20 Russia, they have a hotel in Cyprus. They've invested with

21 this other company in Germany, and other places. They're a

22 real estate business.

23 And once you get past the first hundred paragraphs of

24 the complaint that talk about this Russian fraud, there's

25 nothing, except a real estate business described, of our

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1 clients. And they are adamant, they want an early trial, they

2 want a trial this summer.

3 THE COURT: Okay. Now, look, when would you like a

4 trial?

5 MR. CYMROT: We'd like a trial in April. We'd like a

6 trial as soon as you can set a trial.

7 They're ready -- they volunteered to come here. They

8 are just adamant.

9 These allegations are destroying their business.

10 They've been kicked out of a bank in Cyprus based upon these

11 allegations. Their property in Germany has been attached. All

12 their property here has been attached. The restraining order

13 says "any and all property of Ferencoi."

14 Ferencoi has a big real estate business, it has

15 investments in Europe and in Russia.

16 You've attached all of that.

17 And they didn't represent that to you, they didn't

18 disclose that to you when you signed the order.

19 THE COURT: You're talking about the restraining

20 order?

21 MR. CYMROT: The restraining order.

22 The thing about the agent, your Honor, if you look at

23 this complaint, it's this big, it's this big fraud motion --

24 THE COURT: The thing is, somebody who signs a

25 complaint, it doesn't hurt anything to take his deposition, but

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1 somebody in the United States government drafted that

2 complaint, somebody in the United States government, the

3 Department of Justice, is constructing, developing these

4 accusations.

5 And the reason I started off the way I did this

6 morning, I wanted to hear what the accusations were and whether

7 the person who signed the complaint has a lot of knowledge of

8 those accusations. He may have, he may not have.

9 People sign complaints because they have the official

10 duty to sign complaints. It doesn't mean that they have a lot

11 of knowledge of the substance of the complaints. Maybe they

12 should. There's nothing wrong with taking his deposition. But

13 what I wanted to do was to, really in a sense what you're doing

14 right now, is to get to the allegations, which we don't have to

15 have a deposition from the fellow who signed the complaint to

16 have the Assistant U.S. Attorney answer the questions, which he

17 has done, and to have you state your position.

18 These are statements of the positions, the substantial

19 positions, of the parties. And what you're saying is you would

20 like to have a trial.

21 MR. CYMROT: Yes, your Honor. We don't think it's

22 going to be resolved by motions, and we want a trial at the

23 earliest possible date, because the restraining order is doing

24 substantial damage to the business of people, and they say they

25 are innocent.

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1 THE COURT: Well, look, this is February. If somebody

2 wants a trial in April, why can't they have a trial in April?

3 Your Honor, the Rules provide for discovery. That's something

4 that's going to be crucial in this case, as I think will become

5 far clearer to defendants when they receive our document

6 production, this will be a very document-intensive case.

7 When will the document production occur?

8 MR. MONTELEONI: I believe it is due on February 28th.

9 And while, as with any production in a case of this volume

10 there may be difficult calls that have to be made on a rolling

11 basis, we expect to make a substantial production at that

12 time --

13 THE COURT: What do the documents show?

14 MR. MONTELEONI: Your Honor, we believe that they do

15 substantiate that these funds were traced to the defendants, as

16 we set forth in our papers, and as I thought that I said at the

17 last conference, we do think that there is a basis to believe

18 that the funds that went to the defendants were from the

19 Russian Treasury and not some other funds. And I can go into

20 that in more detail, if you'd like, now.

21 THE COURT: What have they done with those funds?

22 MR. MONTELEONI: We believe that those funds were, in

23 whole or in part, invested in real estate here in the Southern

24 District of New York.

25 THE COURT: And I assume that if somebody helps out in

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1 a money laundering operation, they're going to get something

2 out of it. What are they going to get out of this?

3 MR. MONTELEONI: Well, your Honor, that's something

4 that we think the discovery could very much illuminate. Those

5 are --

6 THE COURT: What do you claim?

7 MR. MONTELEONI: We don't set forth a definitive

8 position on that, and that's not something that's an element of

9 money laundering, it's something that is a relevant factual

10 inquiry and that we want to get to the bottom of, but that we

11 really don't necessarily have the opportunity to do that,

12 without discovery.

13 MR. CYMROT: Your Honor --

14 THE COURT: Well, the thing is if somebody comes in --

15 when was this case filed?

16 MR. MONTELEONI: September 10th, your Honor.

17 THE COURT: All right. The case was filed in

18 September of last year.

19 And if somebody comes in and says that they want a

20 prompt trial because they're being harmed by having the

21 allegations hang over their head, why that is a, to say the

22 least, a reasonable request. And the lawyer talks about April,

23 there's a lot of time between now and April.

24 And documents can be produced overnight, depositions

25 can be taken. Whatever has to be done, there's a lot of time.

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1 Why can't we set a trial date for April?

2 MR. MONTELEONI: Your Honor, that is --

3 THE COURT: Why can't we set a trial date today?

4 MR. MONTELEONI: That would deny the government the

5 opportunity to conduct effective discovery.

6 THE COURT: Why?

7 MR. MONTELEONI: Because this is a case that has a

8 great deal of documents coming from a number of sources, and a

9 period of a month and a half for the completion of all document

10 discovery, whatever country the documents are located in,

11 whatever custodians they have, and the deposition of all

12 witnesses, the creation of expert reports, the deposition of

13 expert witnesses, doing that all in a month and a half, your

14 Honor, is actually something that is not realistic, and it

15 would not be consistent with a real opportunity for meaningful

16 discovery.

17 And, your Honor, there used to be a regime --

18 THE COURT: What I'm going to say to you, we will have

19 another meeting very shortly, and you come in with the evidence

20 that you now have which shows a basis for holding this case

21 open. And I take seriously the idea that having this case open

22 can be very damaging to the defendants. So I want to have the

23 government demonstrate why this case should remain open and why

24 there should not be a trial this spring.

25 Now when can you come in with that?

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1 MR. MONTELEONI: What form would you like us to

2 present that evidence to you?

3 THE COURT: Just bring it in and have it with you and

4 discuss it. We're having a discussion today.

5 MR. MONTELEONI: All right. Well, so --

6 THE COURT: I'm not interested in a lot of

7 formalities, and I'm not interested in a lot of formal

8 discovery.

9 What has been apparent since the time of the

10 protective order is that there is an order here which affects

11 businesses. And maybe the protective order should be vacated

12 while you take a lot of time for discovery, that's a

13 possibility.

14 MR. MONTELEONI: Well, that is something that the

15 Court has the authority to do in its discretion.

16 The statute that authorizes the protective order

17 expresses the policy judgment that assets should be restrained

18 to ensure their availability for forfeiture. And it actually

19 sets forth a statutory mechanism when someone claims that the

20 protective order causes a hardship.

21 And as we set forth in our opposition to the

22 protective order, Congress decided in setting forth this

23 mechanism that it couldn't just be someone saying that the

24 complaint caused a hardship, they had to make an actual

25 demonstration, not just that there was hardship, but also that

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1 there were measures in place to assure the availability of the

2 property for forfeiture, and that the hardship that they were

3 suffering actually outweighed the risk of dissipation of those

4 assets.

5 Now that's a determination that the Court certainly

6 could make, if such an application was ever properly before it,

7 but the defendants haven't chosen to do that. And we think

8 that Congress' judgment that something more than their --

9 THE COURT: Defendants have moved to vacate the --

10 let's go back.

11 What motion do you have now?

12 MR. CYMROT: We have the motion to vacate or modify

13 the protective order, because Rule G, which is supplemental

14 Rule G that applies here, the government represented to your

15 Honor that they had reasonable belief that the government will

16 be able to meet its burden of proof at trial.

17 They said the complaint and verification was their

18 basis for that. So they should be ready to go to trial, your

19 Honor.

20 They had to make that showing before the protective

21 order could be entered. And we move to vacate because they

22 hadn't made that showing. Because even on the face of the

23 complaint, they haven't tied us, our clients, to this money.

24 They haven't shown that our clients had any knowledge of this

25 Russian fraud. They haven't shown that our clients concealed

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1 money in any way.

2 THE COURT: Where is the complaint? Do we have the

3 complaint? What part of the complaint are both of you talking

4 about?

5 MR. CYMROT: Well, your Honor, if you look at the

6 claims, the claims, all they do is cite statutory language.

7 That's not --

8 THE COURT: Wait a minute.

9 MR. CYMROT: -- not appropriate.

10 THE COURT: Wait a minute. I've got a long complaint.

11 MR. CYMROT: I understand. I'll give you the page

12 where it starts, your Honor.

13 The claims start on page 44, your Honor, paragraph

14 119.

15 All they do is cite statutory language. That's not

16 appropriate in the civil --

17 THE COURT: Well, wait a minute. But they incorporate

18 by reference the first 118 paragraphs.

19 MR. CYMROT: Correct. So then we would say --

20 THE COURT: Are there no factual allegations in the

21 first 118 paragraphs?

22 MR. CYMROT: That say that we had knowledge of the

23 Russian fraud? We say there are none. That they concealed the

24 Russian fraud? When you asked Mr. Monteleoni that question, he

25 pointed to the statutory language. That they did anything

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1 other than run a real estate business? No, your Honor. I

2 don't believe --

3 THE COURT: Could I just go back to Mr. --

4 MR. MONTELEONI: Monteleoni, yes, your Honor.

5 THE COURT: Where are the allegations against the

6 defendants here?

7 MR. MONTELEONI: What we discussed last time, we

8 started with the allegations at paragraph 91, if you go from

9 paragraphs 91 to 108.

10 THE COURT: Have we been through this?

11 MR. MONTELEONI: Yes, your Honor. And you ruled that

12 contrary to the defendants' contentions, the complaint

13 adequately alleged money laundering by the defendants.

14 THE COURT: I don't remember everything that went on.

15 If you're asking me to go back and repeat something we covered

16 at an earlier meeting, I don't really want to do that.

17 MR. MOSCOW: Excuse me, your Honor, might I be heard?

18 THE COURT: Yes.

19 MR. MOSCOW: In paragraphs 91 through 108 there are no

20 assertions that the defendants were told that this was the

21 product of a crime, there are no assertions from which the

22 defendants' knowledge can be inferred. There are statements

23 that other people were doing things, that there was a crime out

24 there, but it does not relate to the knowledge or the intention

25 of the 11 corporate defendants in this case.

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1 There are simply no such factual allegations in the

2 first 18 paragraphs.

3 Those allegations start in the claims, where they say

4 that the defendants knew things, intended to promote, did all

5 sorts of things. But there are no factual assertions in the

6 first 118 paragraphs from which we can challenge, because they

7 are simply not of that sort or kind. No facts whatever. They

8 say that we have the wrongful intention and wrongful knowledge,

9 but it's not like we got a letter, it's not like we got a phone

10 call, it's not as though we were involved in a meeting, there

11 is nothing of that kind.

12 We want a trial, it's that simple. We want to put

13 this evidence to its -- we want to put this evidence to trial.

14 The defendants are adamant that they did not receive the

15 proceeds of this fraud. They were told by an investor that he

16 was investing. They received the money, they invested it in

17 real estate, and every alleged money laundering transaction

18 after that is moving money involved in real estate transactions

19 to buy new properties or sell one.

20 THE COURT: What investor are you talking about?

21 MR. MOSCOW: There's a Mr. Petrov who invested money

22 into Prevezon and the --

23 THE COURT: Who is Mr. Petrov?

24 MR. MOSCOW: Mr. Petrov is a Russian, I believe he is

25 now, if memory serves, he is retired. He had money, he wanted

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1 to invest it, and he invested it with Prevezon, which is an

2 investment company.

3 His money was used to acquire real estate in Europe,

4 and in November of '09, about 20 months later, also money from

5 him was used to acquire real estate in New York.

6 THE COURT: Do you know anything about Mr. Petrov, Mr.

7 Monteleoni?

8 MR. MOSCOW: I have spoken to --

9 THE COURT: Mr. Monteleoni? Do you know anything

10 about a Mr. Petrov?

11 MR. MONTELEONI: We do make allegations in the

12 complaint that a representative of the owner of these companies

13 claimed that this Mr. Petrov had provided the funds. We've

14 also -- his name has also come up in settlement discussions.

15 Because of Rule 408, that's not something that we would be

16 directly introducing for --

17 MR. CYMROT: Well, if it's anything we said, you can

18 say it to the Court, because it didn't come up in settlement

19 discussions with us, other than Mr. Petrov was an investor. So

20 if you have something you want to say to the Court, don't use

21 us as an excuse for not saying it.

22 MR. MONTELEONI: Certainly. I just didn't want to --

23 yes, they provided information about their claims about who

24 Mr. Petrov is, that's all I wanted to reference. I just didn't

25 want to go forth and raise publicly what they've said in

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1 settlement discussions. But yes, they've given us some

2 information about him.

3 His role is something that we also believe discovery

4 may further elucidate.

5 THE COURT: The way I view -- and we may be repeating

6 what was discussed at an earlier meeting, and I'm sorry for the

7 sake of myself and all of you -- but the way I see things

8 shaping up at this meeting is that we have an issue. And the

9 defense says that the money that is alleged to have been

10 involved in money laundering, as far as these defendants are

11 concerned, was simply a legitimate investment by a legitimate

12 investor, and that money was used for legitimate investments.

13 Am I right?

14 MR. MONTELEONI: That is the defendants' claim, we

15 agree.

16 THE COURT: Okay. Now, what the government obviously

17 claims is that that was not a legitimate investment, that was

18 money laundering, right?

19 MR. MONTELEONI: That's correct, your Honor.

20 THE COURT: Okay. Now, let me ask you this: I take

21 it -- and this would go to the in rem situation -- I take it

22 that some entity or some person could be used for money

23 laundering, but not literally know it, right?

24 MR. MONTELEONI: Yes, your Honor. Certainly, both

25 because of the in rem nature of property and also because of

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1 the possibility of willful blindness, which is a --

2 THE COURT: Look, I'm not talking -- just listen to my

3 question.

4 MR. MONTELEONI: Oh, sorry.

5 THE COURT: In other words, I take it that a truly

6 innocent person could be used, in other words somebody who is

7 really trying to launder money, knowingly, criminally trying to

8 launder money, might invest or deposit funds with somebody who

9 was completely innocent and did not know anything about that

10 motive, right?

11 MR. MONTELEONI: That is certainly something that

12 could factually happen.

13 THE COURT: It could happen.

14 And if that money was traced into the hands of this

15 innocent person, then there could be an in rem action, right?

16 MR. MONTELEONI: Yes, except that an innocent owner

17 has a statutory defense. The burden shifts to the person

18 claimed to be an innocent owner. But if they could prevail by

19 a preponderance of the evidence and show that they didn't know,

20 and were reasonably without cause to know of the forfeitability

21 of the property, then they would get to keep the property and

22 there would be no forfeiture. And that's a defense that they

23 could try to assert.

24 THE COURT: Now look, but I take it that the

25 government says here that these defendants were not that

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1 totally innocent, pure, they were knowingly involved in the

2 money laundering, right?

3 MR. MONTELEONI: Yes, knowingly or with willful

4 blindness, but with the requisite mental state to commit the

5 crime.

6 THE COURT: All right. Now, and who do you say

7 invested with them?

8 MR. MONTELEONI: The government?

9 THE COURT: I'm asking the government.

10 MR. MONTELEONI: Well, we're not right now, without

11 discovery from the defendants, in a position to confirm or deny

12 whether these funds came at the direction of Mr. Petrov. It

13 seems that the defendants' own representatives said that the

14 funds did come, because Mr. Petrov said so, but they came by an

15 additional third party, a Mr. Kim, and that that's the sort of

16 source of those precise dollars.

17 This is something that we -- these fact-intensive

18 issues about what they knew, what they had reason to know, what

19 their mental state was, is something that we believe that we

20 need discovery in order to elucidate.

21 THE COURT: But in order to even make an allegation, I

22 mean I'm not going to try to reread all the -- let's assume the

23 complaint sufficiently alleges money laundering participation

24 by the defendants. Now, that means that somebody had to invest

25 with them, pass money to them, with the intent of money

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1 laundering. It also means that they had to either know about

2 it or be willfully blind.

3 Now who is it that passed them the money? There had

4 to be money passed. If there was no money passing, I mean

5 there would be nothing even to talk about.

6 MR. MONTELEONI: Yes, two shell companies in Moldavia,

7 which we allege are not legitimate businesses, wired the money

8 to the defendants.

9 Those wires describe the funds as prepayments for

10 sanitary equipment, which is false, because the defendants

11 never actually did business with these shell companies.

12 Whether that's at the direction of a Mr. Petrov or a Mr. Kim or

13 someone else entirely, the complaint doesn't say.

14 MR. CYMROT: Your Honor, this is one of our problems.

15 They have not identified any member of this so-called

16 organization who directed money to the defendants, nor have

17 they identified any benefit the organization would get from

18 the --

19 THE COURT: Well, what about the shell companies?

20 MR. CYMROT: These are companies that transferred

21 money --

22 THE COURT: Did they transfer 19- -- the 57 million or

23 what? Are they the people who invested?

24 MR. CYMROT: No, no, they're not the people who

25 invested. They're just transferring money. According to the

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1 complaint of the government, they're just --

2 THE COURT: You've spoken many times this morning --

3 MR. CYMROT: Yes.

4 THE COURT: -- this afternoon of an investor.

5 MR. CYMROT: Yes.

6 THE COURT: Who was the investor?

7 MR. CYMROT: It's this man, Leonid Petrov. He lives

8 in Moscow, he's retired now.

9 THE COURT: So Petrov is the fellow that you say was

10 the legitimate investor?

11 MR. CYMROT: And they say that somebody unidentified

12 passed money through these companies to the defendants.

13 THE COURT: Wait a minute. But if you went to trial

14 tomorrow --

15 MR. CYMROT: Yes.

16 THE COURT: -- you would seek to put on evidence that

17 a legitimate investor, not some money launderer --

18 MR. CYMROT: Correct.

19 THE COURT: -- invested with your clients, and that

20 would be Petrov, correct?

21 MR. CYMROT: Correct.

22 THE COURT: Okay. So we got that.

23 MR. CYMROT: Yes.

24 THE COURT: Now, then was money passed from two

25 Moldavian corporations into your clients?

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1 MR. CYMROT: Yes, your Honor.

2 THE COURT: How much?

3 MR. CYMROT: The 857. $857,000 came from those

4 companies into the Swiss bank account of our clients.

5 THE COURT: And what was the purpose of that?

6 MR. CYMROT: For the investment.

7 THE COURT: Investing in what?

8 MR. CYMROT: In Europe or the United States.

9 THE COURT: Who was the investor?

10 MR. CYMROT: Mr. Petrov.

11 THE COURT: Oh, he was the investor that used the

12 Moldavian companies?

13 MR. CYMROT: Correct. Or his partner did, yes.

14 THE COURT: So the Moldavian companies were involved

15 only in $857,000, right?

16 MR. CYMROT: Coming into our bank accounts, yes.

17 THE COURT: And it was Petrov?

18 MR. CYMROT: Yes.

19 Can I fill out the story a little, your Honor?

20 THE COURT: Yes.

21 MR. CYMROT: Mr. Petrov -- and I'll start with the

22 owner of Prevezon at the time the money came in, there was a

23 man by the name of Mr. Kim, who was a young man --

24 MR. MOSCOW: Mr. Krit.

25 MR. CYMROT: -- Mr. Krit -- I'm sorry -- Mr. Krit,

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1 who was a young man working with a fellow by the name of Alex

2 Litvak. They are still involved in the company.

3 Mr. Litvak was a friend of Mr. Krit's father. And

4 Mr. Petrov was a friend of Mr. Krit's father.

5 THE COURT: Is Mr. Krit's father Russian?

6 MR. CYMROT: He is Russian, also. They're all

7 Russian. Mr. Litvak is an emigre in Israel, all right. He is

8 an older man, he is involved in business. And Mr. Krit's

9 father said, please teach my son some business, and they went

10 and for two years did various business projects, before this

11 all happened.

12 Mr. Petrov comes to Mr. Krit's father and says, I am

13 receiving money from a former partner of mine, because I was in

14 business in Asia for many years until the 1998 Russian

15 financial crisis. And then Mr. Petrov paid off the loans of

16 he and his partner, and his partner finally was ready to pay

17 him back. So he wants to invest.

18 He goes to a man he knows, which is Mr. Krit. Mr.

19 Krit knows Mr. Litvak, who knows something about international

20 business.

21 When they talk to him, they realize this is probably

22 beyond what Mr. Litvak and Mr. Krit are capable of doing, and

23 they find Mr. Katsyv, who is a well-established real estate

24 investor, with investments --

25 THE COURT: Is he Russian?

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1 MR. CYMROT: He is Russian, also.

2 THE COURT: And his name is what?

3 MR. CYMROT: Katsyv, Denis Katsyv, K-A-T-S-Y-V. They

4 said, help us invest this money because you have more

5 experience with this.

6 So they got together. The money, the $857,000, was

7 already in the account. Mr. Katsyv didn't know Mr. Petrov, but

8 he said, I'll help, and I'll put it together with some of my

9 money and we'll invest, and we're planning to invest in Germany

10 with a company called AFI, which is an Israeli company that

11 invests in real estate. They have a website, it's quite a big

12 company. And they invest.

13 Then these allegations come along. And Mr. Katsyv

14 says, I don't know anything about this. What I know is I'm

15 investing money for Mr. Petrov, I'm investing my own money,

16 we're investing in real estate, we have real estate

17 investments.

18 That's the story that Mr. Katsyv will tell to the

19 jury. He wants to come to the United States. We've asked the

20 United States government to help him get a visa, because he

21 doesn't have a U.S. visa, but he wants to come here and talk to

22 a jury. He wants to do it at the earliest possible moment.

23 THE COURT: What does the government say about these

24 people that were just referred to?

25 MR. MONTELEONI: Well, as to Mr. Katsyv, Mr. Krit and

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1 Mr. Litvak, we do allege in the complaint that they were owners

2 of, or involved with the companies at the relevant times.

3 We believe that --

4 THE COURT: What does that mean?

5 MR. MONTELEONI: Well, that Mr. Krit was the official

6 owner when the funds came in. Mr. Katsyv then took on official

7 ownership.

8 THE COURT: What funds came in?

9 MR. MONTELEONI: When the $857,000 that came in from

10 the Moldavian shell companies into Prevezon apparently,

11 according to defendants, at the urging of this Mr. Petrov.

12 Now the government doesn't right now really have a

13 great deal of information about this Mr. Petrov or physical

14 former business partner. That's something that we hope that

15 discovery will reveal.

16 The government doesn't have a great deal of

17 information about the mental states of Mr. Krit, Mr. Litvak, or

18 Mr. Katsyv. That's also something that we hope that discovery

19 will reveal.

20 The government does agree that $857,000 was

21 transferred from shell companies into Prevezon, then invested

22 in real estate. The government believes that at least a

23 portion, potentially all, if the defendants' own statements are

24 to be believed, were invested here in New York.

25 THE COURT: There's certain things you kind of keep

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1 coming back to. Here now we've talked rather intensively about

2 $857,000. The total fraud on the Russian government was 230

3 million. And are we going to have a trial about $857,000?

4 MR. MONTELEONI: Well, yes, your Honor.

5 THE COURT: Why are we even doing that?

6 MR. MONTELEONI: Well, we believe that $857,000 took

7 on greater significance because, first of all, because of the

8 extremely heinous nature of the organization of fraudsters that

9 actually stole it from the Russian Treasury, because it was

10 part of a broader coordinated pattern of money laundering, and

11 then also the fact that the defendants --

12 THE COURT: Were these defendants part of -- I mean

13 were they part of that group that you're talking about?

14 MR. MONTELEONI: We do not definitively allege that

15 they are in the complaint. The level of knowledge that they

16 had, what they knew, what was reasonably foreseeable to them,

17 are things that certainly matter to us and matter to this case,

18 and they're things that we believe that discovery will better

19 elucidate. But we do very definitively allege --

20 THE COURT: But the thing is, let's suppose they

21 laundered, did they launder more than $857,000?

22 MR. MONTELEONI: Not that we are currently alleging.

23 But they did so through business entities that --

24 THE COURT: Did what?

25 MR. MONTELEONI: They did that laundering through the

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1 business --

2 THE COURT: Of the 857,000?

3 MR. MONTELEONI: Yes, of business entities that have

4 substantial assets in the United States.

5 And the reason that that's important is when these

6 funds are commingled with the assets of a real, legitimate

7 business, it becomes that much harder to trace them.

8 If you look at the allegations of the complaint --

9 THE COURT: To trace the $857,000?

10 MR. MONTELEONI: Yes.

11 THE COURT: Now look, what I get out of the discussion

12 this morning is this: Obviously, the fraud on the Russian

13 government was $230 million, a lot more than $857,000. But

14 what it is all boiling down to as far as these defendants are

15 concerned is if they laundered, they laundered $857,000.

16 MR. MONTELEONI: As alleged, yes.

17 THE COURT: Well, I mean as alleged, that's all we've

18 got. We don't --

19 MR. MONTELEONI: At this time, yes.

20 THE COURT: And it seems to me that you've got a very

21 broad restraining order and tying up business that is worth a

22 lot more than $857,000, and there's just something wrong about

23 this. And I'll assume that $230 million was stolen from the

24 Russian government and that there was money laundering relating

25 to the $230 million, by somebody, somewhere. But we've got

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1 defendants in a case here who are being charged, and right now

2 that charge relates to $857,000.

3 I've heard nothing beyond that. And we have

4 defendants who want a prompt trial, and of course they want a

5 prompt trial, because they want this broad restraining order to

6 be lifted, right?

7 MR. CYMROT: Yes, your Honor.

8 THE COURT: The restraining order restrains what?

9 MR. CYMROT: Any and all property of Prevezon

10 Holdings, which includes real estate in New York, any and all

11 property of Ferencoi which includes --

12 THE COURT: Going beyond $857,000?

13 MR. CYMROT: Far beyond the 857.

14 And when you asked Mr. Monteleoni about the burden, if

15 they innocently received $857,000, which we also deny, the case

16 would be limited to $857,000 and any interest or proceeds

17 coming from that, not this worldwide freezing order.

18 And Mr. Monteleoni also said that they don't know

19 about the mental state of Mr. Katsyv, Mr. Krit, and Mr. Litvak.

20 Well, but they allege the mental state. And they represented

21 to you that they had a reasonable belief that the government

22 would be able to meet its burden of proof at the trial, which

23 is that they knew about the Russian fraud, that they promoted

24 it.

25 THE COURT: Let me interrupt you.

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1 MR. CYMROT: Yes, I'm sorry, your Honor.

2 THE COURT: We've got to break, but I know as well as

3 anybody knows that there can be fraud, there can be money

4 laundering, there can be money laundering which is dubious,

5 that's the whole reason you have money laundering, is to do

6 things to conceal. But when you have a lawsuit which charges

7 somebody with money laundering, then it can't be just a lot of

8 suspicion. It can't be that you tie up assets and restrain

9 operations and so forth. There has to be something concrete as

10 a basis for tying up and restraining the use of assets.

11 Now, the defense says we would like a quick trial,

12 they think they can make a showing which would get rid of all

13 of this, right?

14 MR. CYMROT: Correct, your Honor.

15 THE COURT: Based on the record here, based on that, I

16 do not see that we can restrain on a much broader basis than

17 850, whatever it is, $857,000, I don't see that we can restrain

18 on a broader basis. We can restrain any transfers and so forth

19 of the $857,000. Why do we have any want in going beyond that?

20 MR. MONTELEONI: May I be heard on that, your Honor?

21 THE COURT: Yes.

22 MR. MONTELEONI: There's really two questions, I

23 think.

24 One is what the government would be able to ultimately

25 forfeit at trial, and the other is what it can restrain in the

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1 interim before this case goes to trial.

2 Now, the money laundering statutes --

3 THE COURT: Now look, look, don't quote that. I

4 understand what you posed.

5 Now, tell me what you believe you can prove at trial.

6 In other words, you believe you can prove that they were

7 involved in money laundering beyond the $857,000; is that

8 right?

9 MR. MONTELEONI: Well, yes, but not based on more than

10 $857,000 of fraud proceeds.

11 THE COURT: Then restrain 857,000.

12 MR. MONTELEONI: Well, your Honor, if the Court wishes

13 to modify the restraining order, it certainly has the authority

14 to do that. But let me just --

15 THE COURT: Let me interrupt you.

16 If you told me in response to a question, and you

17 talked about what you might prove at trial, if you told me that

18 we believe we can prove at trial that these defendants were

19 involved in money laundering of -- let's just pick a figure --

20 20 million or 40 million, then you would be saying that, but

21 you didn't. You said, there are two things here, what we might

22 prove at trial and what we have a right to restrain.

23 I asked you what you might prove at trial, you come

24 right back to the 857,000. You didn't say, well, we think we

25 could prove money laundering for 2 million, 20 million,

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1 40 million, you said you were right back with the same

2 $857,000.

3 MR. ADAMS: Your Honor, if I may just say, the idea

4 behind the government's theory of the case is that 857,000 was

5 hidden behind what may be legitimate, what may be clean money,

6 in the United States, and in this case those assets were, we're

7 alleging, real estate in the United States.

8 The nefarious thing about money laundering is this

9 commingling and hiding the dirtiness of some particular tranche

10 of funds, in this case what we're calling the dirty $857,000.

11 What we would be able to show at trial, to get

12 directly to your question, is that there were far broader

13 assets used to hide the $857,000.

14 THE COURT: What do you mean by that?

15 MR. ADAMS: That the funds that were sent into

16 Prevezon from these Moldavian shell companies were hidden from

17 law enforcement, in an effort to hide it from law enforcement,

18 by laundering it through other assets. And what the law

19 provides is that --

20 THE COURT: Laundering it through what other assets?

21 MR. ADAMS: For example, the defendants' in rem

22 properties alleged in the complaint.

23 THE COURT: What in rem properties?

24 MR. MONTELEONI: Perhaps I can be heard on that, your

25 Honor? The defendants' representative said various New York

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1 real estate properties. Now, the defendant -- he did not

2 actually specify exactly which ones.

3 We believe that we could at trial forfeit more than

4 $857,000.

5 THE COURT: On what basis?

6 MR. MONTELEONI: On the basis that those broader

7 amount of property is involved in money laundering, because it

8 hid $857,000 of fraud proceeds. And the forfeiture of property

9 that is used to facilitate the laundering of money is something

10 that the statute allows. So it's not just limited to the

11 amount that was stolen, it's also the assets that are used to

12 launder the amount that's stolen.

13 MR. ADAMS: And to tie that back into the restraining

14 order, as Mr. Monteleoni said earlier, the government has

15 already offered to significantly modify the restraining order,

16 to narrow that to an amount of assets, approximately

17 15 million, that is more proportionate to the assets used in

18 the United States that we believe were used to hide the

19 dirtiness of the $857,000. That's already our position, and we

20 are, in lieu of vacating the Court's restraining order, willing

21 to significantly modify.

22 What we're waiting for -- and Mr. Monteleoni can speak

23 to this with more detail -- is for assets to be transferred

24 into a jurisdiction where we can ensure that they will be

25 frozen.

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1 MR. MONTELEONI: Your Honor, perhaps I might be able

2 to provide a little more information.

3 The defendants made this exact motion, and you ruled

4 there wasn't a basis to vacate their restraining order, but you

5 said that in order to evaluate whether the restraining order

6 was too broad, we needed more information from the defendants.

7 You authorized us to take expedited discovery. We

8 sought that additional information from the defendants. We

9 actually haven't received any.

10 Now, that being said, we do agree that the

11 modification of the restraining order makes sense, even though

12 they haven't provided the type of information that would allow

13 us to make the most informed decision about it.

14 I think that perhaps a compromise would be to modify

15 the restraining order so as to vacate it with respect to all

16 the property, apart from what's currently restrained, which is

17 the New York real estate, New York bank accounts, and the funds

18 held by the Dutch authorities in the Netherlands. That way

19 these additional properties that we would have liked to see a

20 little more documentation, so that we could verify that they

21 were legitimate and so that we could release funds, just as we

22 have for the properties that are currently restrained in

23 New York, but we do agree that it is a very broad restraining

24 order and should be modified.

25 I would also just point out about how the restraining

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1 order works. We have been authorizing the release of funds for

2 every time they have asked us, for all of the properties that

3 they've told us about. They've told us about expenses, and

4 when we have heard about those expenses, we've looked to make

5 sure they're legitimate expenses, we authorized the release of

6 those funds. We've authorized over $100,000 of released funds,

7 we've authorize the sale of an apartment. We are likely to

8 authorize another apartment sale. So the restraining does

9 allow them to continue conducting business.

10 We think that perhaps the best compromise is to

11 maintain the restraint of the New York properties that are

12 currently operating under the restraint, doing business, doing

13 real estate sales, paying expenses, maintain the restraint of

14 this $3 million debt that's owed to Prevezon that was seized by

15 the Dutch authorities. And to the extent that this is

16 burdening their other businesses, we could vacate the

17 restraining order as to all of those.

18 THE COURT: Well, I think that that would be a lot of

19 progress.

20 MR. MOSCOW: No, no.

21 MR. CYMROT: Your Honor, can I explain what they mean,

22 they use these languages about concealing and hiding, can I

23 explain what they mean? Because the facts really aren't

24 disputed once they get into our bank account.

25 THE COURT: They what?

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1 MR. CYMROT: The facts -- they appear to have the bank

2 account records. What they say is that when Mr. Katsyv took

3 the $857,000, he put in some of his own money and invested in

4 Germany, that was hiding the $857,000, and that he did that

5 intentionally to promote the fraud. That's what they have to

6 prove in order to get more than the 857.

7 The 857, they could get if they could prove that it's

8 unlawful funds. And it was innocently received. But they say

9 that he hid things by putting his money into this and combining

10 it to do real estate purchases. All he was doing is real

11 estate business, nothing else.

12 And there's really no grounds for restraint here, and

13 certainly nothing beyond the 857.

14 THE COURT: All right, look, we've got to break.

15 But -- sit down, please.

16 MR. CYMROT: Yes.

17 THE COURT: You've got to understand that here you

18 presented a federal judge with the following: You presented a

19 claim, which apparently is a good claim, that there was $230

20 million defrauded from the Russian government through some tax

21 cheat.

22 You also have certainly credibly alleged that there

23 was money laundering, because obviously the $230 million

24 couldn't be taken down to the Bank of England and deposited.

25 So there would have to be money laundering.

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1 The problem is that you've sued certain defendants for

2 money laundering, and you have not alleged, as far as I can

3 see, that they laundered 20 million or 30 million or 40 million

4 or anything like that. You say that they laundered $857,000.

5 Now, just picture a federal judge listening to a case

6 that starts with $230 million and ends up with $857,000 and a

7 very major restraining order. I don't know any federal judge

8 that would say, that is sort of out of balance.

9 Now, what the defense wants to do is to have a quick

10 trial to get rid of the whole thing, to get rid of this

11 accusation hanging over them. And it seems to me if they want

12 a quick trial to get rid of the accusation, they ought to have

13 it, because the accusation isn't -- it's about $857,000. But

14 even the accusation of doing money laundering for the $857,000

15 is an accusation they want to get rid of, right?

16 MR. CYMROT: Yes, your Honor.

17 THE COURT: Okay. And I'm going to tell the

18 government, we will have a trial this spring, and they will

19 have a right to see if the government can prove these

20 accusations. And the government will have to get ready and

21 prove them quickly, and you'll have to do it. The exact date

22 of the trial, my office will have to be in touch, but we will

23 try this case this spring. Thank you very much.

24 MR. TAUBE: Thank you, your Honor.

25 (Adjourned)

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1 UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x
UNITED STATES OF AMERICA,
3
Plaintiff,
4
v. 13 CV 6326 (TPG)
5
PREVEZON HOLDINGS, INC., ET
6 AL.,

7 Defendants.
------------------------------x
8 New York, N.Y.
September 18, 2014
9 11:46 a.m.
Before:
10 HON. THOMAS P. GRIESA,

11 District Judge

12 APPEARANCES

13 U.S. ATTORNEY'S OFFICE
Attorneys for Plaintiff
14 BY: PAUL MONTELEONI
CHRISTINE MAGDO
15 ANDREW ADAMS

16 BAKER & HOSTETLER LLP
Attorneys for Defendants
17 BY: MARK A. CYMROT
JOHN W. MOSCOW
18 LOURA ALAVERDI
AND
19 BAKER BOTTS, LLP
BY: SETH T. TAUBE
20 AND
THE LAW OFFICES OF GABRIELLA VOLSHTEYN, PLLC
21 BY: GABRIELLA VOLSHTEYN

22
GIBSON DUNN & CRUTCHER LLP
23 Attorneys for Hermitage Capital Management
BY: LISA H. RUBIN
24 RICHARD W. MARK
SARAH LYNN KUSHNER
25 CAITLIN WALGAMUTH

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1 (In open court)

2 (Case called)

3 THE COURT: We can go ahead. I would like to start by

4 referring to a letter dated August 7, 2014, from P. Kevin

5 Castel, Chair of the Committee on Grievances for this District

6 Court, and that letter was addressed to Hermitage Capital

7 Management. And the letter notes that this court's committee

8 on grievances was in receipt of Hermitage's letter making a

9 disciplinary complaint against Attorney John Moscow and his law

10 firm, Baker Hostetler.

11 The letter of August 7th from Judge Castel states:

12 The committee has decided to take no further action in this

13 matter. And it goes on to say: The committee's decision is

14 without prejudice to your right -- in other words, Hermitage's

15 right -- as a non-party to raise your concerns about the

16 potential conflict with Judge Griesa, who is the presiding

17 judge in the action, United States against Prevezon Holdings.

18 Now, is somebody in court today representing

19 Hermitage?

20 MS. RUBIN: Yes, your Honor. I am. I'm Lisa Rubin

21 with the law firm of Gibson, Dunn & Crutcher, and with me, your

22 Honor, I have my colleague, Richard Mark.

23 THE COURT: A little slower and louder.

24 MS. RUBIN: Sure. If your Honor would prefer, I would

25 be happy to go to the lectern.

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1 THE COURT: Why don't you go to the lectern.

2 MS. RUBIN: Sure. Good morning, your Honor.

3 THE COURT: Good morning.

4 MS. RUBIN: I'm Lisa Rubin of the law firm of Gibson,

5 Dunn and Crutcher. I have with me this morning my

6 colleagues --

7 THE COURT: What is your name again?

8 MS. RUBIN: Lisa Rubin.

9 THE COURT: And you're with Gibson, Dunn?

10 MS. RUBIN: Yes, I am, your Honor.

11 THE COURT: And representing Hermitage, right?

12 MS. RUBIN: Yes, your Honor.

13 THE COURT: Now, my question is, did your firm or

14 Hermitage or both, one or the other, take any step after the

15 letter of August 7 of Judge Castel?

16 MS. RUBIN: Yes, your Honor.

17 THE COURT: What did you do?

18 MS. RUBIN: Your Honor, as you know, last Friday,

19 September 12th, 2014, Mr. Browder, who is the CEO and founder

20 of Hermitage Capital Management, as a non-party to whom

21 subpoenas have been issued in this action, filed a motion to

22 quash, along with a motion for sanctions, and a motion for a

23 protective order. In the accompanying memorandum -- Go ahead,

24 your Honor.

25 THE COURT: I find it difficult to believe that that

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1 is a response to the letter of August 7th.

2 MS. RUBIN: May I respond, your Honor?

3 THE COURT: Right.

4 MS. RUBIN: Our motion discusses in its memorandum of

5 law why the subpoenas issued to Mr. Browder and other affected

6 non-parties are sanctionable, because they are predicated on

7 confidences shared Hermitage Capital Management and Mr. Browder

8 with their former counsel.

9 However, your Honor, we would like the opportunity to

10 more fully brief for your Honor why we believe Mr. Moscow,

11 Baker Hostetler and Baker Botts, as co-counsel in this matter,

12 should be disqualified from representing the defendants in this

13 matter. And with your Honor's permission, under --

14 THE COURT: It seems to me -- and you're responding to

15 my question, but it seems to me clear that -- Let me withdraw

16 that.

17 I don't want to give you legal advice, but the letter

18 of Judge Castel invited Hermitage to raise the concerns about

19 conflict in my case. Now, the way people generally raise

20 things like that is to make a motion.

21 MS. RUBIN: May I respond, your Honor?

22 THE COURT: Let me finish.

23 MS. RUBIN: Sure.

24 THE COURT: Now, I do not regard the motion to quash

25 subpoenas as the kind of motion that was contemplated in Judge

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1 Castel's letter, but if you wish to make such a motion now,

2 then I would be glad to -- I mean, I wouldn't decide it today,

3 but I would be glad to hear whether you wish to make a motion.

4 MS. RUBIN: We do, your Honor. Of course --

5 THE COURT: All right. Now --

6 MR. CYMROT: May I say something? Mark Cymrot for the

7 defendants.

8 MS. RUBIN: I'm sorry, your Honor --

9 MR. CYMROT: May I say something, please?

10 THE COURT: Let me just finish, please. I mean, I'm

11 going to go all around, but the one thing the Court does not

12 wish to do is to make a decision about the status of Mr. Moscow

13 and his firm without there being a proper record. And a

14 motion, Hermitage, of the kind you are suggesting would be a

15 step, in my view, towards creating such a record.

16 And I think another attorney wished to speak.

17 MR. CYMROT: Yes, your Honor.

18 THE COURT: Can you go back to the lectern?

19 MS. RUBIN: I'm sorry, your Honor. Before Mr. Cymrot

20 speaks, may I just briefly respond to one issue?

21 THE COURT: You go ahead. Of course.

22 MS. RUBIN: Okay. I appreciate the opportunity, your

23 Honor. We would be happy to make the motion that your Honor

24 has outlined, but I do want to clarify for the Court that our

25 clients have some jurisdictional concerns. We appear here

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1 today under a special appearance without waiver of those

2 jurisdictional defenses and with an express preservation of

3 those defenses.

4 And, of course, in making such a motion, I would want

5 to ensure that Mr. Browder and Hermitage Capital Management

6 would be doing so under a similar special appearance without a

7 waiver of its jurisdictional defenses.

8 MR. CYMROT: We would object, your Honor.

9 MS. RUBIN: Your Honor, the defendants are attempting

10 to put my client in a Catch 22 or a Hobson's choice.

11 THE COURT: Oh, please. The thing is that, without

12 deciding or hinting at any decision on the merits, it seems to

13 me that Hermitage has a right to pose this issue, and you're

14 going to make a motion opposing the issue in a more formal way

15 than it has been posed thus far.

16 Now, you're not a party to the action. Hermitage has

17 not been sued and it is not suing, and it seems to me the fair

18 thing to do -- and I think I entered an order to this effect

19 going part way -- is to allow Hermitage to make a special

20 appearance for the purpose of raising the issue.

21 Now, I hear that there is an objection to that, and

22 who wants to speak to that?

23 MR. CYMROT: Your Honor, Mark Cymrot for the

24 defendants. If I can recall a history here, your Honor, we had

25 a discussion about this on March 4th, with Hermitage's counsel

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1 sitting right over here, and you invited a motion at that time.

2 They filed none. They complained to our law firm back when we

3 first appeared; so they had notice when we first appeared.

4 Then they didn't file a motion at that time. So we are now a

5 year later.

6 We invited them privately, in a letter, to present

7 their views on why they feel we had confidential information,

8 because we said their letter to us did not specify confidential

9 information, and they didn't respond to us. They filed the bar

10 grievance.

11 THE COURT: They filed a what?

12 MR. CYMROT: The bar grievance before Judge Castel's

13 committee. That bar grievance did not have an assertion in it

14 that we had confidential information. The first time that that

15 was made was by Gibson, Dunn in their pleadings on the motion

16 to quash.

17 So they've had several invitations. We are now a year

18 down the road, and this is going to delay this proceeding. And

19 this is just tactics. And the Circuit has warned that this

20 type of motion should not be used as tactics, and it's even

21 worse because they are defaming a prominent prosecutor in this

22 town, John Moscow. And this has been hanging over him for a

23 year now because they leaked it to the press when they made the

24 grievance, and they leaked it to the press over the weekend

25 with their inaccurate motion.

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1 And I'm prepared to show that what's in their motion

2 about confidential information is absolutely false and comes

3 from public records. Can I show that, your Honor? I'm

4 prepared to hand up some documents to you.

5 THE COURT: No. Now, look --

6 MR. CYMROT: This shouldn't delay this, your Honor.

7 This should not delay this case. It's a year. Our clients

8 have been enjoined for a year now, and this is just a delay

9 tactic.

10 THE COURT: The problem with what you say is this.

11 There has been no authoritative decision by any committee or by

12 this court about whether or not there's a conflict of interest

13 involving Mr. Moscow and his firm.

14 MR. CYMROT: Mr. Castel's -- Judge Castel's --

15 THE COURT: Excuse me. Let me finish, please.

16 I repeat, there has been no decision. Now, if you say

17 there is no occasion for any decision, I don't think that it

18 would be justified for me saying that, in the matter before me,

19 there is no issue properly raised about Mr. Moscow and his

20 firm. I would not be warranted in saying there is no issue

21 raised. And I'm sure you're reciting the record accurately,

22 but what you recite is not, in my view, grounds for me saying

23 that there is no issue properly before the Court.

24 MR. CYMROT: Your Honor, the grievance --

25 THE COURT: And what I want to do is to have a proper

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1 record made and establish a schedule, and whatever decision I

2 need to make will be made on a proper record. In my view,

3 there is no proper record at the moment.

4 MR. CYMROT: Your Honor, may I ask what a proper

5 record -- then, if Mr. Browder is going to lob in allegations

6 from London, that he show up and appear here and be

7 cross-examined about these allegations.

8 THE COURT: Now --

9 MR. CYMROT: Wouldn't that require a proper record?

10 THE COURT: The deposition is noticed for when?

11 MS. RUBIN: May I, your Honor?

12 THE COURT: Yes.

13 MS. RUBIN: May I, Mr. Cymrot?

14 Your Honor, in the subpoena -- there have been two

15 subpoenas that have been issued to Mr. --

16 THE COURT: When is --

17 MS. RUBIN: I'm trying to answer your question, your

18 Honor.

19 THE COURT: Is he subpoenaed to appear here at some

20 point?

21 MS. RUBIN: No, he is not, your Honor.

22 THE COURT: What is the subpoena about, then?

23 MS. RUBIN: The subpoena is for deposition, and there

24 are two of them, your Honor, that have been issued to

25 Mr. Browder.

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1 THE COURT: And to take a deposition?

2 MS. RUBIN: Yes, your Honor.

3 THE COURT: Where?

4 MS. RUBIN: One of the subpoenas was issued to

5 Mr. Browder in Delaware for some months ago and is the subject

6 of pending motion practice that has been recently transferred

7 to this court from the District of Columbia -- from the U.S.

8 District Court for the District of Columbia.

9 There is another subpoena that has been recently

10 issued to Mr. Browder calling for his deposition on

11 August 15th. That subpoena is one of the six subpoenas at

12 issue in the motion to quash that my firm filed last Friday.

13 Neither of them call for him to appear in this

14 district. And, your Honor, as you know, it continues to be our

15 position that Mr. Browder is not subject to rule 45 in this or

16 in any other judicial district in this country. The idea that

17 Mr. Browder should have to come here to have to assert his

18 rights is offensive.

19 THE COURT: Well, nobody was trying to give you

20 offense. Just take it easy.

21 MS. RUBIN: Will do, your Honor.

22 MR. CYMROT: Your Honor, the subpoena called for

23 Mr. Browder's appearance in Aspen, Colorado, where he was

24 served on August 15th, and then by agreement, there was a

25 schedule that you then extended on the motion to quash, and you

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1 gave him more time to file a motion to quash. But the subpoena

2 date has already passed. You're now confronted with a motion

3 to quash.

4 MR. MONTELEONI: Your Honor, might I be heard to make

5 a suggestion?

6 THE COURT: Who's speaking?

7 MR. MONTELEONI: This is Paul Monteleoni for the

8 government. One possible suggestion is that issues about

9 whether it is necessary or appropriate for depositions to be

10 taken to make a record of this type of motion, if there's going

11 to be a motion, might be -- those might be worth briefing. It

12 might make sense to set a briefing schedule now, and one issue

13 that can be addressed in the briefing is whether the court

14 would need to take any testimony in any way from anyone and

15 how. That can be a matter for the briefing, and then the Court

16 can have a written record to decide that.

17 THE COURT: Look --

18 MR. CYMROT: Let them make a motion, your Honor. If

19 they're going to make a motion, let them make it and put a

20 factual record in.

21 THE COURT: Would you like to go to the lectern or do

22 something?

23 MS. RUBIN: Your Honor, after, may I have an

24 opportunity to respond?

25 MR. CYMROT: Your Honor, I'm suggesting that if

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1 they're going to file a motion to disqualify us and Mr. Moscow,

2 that they ought to file their motion. It ought to be on an

3 expedited schedule so we don't delay this case any longer than

4 it already is, and that they put in a proper factual record,

5 which would require an affidavit from Mr. Browder to say what

6 confidential information he supposedly gave our law firm, and

7 then we would be able to respond to that because that's the

8 issue.

9 He says he gave us confidential information, and we

10 don't have confidential information, and that's a new

11 allegation. So if he's going to swear to it, then he ought to

12 swear to it, and he ought to be specific. Otherwise, you don't

13 have a factual record to decide a motion for disqualification.

14 They filed a motion to quash without an affidavit from

15 Mr. Browder.

16 You don't have a factual record to quash this

17 subpoena. It's the same thing. You know, they'll say whatever

18 they want to say. The lawyers are told things by Browder, but

19 they got it wrong, plainly wrong, in the motion to quash. If

20 he's going to make those kind of allegations, he ought to make

21 it in an affidavit on a motion to quash.

22 MS. RUBIN: Your Honor, may I respond?

23 THE COURT: There is a motion to quash, but it has not

24 been fully briefed by the parties.

25 MR. CYMROT: It hasn't been made, your Honor. There

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1 is no motion to quash.

2 THE COURT: I thought there was a motion to quash.

3 MR. CYMROT: No, there is no motion to quash. That's

4 the problem. You don't have a record here. You don't have a

5 grievance. You don't have a motion to quash. There's no

6 reason to have any of this.

7 THE COURT: Would you mind listening to me?

8 MR. CYMROT: Yes, your Honor. I'm sorry.

9 THE COURT: I'm trying to get the record in shape. I

10 know that their record is incomplete. I thought there was a

11 motion to quash, and it had not been fully briefed. Maybe I'm

12 not completely informed, but the thing is, what has to be

13 done --

14 MR. CYMROT: I'm just asking that it be on a --

15 THE COURT: Excuse me.

16 MR. CYMROT: Yes.

17 THE COURT: There is the issue about the role of

18 Mr. Moscow and his law firm that is raised in the letter of

19 August 7 by Judge Castel to Hermitage. Now, no motion was made

20 following that letter, but now Hermitage will make a motion and

21 presumably they will -- I don't know what they will do, but

22 unless all issues are abandoned, apparently that will raise

23 issue about Mr. Moscow's ability to continue and his law firm's

24 ability to continue.

25 Now, so there will be a motion, and we can set a

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1 schedule for that motion. And then, as far as anything else,

2 subpoenas or whatever, I am imposing on the lawyers here today

3 the duty to apprise me of any other issues, and then we'll

4 either defer those issues or we'll establish a schedule to

5 handle those issues. But I am not going to rely on subpoenas

6 issued here and there and so forth.

7 We're together today, and we will establish a schedule

8 for what needs to be scheduled, and that will be that. Now, we

9 do have the proposal of Hermitage to make a motion, which is,

10 obviously, in relation to Mr. Moscow and Baker Hostetler.

11 Now, there's been a lot of emphasis on the use of

12 confidential information. I want to say to you that you better

13 deal with the issue of Mr. Moscow's role and Baker Hostetler's

14 role in the full breadth that it needs to be dealt with. From

15 my knowledge of the record, it is not simply a matter of the

16 use of some confidential information. It is a matter of

17 Mr. Moscow's relationship with his former client and his

18 relationship with his present client, and I'll expect all that

19 to be the subject of the briefing.

20 Now, we're going to have a motion from Hermitage. Is

21 there some party who proposes to oppose that motion and will

22 brief that opposition?

23 MR. CYMROT: Yes, Baker Hostetler will oppose it.

24 THE COURT: Of course you will. All right.

25 MS. RUBIN: Your Honor, may I propose a schedule for

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1 that motion?

2 THE COURT: Okay.

3 MS. RUBIN: I understand your Honor to say that the

4 briefing that's outstanding on the subpoenas is something you'd

5 like to hold in abeyance. Do I understand your Honor

6 correctly?

7 THE COURT: I haven't said that.

8 MR. CYMROT: Your Honor, I object.

9 THE COURT: But I assume we'll come to that.

10 MS. RUBIN: Your Honor, I'd like to propose that

11 Hermitage Capital Management and Mr. Browder make their motion

12 to disqualify Mr. Moscow, his firm and the firm of Baker Botts,

13 which, through their close cooperation, has also been privy to

14 the confidentiality information.

15 THE COURT: I don't understand what you're saying.

16 MS. RUBIN: Sure.

17 THE COURT: Please.

18 MS. RUBIN: Your Honor, I'd like to propose that we

19 move by October 6th.

20 THE COURT: We're going to have a motion from

21 Hermitage, and that motion will be opposed and you, obviously,

22 can agree on a schedule for that motion and that opposition.

23 Is there any other party that wishes to participate in

24 that motion?

25 MR. TAUBE: Your Honor, if I may. Seth Taube for the

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1 law firm of Baker Botts. May I speak very briefly?

2 THE COURT: Right.

3 MS. RUBIN: Your Honor?

4 THE COURT: Who do you represent?

5 MR. TAUBE: A fair question. We have been co-counsel

6 in this case with Baker Hostetler for the defendants. What I

7 heard Ms. Rubin just say --

8 THE COURT: Has your appearance been noted in this

9 court?

10 MR. TAUBE: Yes. We're on all the papers, Judge.

11 THE COURT: All right. Very good.

12 MR. TAUBE: I heard --

13 THE COURT: You're co-counsel with Baker Hostetler?

14 MR. TAUBE: Yes, your Honor. I understood Ms. Rubin

15 is going to try to disqualify us, even though we have never had

16 a prior representation. We will fully brief that.

17 THE COURT: I can't understand what you've just said.

18 What have you just said?

19 MR. TAUBE: Ms. Rubin is going to try to disqualify

20 Baker Botts, as well as Baker Hostetler, as co-counsel in this

21 case, and so we will respond to that as well, since we have

22 never had, as they acknowledge, a conflicting prior

23 representation.

24 THE COURT: All right. So whatever motion is made

25 will be responded to. All right. Is there anything else we

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1 need to do today?

2 MR. CYMROT: Yes, your Honor.

3 THE COURT: I think there is because if there are

4 pending subpoenas and motions about those subpoenas, I'd like

5 to have those noted in court today, and we'll do some

6 scheduling.

7 MR. CYMROT: There is a motion to quash for the

8 subpoenas, your Honor. There is a schedule that your Honor has

9 entered on that, and we think we should go forward with that.

10 And I think you ought to set a schedule for this motion to

11 disqualify because, otherwise --

12 THE COURT: Who is speaking?

13 MR. CYMROT: Mark Cymrot. I'm sorry, your Honor.

14 THE COURT: Why don't you go back.

15 MR. CYMROT: Yes. You established a schedule for the

16 motion to quash, which we are in the midst of briefing. We

17 think that briefing should go forward. We think the motion to

18 disqualify, your Honor, should set an expedited schedule. I

19 think counsel will have a hard time agreeing to it. They're

20 asking for a long time. We think this is a tactic for delay.

21 So I think they ought to file their motion in a week.

22 We'll respond in a week. You'll have a record. But this

23 should be done expeditiously. These kind of allegations

24 shouldn't be hanging out there. They go to the press all the

25 time with this stuff, and it's damaging to people's reputations

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1 and the firm's reputation.

2 THE COURT: Who is going to the press?

3 MR. CYMROT: Well, Mr. Browder is always in the press.

4 He leaked his bar complaint to the press, and they were in the

5 press over the weekend. It was the lead headline in the Wall

6 Street Journal, about the fact that there was a hearing coming

7 today over allegations that John Moscow was operating

8 improperly.

9 MS. RUBIN: Your Honor, may I respond?

10 MR. CYMROT: Your Honor, it's right here: "Former

11 New York prosecutor faces confidentiality breach hearing."

12 This is what they are doing to him, your Honor. We shouldn't

13 let these allegations stay out there. They're in the press and

14 they're improper, and if they're going to assert it --

15 THE COURT: What I am trying to do is establish a

16 schedule so the issues will be resolved.

17 MR. CYMROT: I'm asking for an expedited schedule,

18 that's all, your Honor.

19 MS. RUBIN: May I respond, your Honor?

20 THE COURT: What do you propose as an expedited

21 schedule?

22 MR. CYMROT: They file their motion in a week, and we

23 respond in a week.

24 THE COURT: Sounds good to me.

25 MS. RUBIN: May I respond, your Honor?

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1 MR. CYMROT: Thank you, your Honor.

2 THE COURT: Right.

3 MS. RUBIN: Your Honor, next week --

4 THE COURT: Would you like to go to the lectern?

5 MS. RUBIN: I'd be happy to, your Honor.

6 Your Honor, next week marks the Jewish high holiday.

7 In light of that, and in light of the ensuing holidays Rosh

8 Hashana and Yom Kippur, my initial proposal was that Hermitage

9 Capital and Mr. Browder submit their brief on October 6th.

10 We certainly will not be done with the brief over the

11 pending motion to quash at that point in time. While I

12 appreciate that Mr. Cymrot wants to expedite this briefing,

13 there will be no prejudice to any party in the action by

14 submitting of October 6, after the conclusion of the Jewish

15 high holidays.

16 THE COURT: After the conclusion of?

17 MS. RUBIN: The Jewish high holidays, your Honor.

18 THE COURT: When do they start?

19 MS. RUBIN: They begin next week for two days for Rosh

20 Hashana. They conclude after Yom Kippur on the weekend, I

21 believe. Yom Kippur ends October 4th. October 6th is the next

22 business day. We'd be happy to submit our motion on that day.

23 MR. CYMROT: Your Honor, we all have that issue, but

24 they can file their motion before Rosh Hashanah. We'll file

25 our response before Yom Kippur. This should be done

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1 expeditiously. October 6th is an extraordinary long time

2 for -- they've had a year to do this, and they've had since

3 August 7th, since Judge Castel's letter. They can do it, and

4 they ought to be required to do it.

5 MS. RUBIN: Your Honor, may I? With all due respect

6 to Mr. Cymrot, the letter of August 7th was not received by

7 Hermitage Capital Management overseas until after my firm,

8 Mr. Browder and Hermitage Capital had become aware that your

9 Honor had asked for this morning's hearing in issues including

10 the conflict.

11 That is why no motion was made. Our concerns about

12 the jurisdictional issues that I have already foreshadowed for

13 the Court also were reasons why that motion was not made. We

14 should not be prejudiced by Mr. Cymrot's suggestion that we

15 have three business days, essentially, to submit a brief.

16 These issues are not new to him and his firm, and

17 without going into the record, which I understand your Honor

18 wants to see on a full and fair opportunity for briefing, it's

19 simply not true that our complaints are new to them. We made a

20 complaint with the disciplinary committee. There is also a

21 pending complaint with the First Department --

22 THE COURT: Why don't you just desist for a moment.

23 MS. RUBIN: Happily, your Honor.

24 THE COURT: Mr. Cymrot, what was the schedule you

25 suggested?

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1 MR. CYMROT: I suggested that they file their brief

2 before Rosh Hashana, which I think starts on Thursday next

3 week, which would be a week. We will file our response before

4 Yom Kippur, which starts the following Friday evening. So

5 we'll file it that Friday.

6 THE COURT: Let me make a note on that. Just a

7 second. Just a second.

8 MR. CYMROT: Your Honor, so what we're suggesting is

9 the 24th for their filing and ours for October 2nd.

10 THE COURT: My calendar shows the first day of the

11 Jewish holiday is the 24th.

12 MR. CYMROT: That's sundown, your Honor. So they can

13 file during the day.

14 THE COURT: So what you're suggesting is their motion

15 by the 24th?

16 MR. CYMROT: Correct.

17 THE COURT: Just a minute. And then you would reply

18 when?

19 MR. CYMROT: Thursday, the 2nd, October 2nd.

20 MS. RUBIN: Your Honor, under their proposal, we

21 would --

22 THE COURT: Just a minute. Again, for the umpteenth

23 time, your reply, your answer would be?

24 MR. CYMROT: October 2nd.

25 THE COURT: Which is Thursday before another Jewish

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1 holiday?

2 MR. CYMROT: Correct.

3 THE COURT: Well, I mean, I'll hear from the other

4 side, but that seems to be a reasonable schedule and prompt

5 because we're at the 18th now and --

6 MS. RUBIN: Your Honor, under the schedule that

7 they've proposed --

8 THE COURT: Excuse me. Just a minute. We're at the

9 18th. And what do you suggest as a schedule?

10 MS. RUBIN: Well, your Honor, under the schedule they

11 have, we get under a week and they get more than a week.

12 THE COURT: What do you suggest as a schedule?

13 MS. RUBIN: Your Honor, I would suggest that we

14 provide our brief to the Court on the 29th.

15 THE COURT: Just a minute. And then --

16 MS. RUBIN: And they would have a week to respond. If

17 they would like longer, certainly we'd be open to that as well.

18 THE COURT: Your motion would be filed on the 29th?

19 MS. RUBIN: Yes, your Honor. And that's because with

20 the holidays on the 25th and the 26th --

21 THE COURT: Just a minute.

22 MS. RUBIN: -- I will not be able to prepare and file

23 a response on those dates.

24 THE COURT: Well, I have to say that I think that the

25 idea of filing a motion on the 29th and then the answer a week

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1 or ten days after that makes more sense than trying to have a

2 motion filed on the 24th. That's just too fast.

3 So the schedule is as follows. The motion that is

4 going to be made by Hermitage will be filed on September 29,

5 and then Mr. Moscow and his firm, when do you wish to answer?

6 MR. CYMROT: How about the 7th, your Honor? I would

7 say the 6th, in one week, except for the Jewish holidays; so

8 could we have the 7th, October 7th?

9 THE COURT: Of course, of course. That makes a lot of

10 sense. We've got a good schedule now.

11 MS. RUBIN: Your Honor, will Hermitage also be

12 permitted an opportunity to reply?

13 THE COURT: Well, we've got to schedule a hearing date

14 and, of course, you can file a reply.

15 MS. RUBIN: Would the 14th be an acceptable date to

16 your Honor for a reply?

17 MR. CYMROT: Let's have a hearing on the 14th.

18 THE COURT: I think a hearing on the 14th is a good

19 idea. So we'll have a hearing on October 14th, and the

20 answering brief, again, is October 7, and if anybody wishes to

21 file a reply and so forth, that is usually done on the eve of

22 the hearing. So we've got the motion will be September 29, the

23 answer will be October 7, and the hearing will be October 14th.

24 Now --

25 THE DEPUTY CLERK: 11:00 a.m.

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1 THE COURT: What?

2 THE DEPUTY CLERK: 11:00 a.m. on the 14th, Judge.

3 THE COURT: 11:00 a.m. on the 14th.

4 Now, it seems to me the wise thing to do is to hold

5 everything else in abeyance because after we settle who's

6 representing whom, the briefing that needs to be done on

7 subpoenas and so forth, that can be handled after that. But we

8 need to know what the final, definite lineup of the attorneys

9 is.

10 That is something that we'll take care of with the

11 motion, and everything else will be held in abeyance until

12 after that. And regardless of what schedule I entered at an

13 earlier time, we have a new set of issues now and we have to

14 take care of those new issues, and that's what we'll do. Thank

15 you very much.

16 MS. RUBIN: Thank you, your Honor.

17 MR. CYMROT: Thank you, your Honor.

18 MR. TAUBE: Thank you, your Honor.

19 (Adjourned)

20

21

22

23

24

25

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EAEVPREA

1 UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x

3 UNITED STATES OF AMERICA,

4 Plaintiff,

5 v. 13 CV 6326 (TPG)

6 PREVEZON HOLDINGS LTD., ET AL,

7 Defendants.

8 ------------------------------x
New York, N.Y.
9 October 14, 2014
11:15 a.m.
10
Before:
11
HON. THOMAS P. GRIESA,
12
District Judge
13
APPEARANCES
14
PREET BHARARA,
15 United States Attorney for the
Southern District of New York
16 JOHN McENANY, Associate U.S. Attorney
PAUL M. MONTELEONI
17 CHRISTINE I. MAGDO,
Assistant United States Attorneys
18
BAKER & HOSTETLER
19 Attorneys for Defendants
BY: JOHN W. MOSCOW
20 LOURA L. ALAVERDI
MARK A. CYMROT
21 -and-
BAKER BOTTS
22 BY: SETH T. TAUBE
VERNON CASSIN
23 GABRIELLA VOLSHTEYA

24

25

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EAEVPREA

1 APPEARANCES (continued)

2 GIBSON DUNN & CRUTCHER
Attorneys for Movants
3 BY: RANDY M. MASTRO
RICHARD W. MARK
4 LISA H. RUBIN
SARAH L. KUSHNER
5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

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1 (Case called)

2 THE COURT: I think there's a motion before the Court,

3 and I guess that motion is by Hermitage.

4 MR. MASTRO: Yes, your Honor.

5 THE COURT: Would you like to speak to the motion?

6 MR. MASTRO: Yes, your Honor. Thank you very much,

7 your Honor.

8 Randy Mastro of Gibson, Dunn & Crutcher for Hermitage

9 and William Browder.

10 I'm here with my colleagues Richard Mark and Lisa

11 Rubin. Mr. Mark will be arguing the motion, your Honor.

12 I just wanted to, at the outset, thank the Court for

13 seeing us so quickly on this important and sensitive matter.

14 It brings us no good feeling -- it's painful, your Honor -- to

15 have to be here on an application like this; but, your Honor,

16 the ethics rules could not be clearer.

17 THE COURT: The what?

18 MR. MASTRO: The ethics rules could not be clearer.

19 An attorney cannot represent one client, and then

20 later represent another client in an adverse capacity on a

21 substantially related matter. That is exactly what is at play

22 here, your Honor.

23 Mr. Moscow, an old friend, someone I've done cases

24 with in the past, brings me pain to have to say it, but this is

25 a clear conflict of interest, and no less an authority than

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1 Professor Bruce Green of Fordham Law School, a renowned

2 ethicist.

3 As opined before this Court, your Honor, this is a

4 betrayal of that client relationship, and it cannot stand, and

5 that's why we needed to make this application.

6 Your Honor, I'm going to turn it over to my colleague,

7 Mr. Mark, to make the substantive argument. And I appreciate

8 your Honor seeing us.

9 THE COURT: Would you go over to the lecturn, please.

10 MR. MARK: Sure, your Honor.

11 Your Honor, Mr. Mastro laid out very clearly already

12 the test that applies to a motion like this. It's a three-part

13 test. It's long established in the Second Circuit, stated

14 clearly in the Hempstead Video case, and there are three

15 elements to it:

16 You look at the moving party. And the moving party,

17 you're asking, is that party a client or was that party once a

18 client of the lawyer's for an adverse party; second, in a

19 matter that is substantially related to the case that's pending

20 before your Honor now; and, third, where there was the

21 likelihood, at least, that confidential information was shared

22 in that prior relationship in a case like this one, where, in

23 particular, the lawyer who was counsel to our client in the

24 first representation is the same individual as is representing

25 the adverse party in this substantially related matter, the

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1 presumption that confidential information was shared is

2 irrebuttable. That's laid down in the Government of India

3 case, and has been repeated over and over.

4 THE COURT: An irrebuttable presumption.

5 MR. MARK: Yes.

6 And that's because when a client enters into an

7 attorney-client relationship with counsel, it's expected that

8 confidential information will be shared. It is not the burden

9 of the party to parse out and sort and tell his or her former

10 counsel what was that confidential information that was shared

11 with me, because it encompasses more than facts when a client

12 goes to speak with a lawyer and work on matters of strategy and

13 different considerations of how facts are used. And those

14 facts can be public information or information gathered

15 otherwise. When the client works with the lawyer in that

16 sense, it's assumed that confidential information was shared.

17 The cases where you get into the matter of a

18 rebuttable presumption tend to be ones where you have a

19 situation where the first representation, let's say, involve a

20 large law firm and someone at the firm; and the second

21 representation may involve the same firm, but a different

22 lawyer, someone who is screened off from the very beginning or

23 something like that. And there, you get into arguments of was

24 the information shared.

25 And here, the record is clear, it can't be disputed,

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1 Mr. Moscow was the attorney at Baker Hostetler that Browder and

2 Hermitage hired in 2008 to do the activity, and investigate and

3 assist them in this matter which now underlies the case that's

4 before your Honor, U.S. v. Prevezon. And Mr. Moscow is the

5 same attorney appearing in Prevezon.

6 THE COURT: When you say "underlies," what do you

7 mean?

8 MR. MARK: Well, that was laid out in copious detail

9 most recently in the government's --

10 THE COURT: Laid out where?

11 MR. MARK: In the government's letter to the Court of

12 October 10th, 2014. It can be seen in other materials, as

13 well, but this is a helpful digest and guide that explains the

14 substantial relationship between the matter of the prior

15 representation where Mr. Moscow represented Hermitage and

16 Browder, and the current representation, U.S. v. Prevezon.

17 What the government's letter does in particular is

18 look at material --

19 THE COURT: I really have to tell you, I don't

20 understand why you're making this motion. I don't understand

21 it. What is the prejudice to your client? Why are you making

22 this motion, to displace an attorney who has a client who's

23 earning a fee? Why are you making this motion? I do not

24 understand it.

25 MR. MARK: What has crystallized the conflict is that

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1 Mr. Moscow and the attorneys representing the defendants in the

2 forfeiture action have turned on their former client by

3 subpoenaing the client.

4 THE COURT: Well, the thing is what is the extent of

5 that subpoena? What is being sought by that subpoena? I know

6 there's the subpoena. Mr. Browder. But what is being sought?

7 MR. MARK: I would say that the depths and the nooks

8 and crannies of the subpoena don't have to be litigated here

9 today, but --

10 THE COURT: Well, they are going to be litigated here

11 today.

12 MR. MARK: The subpoena, for starters, although in

13 name -- and I'm talking about in particular this one, which is

14 Exhibit 17 to the declaration that came in with our moving

15 papers. Let's start with the fact that the subpoena addressed

16 in name to Mr. Browder --

17 THE COURT: I know that. I don't think you have

18 shown, and I really don't think the other side has shown what

19 is the purpose of subpoenaing Mr. Browder. And certainly you

20 haven't shown it, and probably don't know it.

21 So let me just turn to the other side.

22 What's the purpose of that subpoena?

23 MR. CYMROT: Yes, your Honor.

24 THE COURT: You're Mr. --

25 MR. CYMROT: Cymrot.

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1 THE COURT: Okay.

2 MR. CYMROT: Can I go to the podium?

3 THE COURT: Why don't you do that.

4 The subpoena is important. And what is the purpose?

5 MR. CYMROT: Yes, your Honor.

6 The subpoena arose because the government in March

7 said that Mr. Browder was its principal witness. The

8 government has since stepped back from that. It's not clear

9 Mr. Browder will even be a witness here. But our purpose was

10 to take pretrial discovery of somebody the government

11 identified as a witness.

12 THE COURT: What would be the substance of that?

13 MR. CYMROT: We went through the complaint. And if

14 you'll remember, there's the first hundred paragraphs of the

15 complaint that describes this fraud scheme that our client is

16 not alleged to be involved with. But that is what Mr. Browder

17 supposedly will testify about, and to take discovery on those

18 paragraphs about what he knew and what witnesses he could

19 identify, what documents he could identify that are relevant to

20 those paragraphs of the complaint.

21 THE COURT: In other words, if he's going to be a

22 witness at the trial where your client is a defendant --

23 MR. CYMROT: Correct.

24 THE COURT: -- you wanted to take his deposition,

25 right?

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1 MR. CYMROT: Yes. We do not want to offer him as a

2 witness; we want to take a discovery deposition, that's all,

3 because the government named him. If he's not going to appear,

4 then it becomes a different issue. But right now they say he's

5 appearing, even though he is trying not to appear.

6 THE COURT: So you're trying to find out what he would

7 testify about at the trial of the case involving your client,

8 right?

9 MR. CYMROT: Correct.

10 THE COURT: Let me go back to Mr. Mark.

11 I don't understand why that puts him in a conflict.

12 They are trying to find out what the government would do. They

13 are trying to find out what the government would do if the

14 government called him. Why is that a conflict?

15 MR. MARK: Because he was there; he was Mr. Moscow's

16 former client. And in that situation, a lawyer who has worked

17 with a party and represented him and is presumed to have

18 confidential information is now about to turn around and be in

19 a position to ask his former client questions about the same

20 matter in which he formerly represented him. And that's the

21 $230 million fraud which your Honor knows from reviewing the

22 complaint is shot through in the allegations of the complaint.

23 That's why I refer to the government's letter of last Friday,

24 because in that letter, the government explains how the

25 allegations of the complaint relate to the former

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1 representation.

2 If an attorney in that position, having represented a

3 client, now turns around and says, I want to question that

4 client on the matter I represented him on, that is the

5 conflict. The Cole case, which we cited to your Honor in the

6 letter that was submitted this morning, is perhaps yet another

7 example. But the clearest one that we have found, it's a

8 Magistrate Judge Pitman decision in which a firm and a lawyer

9 was disqualified when that firm sought to subpoena its former

10 client in a substantially related matter. That's the issue.

11 The matters underlying this, as shown in subpoena and

12 the topics covered in the subpoena, relate to the subject of

13 the prior representation. And the lawyer who performed that

14 prior representation can't then turn around and ask his client

15 questions on behalf of an adverse party in that situation.

16 That's the crux of the motion.

17 MR. CYMROT: May I speak to that, your Honor?

18 THE COURT: No. Let Mr. Mark finish. You go ahead.

19 MR. MARK: And one reason that we submitted in the

20 moving papers a particular draft declaration that was prepared

21 by Baker Hostetler in the course of that prior representation

22 was to show that the nature and scope of the work that Baker

23 Hostetler was done and was privy to, that's the Felgenhauer

24 declaration, and it is the comparison of that declaration to

25 the complaint which the government does in its October 10th

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1 letter that shows the substantial relationship between the two.

2 When the lawyer then turns to his former client to

3 say, I want to probe those facts to try and disprove the matter

4 that I was engaged previously to investigate, that is a

5 fundamental breach of the attorney's relationship to his former

6 client.

7 THE COURT: It doesn't seem to me that the purpose of

8 the subpoena to Browder is one of -- trying to do harm to

9 Browder is trying to find out -- find out -- what Browder would

10 testify if he was called at the trial. And it doesn't seem to

11 me that that is taking an aggressive stance against Browder or

12 Hermitage. They are simply trying to find out if he's called,

13 what he would say.

14 MR. MARK: The issue is this: Obviously the

15 government has said in its letter that it will be seeking its

16 own discovery, and presumably the defendant in the forfeiture

17 action will want to attend and cross-examine at whatever

18 proceeding that is.

19 We also have the subpoena to Browder and, by

20 extension, Hermitage, because the subpoena itself defines

21 Browder to include all of his companies, including Hermitage,

22 indisputably the former client of Baker & Hostetler. And the

23 subjects covered in the subpoena range very far into the

24 subject matter that Baker Hostetler was investigating.

25 The reason they are now on the opposite side,

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1 obviously Mr. Browder, as shown in the engagement letter and

2 the bills and certain other material, engaged Baker Hostetler

3 to try and unravel the $230 million fraud to seek remedies, to

4 go meet with prosecutors to get remedies for the benefit of the

5 client. Now Baker & Hostetler and Mr. Moscow are representing

6 someone who received the fruits, under the government's

7 complaint, of this fraud. It's the other end of the

8 transaction of the matters.

9 THE COURT: What do you mean "received fruits of the

10 fraud"?

11 MR. MARK: The allegation is and the basis of the

12 forfeiture is that some portion of that 230 million ended up in

13 this district and, therefore, the government --

14 THE COURT: $800,000.

15 MR. MARK: Some portion of it. Used to be real money.

16 The fruits of that are in the district, and the basis of the

17 government's complaint here.

18 The position that Baker Hostetler and Mr. Moscow are

19 now taking on behalf of the defendant in that case is obviously

20 to put them in a position where it won't be forfeited. And it

21 is encompassed reasonably within whoever is defending them to

22 try and put Mr. Browder, as they seek to do, under oath and to

23 turn him into not what they were representing him as, the

24 victim, and Hermitage as victims or abused parties in the fraud

25 in Russia, but as people who participated or did bad things in

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1 connection with that.

2 MR. CYMROT: Your Honor, I have to object to that.

3 THE COURT: That seems to me very, very speculative.

4 MR. CYMROT: And simply untrue.

5 THE COURT: I really don't understand what you have

6 just said, and I don't see the validity of it.

7 MR. MARK: Well, if they are seeking, as subjects in

8 the subpoenas suggest, that they are going to try and attack,

9 for example, the credibility of Mr. Browder, and put him under

10 oath on subjects which will then be a sworn deposition for use

11 in other matters, their ability based on their consciously or

12 unconsciously --

13 THE COURT: Based on what?

14 MR. MARK: Their ability to use confidential

15 information from the prior representation is what the ethics

16 rules prohibit.

17 THE COURT: What evidence is there that they took away

18 confidential information, that he took away confidential

19 information? What evidence is there?

20 MR. MARK: I would say two things:

21 First, as I said, there's an irrebuttable presumption,

22 and we shouldn't be investigating that under the cases. That

23 is why, however, Mr. Browder and Hermitage submitted certain

24 materials to the Court under seal that I can't go into detail

25 with in open court.

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1 THE COURT: I looked at those; they were of really no

2 consequence.

3 MR. MARK: If we were in a setting in which that could

4 be discussed openly with the Court, I would point out why they

5 are relevant.

6 THE COURT: I looked at them; they added nothing.

7 MR. MARK: Going back to what is on the public record,

8 in the bills from Baker & Hostetler, in the engagement letter,

9 what we see referred to is something much broader than what

10 Baker Hostetler has represented to the Court as the scope of

11 the prior representation.

12 Mr. Moscow was seeking to outline a RICO case, to

13 interest the government in bringing a full prosecution of the

14 matter. There is a diary entry that refers to lists of

15 documents being requested to prepare a broad case.

16 What they have tried to argue is that the prior matter

17 was very limited in scope and didn't concern the $230 million

18 fraud. Patently, it does. We see that in both the materials

19 that are publicly filed, as analyzed in the government's letter

20 of October 10th, and it is the ability of Baker Hostetler and

21 the situation where they then use that material, have that

22 available, which has led courts to disqualify counsel in

23 situations like this.

24 THE COURT: Go ahead.

25 MR. MARK: That's the heart of the argument, your

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1 Honor.

2 THE COURT: Next, please.

3 MR. CYMROT: Your Honor, thank you.

4 The rule requires that the former client have an

5 adverse interest to the current client. And Hermitage and

6 Browder, they skip over that. Because being a witness, as you

7 suggested, is not an adverse interest under the law. And so we

8 don't even get into whether the matters are substantially

9 related or not. It is a question if they are just a nonparty

10 witness, then it is not an adversity that requires a

11 disqualification.

12 There are two cases. They mentioned the Cole case,

13 where the witness intervened in the case and became a party.

14 He was an indemnitor; he had a financial interest. Hermitage

15 and Browder don't have any financial interest.

16 Judge Weinfeld has an opinion, Lund, which analyzes it

17 correctly, which says that the former attorney cannot use

18 confidential information in cross-examining a witness. And if

19 there is a risk of that, then somebody else should do the

20 cross-examination, which would be Baker Botts and Mr. Taube,

21 who is co-counsel, but he doesn't have any of the prior

22 relationship. And he is here for that purpose.

23 So there is a structure here in the law in these cases

24 that says if it's a nonparty witness, then there's no

25 disqualification. There is no case they cite that disqualified

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1 a lawyer ever for a situation where his former client is a

2 nonparty witness. There is a situation where they say if

3 there's a risk of confidential information, then another

4 attorney should do the cross-examination, which we have here.

5 Now, is there a risk? As you said, what's the

6 evidence that there's confidential information? This is

7 somebody who has an Internet site and goes and gives speeches

8 every month. 11,000 pages we've download from the Internet of

9 information on this situation, on this $230 million fraud.

10 THE COURT: Who is making speeches again?

11 MR. CYMROT: He gives speeches publicly.

12 THE COURT: Who?

13 MR. CYMROT: Mr. Browder. He gave a speech in Aspen,

14 Colorado in July; then he gave one in Phoenix; he was on

15 Canadian TV just this week, always talking about the same

16 subject.

17 We asked them a year ago, and we asked them six months

18 ago, and we asked them in this motion, identify something that

19 is confidential. They came up with two things in their initial

20 brief, and we showed they were on the Internet. So they cannot

21 identify -- there is no evidence that we hold --

22 THE COURT: Who is putting things on the Internet?

23 MR. CYMROT: Yes, they put --

24 THE COURT: Who is?

25 MR. CYMROT: Mr. Browder and Hermitage. They have a

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1 website, your Honor. Whenever they get information, they put

2 it constantly. Last five years they've been putting all this

3 information on the Internet. They have no confidential

4 information on this subject. And they give speeches all the

5 time, every month, every couple months.

6 THE COURT: Who gives speeches to whom?

7 MR. CYMROT: Mr. Browder gives speeches to various

8 audiences, talking about Mr. Magnitsky, the $230 million fraud,

9 and why the Russian state is a criminal enterprise. And he

10 talks about that all the time. And this is what supposedly the

11 confidential information that we supposedly have from six years

12 ago. And whenever you ask, they either avoid it, and they say

13 that it's an irrebuttable presumption of confidential

14 information. That's wrong, too. When you're only talking

15 about a question of adversity, and you're talking about a

16 witness, the witness has to show that the lawyer has

17 confidential information.

18 And let me quote from Mr. Mastro's expert, Mr. Green.

19 Mr. Mastro is the subject of a disqualification motion in

20 another case. And his expert is Mr. Green, who sent in an

21 affidavit today as an expert, all right. In that case,

22 Mr. Mastro took on a case where he was opposed to his client,

23 his current client. And Mr. Green says, well, he should just

24 drop the client as a client. And then Mr. Green says: "If the

25 former client moves for disqualification, the movant must prove

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1 that the former attorney actually possesses relevant

2 confidences."

3 He doesn't talk about an irrebuttable presumption,

4 because in the situation where you're talking about a witness,

5 he has to prove it. And they haven't proven it. And they came

6 up with two examples, and we showed that information was

7 already on the Internet.

8 So, your Honor, they don't have the structure, legal

9 structure, of the argument correct, because they skip over the

10 issue of adversity. And they don't have the issue of

11 confidentiality correct. And the motion should be denied.

12 THE COURT: What did your client do for Hermitage?

13 MR. CYMROT: Nothing. Our client -- or what did

14 Mr. Moscow -- what did our firm do for Hermitage? Our client

15 had nothing to do with it.

16 THE COURT: I misspoke. What did Mr. Moscow and his

17 firm do for Hermitage when they represented Hermitage?

18 MR. CYMROT: He put together -- they came to

19 Mr. Moscow --

20 THE COURT: When did this representation occur?

21 MR. CYMROT: 2008. Started in, I think, September or

22 October of 2008. Most of the work was done in two months, and

23 then it lasted a total, officially, of six months. So it was

24 finished in 2009.

25 And they came to Mr. Moscow and they asked him to file

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1 a --

2 THE COURT: Who's "they"?

3 MR. CYMROT: Hermitage.

4 THE COURT: Hermitage.

5 MR. CYMROT: And Browder. But Browder wasn't a

6 client; he was just a representative of Hermitage. Hermitage

7 was the client. And they asked him to do a 1782 petition, to

8 get a subpoena to a company called Renaissance, which is not

9 involved in our case.

10 Now, Mr. Moscow offered to do a lot more. And they

11 quote that in these tapes they gave you. But they didn't ask

12 him to do it; they declined his invitation to trace funds and

13 things like that. They declined his invitation.

14 THE COURT: Again, what did he do for them?

15 MR. CYMROT: He drafted an affidavit for support of a

16 1782 petition that he never filed; it was filed by another

17 attorney in another law firm.

18 THE COURT: 1782.

19 MR. CYMROT: That's the request to assist the foreign

20 proceeding. 28 U.S.C. 1782 is the Court's authority to assist

21 the foreign proceeding by issuing --

22 THE COURT: By having a deposition in this district.

23 MR. CYMROT: Exactly.

24 THE COURT: Did he do it or not?

25 MR. CYMROT: He drafted one and he didn't file it.

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1 They had their London solicitor file it. He worked on it for

2 two months and he didn't file it. And he had one meeting with

3 the U.S. Attorney's Office, and one meeting with the attorney

4 general of the BVI. And he offered to do a lot more, and they

5 didn't engage him to do that work. They said no.

6 So they have these tapes where he's offering to trace

7 money for them, dollars in New York. And they said no. But

8 now they are saying -- they are trying to tell you that, oh, he

9 did that work for them. But they don't give you any of that

10 work that he did, because it didn't happen.

11 THE COURT: I take it Hermitage had another lawyer. I

12 mean if Mr. Moscow did such a limited amount of work, who was

13 their lawyer?

14 MR. CYMROT: A firm called Brown Rudnick, who was then

15 in London and in New York. Go ahead.

16 MR. MOSCOW: Your Honor, they were represented

17 initially --

18 THE COURT: Are you Mr. --

19 MR. MOSCOW: John Moscow.

20 They were initially represented by Mishcon Delreya, I

21 believe, and, therefore, by Brown Rudnick, and, therefore, by

22 the Ashcroft firm.

23 THE COURT: The what?

24 MR. MOSCOW: Ashcroft, John Ashcroft, the former

25 attorney general. He represented them, I believe, at the time

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1 that the -- I could be wrong about that. We got out of the

2 case, and Neil Micklethwaite from Brown Rudnick filed the

3 declaration, and they had other counsel who was not us. They

4 had British lawyers.

5 THE COURT: They had what?

6 MR. MOSCOW: My apologies. They had British counsel.

7 THE COURT: You can sit down.

8 MR. MOSCOW: They had British counsel when I first met

9 them. Thereafter, we did work. Thereafter they used a British

10 attorney to file a declaration, and they had other American

11 counsel.

12 THE COURT: Do you know or does the gentleman at the

13 lecturn know what were they involved in? Was somebody suing

14 them or how were they involved at that time that they had a

15 series of lawyers?

16 MR. CYMROT: At the time, Hermitage is a hedge fund

17 that used to invest in Russia. And they were worried that the

18 Russians, the Russian Federation, would prosecute them for this

19 $230 million fraud. But that never happened, and that case is

20 closed.

21 THE COURT: It what? It never happened.

22 MR. CYMROT: It never happened. That case is closed

23 in Russia. There were other people who were prosecuted for

24 that and convicted.

25 THE COURT: I can go back to Mr. Mark, but is it your

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1 information that what Hermitage -- their legal problem at that

2 time was avoiding prosecution by Russia; is that right or not?

3 MR. CYMROT: That's correct.

4 THE COURT: Is that right, Mr. Mark?

5 MR. MARK: That is an aspect of it, your Honor. There

6 were some criminal proceedings brought. I think your Honor

7 already knows that Mr. Browder and his lawyer over there were

8 convicted in absentia.

9 MR. CYMROT: That was a totally unrelated prosecution,

10 your Honor, and it had nothing to do with this. Mr. Browder

11 was convicted of a scheme where he made false statements about

12 employing Afghan war veterans and got a $17 million tax

13 deduction. He then bankrupted the company that took the

14 deduction, so he never paid it and he was prosecuted for that.

15 Totally unrelated to the $230 million theft from the Russian

16 treasury. So he was convicted of that. We had, our law firm,

17 Mr. Moscow, had nothing to do with his prosecution.

18 THE COURT: Is it correct that as far as the issues in

19 this case are concerned, Hermitage was -- and Mr. Mark can

20 correct this -- but what they were doing was trying to avoid

21 prosecution by Russia.

22 MR. CYMROT: Correct.

23 THE COURT: And Mr. Moscow was in the case for a few

24 months. And is it correct that he was retained to try to get

25 an affidavit before the Southern District so some discovery

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1 could occur here; is that right?

2 MR. CYMROT: That's correct.

3 THE COURT: But he didn't even finish that; is that

4 correct?

5 MR. CYMROT: That's correct also.

6 THE COURT: Okay. Go ahead.

7 MR. CYMROT: I'm finished, your Honor.

8 I think Mr. Moscow would like to make a personal

9 statement of his own.

10 THE COURT: Of course.

11 MR. CYMROT: But let me just sum up our position.

12 Our position, your Honor, is we're talking about a

13 nonparty witness, that if there ever were a witness, your Honor

14 could examine whether there was confidential information, the

15 threat of it to be used. You wouldn't disqualify counsel; you

16 would enter a protective order, and Mr. Taube's law firm would

17 do the cross-examination. And that's the solution that Judge

18 Weinfeld used in the Lund case.

19 THE COURT: And that firm is?

20 MR. CYMROT: That's Mr. Taube right here; he's

21 co-counsel. But he's not in our law firm, he's in his own law

22 firm.

23 THE COURT: Who's with?

24 MR. CYMROT: Baker Botts.

25 MR. TAUBE: I'm with Baker Botts, your Honor. And at

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1 the right time, I would like to address very briefly the

2 application to disqualify this second independent law firm, as

3 well.

4 THE COURT: Okay. All right.

5 Mr. Moscow. Why don't you go over to the lecturn.

6 MR. MOSCOW: I thank you for the opportunity to speak.

7 THE COURT: A little louder, if you could.

8 MR. MOSCOW: After this case was filed in September of

9 2013, I was asked, together with Mark Cymrot, to represent

10 Prevezon Holdings Ltd. and its affiliates in connection with a

11 forfeiture action brought against them by the United States. I

12 read the complaint. I knew I had represented Hermitage Capital

13 Management.

14 THE COURT: You are speaking too fast.

15 MR. MOSCOW: I will slow down.

16 In September 2013, I was asked, together with Mark

17 Cymrot, to represent Prevezon Holdings Ltd., current client and

18 its affiliates, in connection with a forfeiture action that was

19 brought by the United States. I read the complaint. I knew I

20 had represented Hermitage Capital Management previously in 2008

21 into 2009.

22 I read the Code of Professional Responsibility, and

23 noted DR-5108, which says, in relevant part, a lawyer who has

24 represented a client in a matter shall not thereafter represent

25 another person in the same or substantially related matter in

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1 which that person's interests are materially adverse to the

2 interests of the former client. And the rules of professional

3 conduct, which are currently in force, which I also checked,

4 says that a lawyer who has formerly represented a client in a

5 matter shall not thereafter represent another person in the

6 same or substantially related matter in which that person's

7 interests are materially adverse to the interests of the former

8 client, unless the former client gives informed consent

9 confirmed in writing.

10 I reread the complaint. It is United States of

11 America v. Prevezon Holdings, Ltd. Hermitage is not a party.

12 Hermitage is not the victim whose funds were stolen. That was

13 the Russian Federation. Hermitage has no interest in this

14 case. In the absence of an adverse interest, there is no

15 conflict. It is clear that Hermitage has no interest as that

16 term is used.

17 And let me speak very briefly to the point that

18 Mr. Mark raised. I'm sorry, but it is quite possible to defend

19 Hermitage from prosecution by Russia and to defend a lawsuit

20 brought by the United States against Prevezon. Their interests

21 are not adverse; there is no reason why the government could

22 not be wrong in both cases. I looked at the rules, but I did

23 not rely on my own judgment.

24 THE COURT: Wait a minute. What was the proposition

25 you just voiced. Just say that again.

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1 MR. MOSCOW: That Hermitage could be innocent of

2 committing a fraud in Russia, and Prevezon could be uninvolved

3 in laundering money in the United States. They are different.

4 There is no adversity there.

5 Mr. Browder has taken the public position that he was

6 not in Russia at the time the crimes were taking place. He is

7 not a competent witness. That was confirmed on March 3rd by

8 the United States. He's not a witness. He is certainly not an

9 interested party.

10 THE COURT: What do you mean he's not a witness?

11 MR. MOSCOW: He wasn't there.

12 THE COURT: Are you talking about Mr. Browder?

13 MR. MOSCOW: Mr. Browder.

14 The essence of the thing is they didn't know about it.

15 He wasn't there.

16 So in the absence of an adverse interest, I brought to

17 the attention of my firm the possibility of a conflict. I

18 asked other people to look at it. Conflicts are important to

19 big law firms. And I referred the question of my

20 representation to the groups within Baker Hostetler which deal

21 with those issues. Baker Hostetler approved the

22 representation. Thereafter, counsel for Hermitage wrote and

23 asked if the representation was proper. I was not copied on

24 the letter.

25 THE COURT: What did you just say? You're going

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1 awfully fast.

2 MR. MOSCOW: I'm sorry.

3 In October, counsel for Hermitage raised the

4 possibility of a conflict. That letter was not sent to me. I

5 did not respond to it. Baker Hostetler did respond to it.

6 There was nothing there that were any prior confidences. We

7 asked and got no answer.

8 On March 3rd, I deposed a witness proposed by the

9 United States who testified that Browder was not a competent

10 witness. I did what the rules called for; I followed them. If

11 you read the government letter and see what they want in the

12 way of testimony from Hermitage, I read it and I asked myself

13 the question, So what? The question will arise if we get there

14 as to what a witness would have to say, and at that point,

15 should there be a suggestion of a conflict of some kind, then

16 we have another firm to handle this.

17 But I have to say that there are many facts in the

18 complaint about which my clients know nothing and care little.

19 They weren't there. They didn't steal the money. This is a

20 case in which their interests need to be represented. And the

21 fact that one can construct a need for Hermitage witnesses does

22 not change that. The Hermitage people, should that occasion

23 arise, we can deal with any potential violations, but I don't

24 believe there are any.

25 I know what I was told. I was told to pass it on to

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1 the U.S. Attorney's Office; I was told to pass it on to the

2 attorney general of BVI.

3 I would ask that the motion be denied.

4 THE COURT: Let me ask you some questions.

5 MR. MOSCOW: Sure.

6 THE COURT: You may have answered them already, but

7 you're going a little fast.

8 Back in 2008 and early 2009, you represented

9 Hermitage, right?

10 MR. MOSCOW: Correct.

11 THE COURT: And again, maybe this is repetitious, but

12 I'll ask you anyway: What was the purpose of your representing

13 Hermitage at that time? What were you engaged to do?

14 MR. MOSCOW: The purpose was to defend them from

15 charges in Russia. What I was engaged to do was to get

16 evidence as to a prior similar fraud so that they could

17 reasonably argue that from the commission of an act in 2006 in

18 which they were not involved, one could deduce that they were

19 not involved in the same act in 2007.

20 THE COURT: I don't understand that. Go over that

21 again.

22 MR. MOSCOW: It's a complicated fraud.

23 THE COURT: Because I want to know why you were

24 retained. That is very important. And it's not clear to me

25 from any of the papers or even from what you're saying now why

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1 you were retained.

2 MR. MOSCOW: I was retained to gather evidence for

3 Hermitage for use in a foreign proceeding.

4 THE COURT: Used in a foreign proceeding where?

5 MR. MOSCOW: Russia.

6 THE COURT: And where were you when you were retained?

7 Were you a New York lawyer or what?

8 MR. MOSCOW: I was a New York lawyer.

9 THE COURT: You were a New York lawyer practicing in

10 New York, and Hermitage retained you, right?

11 MR. MOSCOW: Correct.

12 THE COURT: To help defend them in Russia.

13 MR. MOSCOW: To help gather evidence for them to

14 defend them in Russia; and also to get governments to go after

15 the people they said had committed the crime, whose identities

16 they did not know.

17 THE COURT: The Russian government. When you say "the

18 government," you mean the Russian government.

19 MR. MOSCOW: No, United States -- my apologies. It is

20 confusing. The United States government. I was asked to make

21 a pitch for the Southern District to get them involved. I made

22 a pitch.

23 THE COURT: And to get them to do what?

24 MR. MOSCOW: To see whether or not there was a case to

25 be made in the Southern District, a criminal case to be made

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1 against the people who had stolen the money in Russia.

2 THE COURT: In other words, people other than your

3 client Hermitage, right?

4 MR. MOSCOW: Oh, yeah. They had nothing to do with

5 it.

6 THE COURT: I was asking you about 2008, when you were

7 retained by Hermitage.

8 MR. MOSCOW: Right.

9 THE COURT: And again, let's just go back to starters.

10 What were you retained to do for Hermitage? Even if

11 you said it before, say it again.

12 MR. MOSCOW: I was retained to gather evidence for

13 them for use in a foreign proceeding, which would be in Russia.

14 THE COURT: A foreign proceeding where?

15 MR. MOSCOW: In Russia.

16 THE COURT: All right. So you were retained to gather

17 evidence that Hermitage could use in Russia, right?

18 MR. MOSCOW: Correct.

19 THE COURT: And I know it's obvious, but you say it,

20 they were going to use this material in Russia to do what?

21 MR. MOSCOW: Should they be charged, which they never

22 were, they wanted this evidence to prove that they were not

23 involved in the theft.

24 THE COURT: That they were not involved what?

25 MR. MOSCOW: In the theft of money from the Russian

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1 Federation.

2 THE COURT: All right. So you were retained to gather

3 evidence for use by Hermitage in Russia to avoid prosecution

4 there, right?

5 MR. MOSCOW: Right.

6 THE COURT: Now, why was an American lawyer retained

7 to gather evidence about a Russian matter? Why were you

8 retained?

9 MR. MOSCOW: Because, your Honor, if one is tracing

10 money --

11 THE COURT: If what?

12 MR. MOSCOW: If one is tracing money, and the money is

13 in dollars, then the money may well pass through New York. And

14 the evidence under 28 U.S.C. 1782 would be available in New

15 York or might be available in New York. And that is why.

16 THE COURT: Let me see if I understand.

17 You were retained in New York, a New York lawyer, to

18 see if there was evidence --

19 MR. MOSCOW: Yes.

20 THE COURT: -- which would be of assistance to

21 Hermitage.

22 MR. MOSCOW: Right.

23 THE COURT: And if there was, then there might need to

24 be a deposition in New York and invocation of this 1782; is

25 that right?

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1 MR. MOSCOW: Yes.

2 THE COURT: You seemed to hesitate.

3 MR. MOSCOW: Normally, when one calls for bank

4 records, there is not a deposition.

5 THE COURT: Oh, so you thought this was mainly a

6 record matter.

7 MR. MOSCOW: Yes.

8 THE COURT: All right. That's a good clarification.

9 So let me make sure I understand.

10 You were retained to see if there was evidence here

11 which would be in the form normally of bank records which could

12 assist Hermitage in Russia, right?

13 MR. MOSCOW: Yes, in part. Yes.

14 THE COURT: What's the other part?

15 MR. MOSCOW: To the extent that we were seeking

16 records from Rengaz and Renaissance, those would not have been

17 bank records; they were involved in a 2006 event that was

18 similar to the 2007 theft. And Hermitage wanted to establish

19 that Hermitage had nothing to do with 2007 by showing what

20 happened in 2006.

21 THE COURT: How would it help to show what happened in

22 2006?

23 MR. MOSCOW: The theory, for better or for worse, was

24 that if thieves did a crime in 2006 --

25 THE COURT: If -- I'm sorry.

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1 MR. MOSCOW: If thieves committed a crime in 2006 --

2 THE COURT: If who committed a crime?

3 MR. MOSCOW: Somebody in Russia committed a crime

4 involving Renaissance, then they existed, they were bad guys,

5 and they did not include Hermitage. So they were trying to

6 prove that Renaissance was the victim to prove that they were a

7 subsequent victim, in effect. Their names were being used.

8 THE COURT: What does Renaissance have to do with

9 this?

10 MR. MOSCOW: They were used in 2006, according to what

11 they were told.

12 THE COURT: As part of in connection with a theft.

13 MR. MOSCOW: Yes.

14 THE COURT: Let me see if I've got this, because I

15 want to get this.

16 There was a theft in 2006; is that right?

17 MR. MOSCOW: Yes.

18 THE COURT: From the Russian government?

19 MR. MOSCOW: Apparently, yes.

20 THE COURT: And was there evidence about who was

21 involved or did you have information about who was involved in

22 the 2006 theft? Did you have information?

23 MR. MOSCOW: We knew that Renaissance was the company

24 whose tax records were used. In terms of identities of

25 individuals, I do not believe so.

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1 THE COURT: But Renaissance, a company named

2 "Renaissance," was involved in the 2006 theft; is that right?

3 That was your information.

4 MR. MOSCOW: Yes. That's what we were looking for

5 evidence on.

6 THE COURT: And how is that going to help your then

7 client Hermitage?

8 MR. MOSCOW: The theory was that if there was a crime

9 in 2006, and there's substantial --

10 THE COURT: There was a what?

11 MR. MOSCOW: If there was a crime in 2006 in which

12 they were not involved, and the same thing happened again in

13 2007, that they could argue that they were not involved; that

14 there were people who were doing this, but it did not include

15 them.

16 THE COURT: Let me see if I understand you.

17 You were retained by Hermitage, and there was an

18 attempt to develop a defense, namely, that there had been a

19 theft in 2006 involving Renaissance, and clearly Hermitage was

20 not involved with that. And the idea was that it helped to

21 bolster a defense of Hermitage as not being involved in the

22 2008 theft, right, or --

23 MR. MOSCOW: 2007, yes.

24 THE COURT: Is that right?

25 MR. MOSCOW: It is.

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1 THE COURT: Now, how far did you, as a lawyer, carry

2 this? You were really not involved but for a few months. Did

3 this go anywhere while you were working for Hermitage or did it

4 not?

5 MR. MOSCOW: I made a pitch to the Southern District

6 that they get involved. I made a pitch to the attorney general

7 of BVI that they get involved.

8 THE COURT: Wait a minute. Attorney general of what?

9 MR. MOSCOW: British Virgin Islands.

10 I did not file any 1782 applications; we did not file

11 any affidavits in support of any 1782 applications that were

12 taken over by a different firm.

13 THE COURT: So before this really had gone any farther

14 than preliminaries, another firm was retained, right?

15 MR. MOSCOW: Correct.

16 THE COURT: And you were replaced by the other firm.

17 MR. MOSCOW: Correct.

18 THE COURT: Now, when you or your firm was retained to

19 represent Prevezon in the case now before the Court, was there

20 any -- I think you already answered it, but I'm going to ask

21 you again. Was there any consideration of the issue of

22 conflict?

23 MR. MOSCOW: Yes.

24 THE COURT: And what was the issue that was

25 considered?

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1 MR. MOSCOW: I considered the question of the rules,

2 both the Code of Professional Responsibility and the Rules of

3 Professional Conduct. I read those. I noted that Hermitage is

4 not adverse to Prevezon, and that it has no adverse interest, I

5 should say, to Prevezon. I saw that there's -- in the absence

6 of an adverse interest, there was no conflict with the rules.

7 THE COURT: I've got to interrupt you.

8 MR. MOSCOW: Sure.

9 THE COURT: The case is before me, but I'm going to

10 ask you anyway. What are the issues in this case now involving

11 Prevezon?

12 MR. MOSCOW: There are seven charges against them.

13 There's a forfeiture charge and six money laundering charges,

14 which charge that they knowingly or intentionally or whatever,

15 with various mental states, that they possessed proceeds of a

16 crime involving stealing from the Russian Federation.

17 THE COURT: And the alleged crime occurred when?

18 MR. MOSCOW: The alleged crime occurred -- the theft

19 from the Russian Federation took place in December '07. The

20 alleged money laundering would have taken place thereafter in

21 2008, after the current owner of Prevezon acquired it.

22 THE COURT: And your current client Prevezon is

23 charged with participating in the laundering of money from that

24 2007 theft, right?

25 MR. MOSCOW: Yes.

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1 THE COURT: Now, I'm going to try to see the relation

2 or nonrelation between the issues in the case before us now,

3 and the issues you actually dealt with when you represented

4 Hermitage.

5 Now, do you say the issues are different?

6 MR. MOSCOW: Yes. There is some similarity; they are

7 different.

8 THE COURT: Why are they different and why are they

9 similar?

10 MR. MOSCOW: Hermitage was worried that they would be

11 charged with stealing money. They weren't ever charged with

12 it; other people were convicted of it. And proof that there

13 was a conviction can be made.

14 Prevezon is charged with possession, if I can use

15 shorthand, possession of stolen property. They were charged

16 that they knew that they were getting money that was the

17 proceeds of a crime.

18 The fact is the chart that traces the money supposedly

19 deals entirely with rubles. The matter I was asked to deal

20 with dealt entirely with dollars going through New York.

21 THE COURT: Wait a minute. You're going a little too

22 fast.

23 MR. MOSCOW: Sure.

24 For Prevezon, the accusation is that they possessed

25 money stolen from the Russian treasury. And the details of the

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1 accusation are that the government has traced rubles from one

2 Russian bank to another throughout till money went to UBS.

3 THE COURT: Traced rubles.

4 MR. MOSCOW: Rubles until they went to Moldova, where

5 a bank converted them into dollars and sent them to UBS.

6 That's this case.

7 What I was dealing with in 2008 was Raffhaizen Bank, a

8 Vienna bank, that was supposedly dealing with dollars with U.S.

9 Money Center banks. 230 million is a lot of money. You're

10 going to have people at different parts of it.

11 THE COURT: When you were representing Hermitage

12 before, again --

13 MR. MOSCOW: I was dealing only in dollars.

14 THE COURT: Just, again, what were the issues?

15 MR. MOSCOW: The issues had to do with dollars.

16 THE COURT: All right, dollars. And the question

17 being did --

18 MR. MOSCOW: Question being --

19 THE COURT: Did Hermitage steal, right?

20 MR. MOSCOW: No, that was not -- they were looking for

21 evidence under 1782 that would establish that they did not

22 steal. I was not tracing the dollars. We discussed it; I did

23 not do it. We raised the question --

24 THE COURT: In other words, what you were doing back

25 in 2008 and early 2009 for Hermitage was to get bank records

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1 and other records to defend them in the event there was a

2 Russian prosecution for them stealing, right?

3 MR. MOSCOW: Correct.

4 THE COURT: I take it there was no such prosecution,

5 right?

6 MR. MOSCOW: There was none. People were prosecuted

7 and convicted, but they were not charged. Hermitage was not

8 charged.

9 THE COURT: And what is going on now as far as

10 Prevezon? And what you represent is that the government is

11 alleging that Prevezon participated in the laundering of money

12 from the 2007 theft, right?

13 MR. MOSCOW: Correct.

14 As I said, my analysis was based on the lack of

15 adversity of interest. Hermitage is simply not adverse in

16 interest to Prevezon. As I said before, there is nothing

17 inconsistent with both of them being wrongly targeted.

18 THE COURT: I'll take a short recess and then we'll

19 come back.

20 (Recess)

21 THE COURT: Does any other lawyer wish to speak?

22 MR. TAUBE: Yes. Thank you, your Honor. I'll speak

23 briefly.

24 Seth Taube for Baker Botts.

25 Your Honor, I'm from the law firm of Baker Botts. And

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1 this is to oppose part of the movants' motion to disqualify a

2 second law firm, my firm, Baker Botts. It's a separate firm

3 from Baker Hostetler, despite the first name. We were retained

4 independently, and it is uncontested we have no prior

5 representation of Mr. Browder or Hermitage.

6 Two very brief points for the Court:

7 First, movants have absolutely waived any

8 disqualification motion by waiting 11 months to bring this

9 motion against either firm, but particularly Baker Botts. They

10 never raised previously by letter, by grievance, anything about

11 Baker Botts. This is the first time after 11 months.

12 They meet every test for waiver that the federal

13 courts recognize in these instances, such as the Eastern

14 District KLG case.

15 We cite four quick elements:

16 When did they know? They sent letters to Baker

17 Hostetler a year ago.

18 Were they represented by counsel a year ago? Yes.

19 Brown Rudnick, a well-known law firm; they had counsel.

20 Third, why did the delay occur? They chose to wait

21 until they were subpoenaed in this case, that was a decision.

22 It's tactical. And the courts recognize that when you have a

23 decision to wait, that's a tactical decision; that that weighs

24 heavily in favor of waiver.

25 And finally, what prejudice to the defendants, our

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1 clients, comes from this 11-month delayed motion? Severe

2 prejudice. They want to disqualify both law firms that have

3 represented this client for 11 months. This waiver should

4 apply to both firms, but certainly Baker Botts, where they

5 never raised it before in any sense. And the law Mr. Mastro

6 cites in his brief has no application to co-counsel, by the

7 way.

8 My second and only other point, your Honor, is that

9 even if this motion were timely, you need hardly say that the

10 law does not impute conflicts from one law firm to another.

11 You have to prove confidential information passed.

12 In this case, as soon as we learned last year about

13 this potential allegation of conflict, we entered into a signed

14 agreement with Baker Hostetler not to talk about the past case.

15 We never have. We never looked at any documents. As best we

16 can tell from everything we've done, we've gotten our

17 information from public sources. And the law supports not

18 conflicting out co-counsel under these circumstances.

19 Finally, your Honor, the prejudice to defendants I

20 want to return to, Baker Botts has worked for a year for these

21 defendants, so has Baker Hostetler. Given the year's delay in

22 asserting this claim, it would severely prejudice the

23 defendants, and their choice of counsel should also be given

24 deference, given they knew about it a year ago.

25 THE COURT: When was the conflict issue first raised

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1 and in what form?

2 MR. TAUBE: Very good, your Honor.

3 Last November, 11 months ago, the prior firm

4 representing Mr. Browder sent a letter to Baker Hostetler

5 saying we think there's a problem; there's a conflict. Baker

6 Hostetler responded and heard nothing further for 11 months

7 while Mr. Browder and Hermitage knew that both these law firms

8 were doing work in this case.

9 THE COURT: Then what happened?

10 MR. TAUBE: They filed a grievance, but they didn't

11 come and move to dismiss.

12 In March, your Honor, the U.S. Attorney said there's

13 this issue of conflict. And your Honor ruled in March nobody

14 has asked to disqualify anyone, and until they do, I don't want

15 to hear it. And they waited from March until now to make this

16 motion.

17 THE COURT: "From now" being what?

18 MR. TAUBE: "Now" meaning they first raise it on --

19 September 18th, 2014 is the first time they raised Baker Botts

20 had an issue, ten and-a-half months later.

21 THE COURT: All right. Thank you.

22 MR. TAUBE: Thank you, your Honor.

23 THE COURT: Anyone else wish to...

24 MR. MARK: Your Honor asked about the relationship

25 between the matter in which Baker Hostetler was representing

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1 Hermitage and Mr. Browder previously. And the matter that's in

2 front of you today in U.S. v. Prevezon, and what was the scope

3 of the prior representation. That's an important question.

4 And we believe it can be answered using a couple of source

5 materials:

6 First, Mr. Moscow said, when asked, quite candidly,

7 that the -- he identified the scope of what was going on to

8 include an investigation of facts to assist Hermitage in

9 defending against activity in Russia based on the 2007 fraud.

10 That's what was involved in Hermitage. The 2007 fraud is the

11 $230 million tax fraud that we have been discussing before.

12 THE COURT: Look, let me just tell you what's on my

13 mind.

14 MR. MARK: Sure.

15 THE COURT: You're right, you're absolutely right in

16 what you've just said. But the question is what did Mr. Moscow

17 do at that time. Obviously the issues were the big issues.

18 But what did he do?

19 MR. MARK: And what he did, I will answer that in two

20 ways:

21 As Mr. Moscow said, and as is confirmed in the billing

22 records from Baker & Hostetler and in other material that I

23 will refer to later, Mr. Moscow, among other things, went to

24 make a pitch to the U.S. Attorney's Office to see if they were

25 interested in a criminal case against the people who stole the

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1 money. That's what he was doing on behalf of Hermitage.

2 THE COURT: That's a very limited type of activity.

3 Did he do anything else?

4 MR. MARK: I don't think that is so limited to ask the

5 government --

6 THE COURT: Well, I do.

7 MR. MARK: -- to bring a RICO case or to pursue

8 remedies.

9 And what we have going on here today is a money

10 laundering case --

11 THE COURT: Well, what about what he said he was

12 trying to work on a 2006 fraud involving Renaissance, and show

13 that Hermitage was not involved in that, and, therefore, it

14 could be deduced that Hermitage was not involved in the 2007.

15 MR. MARK: Yes.

16 THE COURT: Now, let's put aside whether that's a very

17 good theory, but that's what he said.

18 MR. MARK: Yes. And the significance of that is the

19 following: The only reason -- the only reason -- that he is

20 interested in the 2006, in investigating that and in gathering

21 the evidence that he described, is because he is trying to

22 serve the interests of Hermitage in connection with the 2007

23 $230 million incident.

24 THE COURT: That's exactly what he said.

25 MR. MARK: Right.

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1 And if you look at two things which were drawn

2 together by the government, the relationship between the two

3 matters is clear. Exhibit 12 to Ms. Rubin's declaration is the

4 draft Felgenhauer affidavit that was going to support their

5 discovery request.

6 THE COURT: Who drafted that?

7 MR. MARK: Baker Hostetler.

8 And the significance of it is to show the scope and

9 nature of the work that they were engaged in.

10 Paragraph 54 -- I could pick other paragraphs, but

11 paragraph 54 of that lays out an aspect of the investigation

12 that they want to get into about the 2006 matter, because they

13 are strikingly similar to the activity by which Hermitage was

14 victimized.

15 THE COURT: Did Mr. Moscow draft that declaration?

16 MR. MARK: The declaration was drafted at Baker

17 Hostetler --

18 THE COURT: I asked you a different question:

19 Did he draft it?

20 MR. MARK: I can't answer whether he personally set

21 the pen to paper.

22 THE COURT: I'll ask you, Mr. Moscow. Did you draft

23 that?

24 MR. MOSCOW: No.

25 MR. MARK: It is still Baker & Hostetler's work

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1 product that he then transmits and forwards, and is the basis

2 for the action later.

3 In a letter that was delivered to the Court discussing

4 this material, as I understand Baker Hostetler's position, they

5 don't contest that that declaration contains information and

6 reflects the theories that I just described; they just say it's

7 not pertinent here because they didn't actually file it.

8 THE COURT: Let me interrupt you.

9 The problem I have with the idea of disqualifying

10 Mr. Moscow and his firm is this. And I'm not referring to case

11 law now; I'm trying to refer to the facts.

12 MR. MARK: Yes.

13 THE COURT: If Mr. Moscow was involved, as he was in

14 trying to work up a defense of Hermitage, he certainly

15 represented Hermitage at that time.

16 MR. MARK: Yes.

17 THE COURT: If that work involved what I'll call a

18 very limited kind of activity, that is, trying to develop the

19 idea that a 2006 fraud involving Renaissance did not involve

20 Hermitage and, therefore, a 2007 fraud did not involve

21 Hermitage, one can argue about the persuasiveness of that

22 argument. But if he was working on that, and maybe somebody in

23 his law firm drafted up a long declaration, but if that was his

24 work and it only lasted a few months and he didn't even finish

25 it, I really have a problem in saying that that work, which was

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1 limited and he couldn't even finish it, should mean that he

2 gets taken off the case where a client has retained him now to

3 do something much, much broader, and much bigger, with a

4 broader range of issues, different kinds of issues than what he

5 was trying to deal with then. And to say that he cannot now

6 represent a client who wants him on a whole different set of

7 issues, although maybe related in a way to the 2007 problem,

8 but the relation of the 2007 problem, in my view, is a

9 connection which, as a judge, and realizing that it's

10 extraordinary to take a lawyer off the case, is that connection

11 enough to take him off a case when he's doing something very,

12 very much different now than he was then.

13 MR. MARK: Your Honor, I agree. And we have said from

14 the beginning that this is a matter that we approach with

15 extreme care and with extreme seriousness. No one disagrees.

16 This is not a matter to be taken lightly. And we have

17 approached it in exactly that way.

18 THE COURT: I still don't understand why you want to

19 do this.

20 MR. MARK: Because a client is entitled, under the

21 nature of our legal system, to be able to repose, trust that

22 his lawyer will maintain confidences and not use them adversely

23 to his interest.

24 THE COURT: What is the evidence that he's misusing

25 confidences?

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1 MR. MARK: In the case before you, broadly taken,

2 underlying it, the government, I assume, has taken on a burden

3 of trying to show the fraud and the money laundering that's

4 going on. I do not understand that the Prevezon counsel have

5 conceded any of that. Whoever represents Prevezon should try

6 vigorously to contest the allegations of the government's

7 complaint.

8 But part of that, if you look at the government's

9 complaint, paragraph 46, the $230 million fraud scheme is

10 strikingly similar to what appears to have been a fraud scheme

11 carried out by the organization in 2006. That's exactly what

12 Mr. Moscow told you a moment ago was how he got involved in

13 this.

14 Now, he's representing Prevezon. And I assume that

15 they are going to be contesting that when he was working for --

16 THE COURT: Going to be contesting what?

17 MR. MARK: The allegations of the government's

18 complaint, which include a description of the 2006 and 2007

19 frauds, the $230 million.

20 When he was acting on behalf of Hermitage, he was

21 seeking to interest the government in exactly this: Exhibit 4

22 to the Rubin declaration, which is a description from the Baker

23 Hostetler engagement letter signed by Mr. Moscow. One of the

24 possibilities which I see is seeking to have the proceeds of

25 the frauds, to the extent that they are trading through New

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1 York, subject to forfeiture by the Department of Justice. For

2 Hermitage's interest, that's what Mr. Moscow said in 2008 he

3 was seeking to accomplish. He went to the U.S. Attorney's

4 Office to pitch that theory. There are diary entries which

5 show that he sought volumes of documents to work on.

6 THE COURT: Wait a minute. He was pitching that

7 theory. Again, what does that mean?

8 MR. MARK: What it means is he was seeking to have the

9 government bring an action on behalf -- as Mr. Moscow candidly

10 described, to have the U.S. Government involved in an action to

11 seek to remedy misconduct, fraud, what was going on in Russia,

12 adverse to the interests of Hermitage. This case is the other

13 end of that set of facts. This case is money laundering that

14 the government is accusing these people of.

15 THE COURT: He was trying to get the U.S. Government

16 to do what, bring a forfeiture action, bring a criminal action,

17 do what?

18 MR. MARK: Yes. Both. The engagement letter that I

19 refer to mentions in particular a forfeiture action. Here we

20 are, here we are in the forfeiture action brought by the

21 government.

22 To respond very specifically to one factual matter

23 raised by your Honor, in the bill from Baker Hostetler, which

24 is attached as Exhibit 11 to the Rubin declaration, there are

25 entries on May 1st of '09 reflecting consultations with

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1 Mr. Moscow regarding the drafting of the Felgenhauer

2 declaration. So in the ambit of the relationship, of the

3 attorney-client relationship that was going on in 2008 and

4 2009, the matters that Mr. Moscow worked on advance Hermitage's

5 interests. Those are substantially present in the case that is

6 going on now.

7 Your Honor made the point, what if it was just a short

8 amount of work and it wasn't ever completed. I would refer

9 your Honor to the Cole case, once again. In that case, the

10 attorney in question -- similar situation, where it was the

11 same attorney at the same firm, Cullen & Dykman, in the initial

12 representation and the second representation. The

13 disqualification was entered based on bills that showed 10.3

14 hours of work for the client on a matter in which he rendered

15 advice. But no filing ever took place. But because it

16 involved substantially the same matter, and the position of the

17 lawyer in the second matter was on behalf of a client adverse

18 to his first client, there was disqualification.

19 I cannot minimize the seriousness or the difficulty of

20 this, but that's the analysis.

21 THE COURT: How is Mr. Moscow now adverse to your

22 client? Your client is not a party to this action, right?

23 MR. MARK: No. That is correct.

24 THE COURT: And whatever happens in this action, if

25 Prevezon is held liable for participating in money laundering,

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1 that's not you, right, or your client.

2 MR. MARK: That is not me. That's correct.

3 THE COURT: All right.

4 MR. MARK: The reason is, when you seek in a second

5 action to take steps to undermine the basis of your

6 representation in the first action, that is enough adversity.

7 That's what was going on in Cole; I believe that was going on

8 in the Ullrich case --

9 THE COURT: Why is it going on here?

10 MR. MARK: Why is it going on here. Because, as I

11 said, we know we have the substantial relationship between the

12 two.

13 Now, in defending Prevezon, discovery is being sought

14 on a range of topics from Mr. Browder by counsel who had a

15 special relationship with him. And it is because of that and

16 the substantial relationship of the matters that the ethics

17 rules say you can't pursue that.

18 THE COURT: In other words, the real issue is

19 obviously the former counsel for Hermitage is now -- or his

20 firm has subpoenaed somebody connected with Hermitage, namely

21 Browder, and that's the problem, right?

22 MR. MARK: That is certainly what crystallizes it.

23 Browder, in the subpoena, there is a definitional

24 section in which they ask you to respond to the subpoena. And

25 the subpoena served defines "you," not just Mr. Browder, the

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1 human being, but to include all of his companies, specifically

2 naming Hermitage.

3 THE COURT: Let's assume that the subpoena goes to

4 Browder and Hermitage. Now, I think I judge that after all the

5 discussion, that really is what the issue boils down to,

6 whether that is enough.

7 MR. MARK: That crystallizes the adversity. I agree

8 with that, your Honor.

9 But may I add one thing: Because in particular

10 Mr. Moscow is the same individual who was involved in the first

11 representation and the defense of Prevezon, this question of

12 trying to explore precisely the nature and dimensions of

13 confidential information is something that the Second Circuit

14 has said you don't have to do. We presume that there was

15 confidential information shared and that it is irrebuttable.

16 That derives from a test laid down by Judge Weinfeld more than

17 50 years ago.

18 MR. TAUBE: Your Honor, Seth Taube.

19 THE COURT: I'm sorry to tell you, I'm interested in

20 facts. And is there evidence of facts, factual evidence,

21 factual information that Mr. Moscow obtained confidential

22 information. Is there facts. Are there facts.

23 MR. MARK: I'll answer that in two ways:

24 One is reviewing the bills, it is apparent from those

25 which are filed on the public record that there was an

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1 extensive exchange of information between Mr. Moscow and others

2 at Baker Hostetler and the client. So you can see on the bills

3 that such confidential communications took place as you would

4 expect between an attorney and the client.

5 I would ask your Honor, if after we finish the

6 proceeding here, if you would entertain us briefly in camera,

7 we would be able to point out with specificity certain items in

8 the sealed materials for your consideration that would answer,

9 I believe, the question you ask.

10 THE COURT: In other words, confidential information

11 given by Hermitage to Moscow and his firm, right? That's what

12 you're talking about.

13 MR. MARK: I'm talking about that and the sharing of

14 strategic and other thoughts that pass between an attorney and

15 a client.

16 The case law says it's not just hard facts, and can I

17 see this on the Internet or not. People have access to public

18 information. But when an attorney and a client are in a

19 relationship and they are discussing strategy and what to do

20 and how things are done, that is part of the confidential

21 relationship that the law protects so that a client and an

22 attorney can discuss how to shape and direct an action. And

23 that is why I would ask for a brief opportunity with those

24 materials, but that would have to be in camera.

25 THE COURT: Look, I go back to this: Mr. Moscow

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1 worked for your client for a few months. He obviously did

2 things for your client. Presumably he obtained some

3 information from your client; what else does a lawyer do. And

4 I don't think there's any challenge to his credibility when he

5 says he was trying to develop this idea of the 2006 matter

6 about Renaissance to show that Hermitage did not do something

7 wrong in 2007. But even on that project, he was taken off; it

8 was given to another lawyer.

9 I guess I'm repeating myself from what I said earlier.

10 I really have to tell you, I've got a very severe problem with

11 the idea that now when he's retained in a different matter, and

12 I mean different in maybe there was some little tie, but this

13 is a different matter -- different matter -- he's retained, and

14 the issues that he will be dealing with will be much bigger,

15 broader, and essentially different from what he was doing for

16 Hermitage back in the earlier year.

17 MR. MARK: May I respond?

18 THE COURT: To take him off the case so that he can't

19 do a very different job, I don't even know why Hermitage would

20 want to do that. Frankly, it's kind of a mean thing to try to

21 do.

22 MR. MARK: It's certainly a difficult thing to try to

23 do. It is a serious thing to try to do. But it is not, I

24 don't think, a mean thing for a client who had reposed trust in

25 a lawyer, and who, by the nature of attorney-client relations,

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1 are in a confidential relationship, expects that to be --

2 THE COURT: How is he going to hurt your client now?

3 MR. MARK: It's two sides of the fraud.

4 In 2008, as I read from the engagement letter and as

5 Mr. Moscow said when he was here, his mission, as attorney for

6 his client Hermitage, was to seek redress in connection with

7 frauds that had been perpetrated using theft of the identity of

8 the Hermitage companies' identities and so forth. That's the

9 $230 million.

10 Now, if his client now has been accused of money

11 laundering and receiving fruits of that same matter --

12 THE COURT: But Hermitage is not accused now.

13 MR. MARK: Hermitage is not. But Prevezon is seeking

14 discovery and testing theories, because they are challenging

15 the government's allegations to deny those. And by seeking

16 discovery, they are not trying to prove the matters in the same

17 direction and in the same interest that they were seeking

18 before with Hermitage.

19 THE COURT: It is not at all clear to me what this

20 discovery will involve.

21 MR. MONTELEONI: Your Honor, this is Paul Monteleoni

22 from the government. May I be heard briefly?

23 THE COURT: Sure. Of course you can.

24 MR. MONTELEONI: First of all, I'm here at counsel

25 table with John McEnany and Christine Magdo from my office.

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1 The government has not itself made a motion requesting

2 relief, but the government does think that it's important to

3 make sure the Court has an understanding of the factual picture

4 here. And though the government doesn't know as much about the

5 content of the representation between Baker Hostetler and

6 Hermitage as the parties, what the government can tell from the

7 draft declaration that Baker Hostetler provided is that there

8 is an extremely large --

9 MR. MOSCOW: The draft declaration we did not provide.

10 MR. MONTELEONI: Sorry. That Baker Hostetler provided

11 to Hermitage, that Hermitage subsequently provided to the

12 Court, that draft declaration, the Exhibit 12 that has been

13 discussed, describes not just the 2006 fraud, it describes the

14 2007 fraud in a lot of detail, a lot of detail that also

15 appears in the complaint.

16 As we set forth in our letter, there are many

17 paragraphs in both the draft declaration Baker Hostetler

18 provided, and then also in our complaint that describe the

19 searches of Hermitage's lawyers, the appropriation of corporate

20 documents, the registration of new identities, the institution

21 of sham lawsuits, the request for tax refunds as a result of

22 those sham lawsuits. It's the whole story of the 2007 fraud:

23 The 2007 fraud that we are seeking to prove, and the 2007 fraud

24 that appears in this draft declaration.

25 Now, it is true that there are some issues in this

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1 case that don't appear in the draft declaration, the issues of

2 the particular state of mind of Baker Hostetler's current

3 clients.

4 THE COURT: Can I interrupt you?

5 MR. MONTELEONI: Absolutely.

6 THE COURT: I've read the government's complaint.

7 It's long. It has a great amount of material about the fraud

8 against Russia. And it ends up seeking to recover $800,000,

9 which you claim came to New York through money laundering. So

10 I'm quite familiar with very large, fulsome pleadings, other

11 materials. I know that.

12 But when we get down to the essential facts, we don't

13 deal with a million facts; we deal with a few. And as far as

14 the government's action here, I know you wish you could recover

15 all $240,000,000. You're after $800,000 as a result of a long,

16 long complaint which has a lot of history and so forth. I'm

17 familiar with that complaint.

18 Now, the declaration or the draft declaration which

19 Mr. Moscow says he didn't draft, again, it's got a lot of

20 history in it. The thing is, that gets way past the issues,

21 way past. The issue really is what did Mr. Moscow do for

22 Hermitage in 2008 and early 2009. And that is not a matter

23 that's going to be solved by referring to a complaint with huge

24 amounts of history and so forth. It doesn't do anything.

25 And so the issue is what did he do -- literally do --

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1 for Hermitage in 2008 and 2009, and now that he's representing

2 Prevezon, what will he do. And he or his firm have issued a

3 subpoena to Mr. Browder. And let's assume the subpoena covers

4 Hermitage. What will that do? And I want to try to stick to

5 facts. And I am not at all sure that what will be done

6 pursuant to the subpoena and the discovery requests, I'm not at

7 all sure that this in any way involves what is legally cognized

8 as a conflict of interest.

9 MR. CYMROT: Let me answer that question, your Honor.

10 THE COURT: Yes.

11 MR. CYMROT: You just asked it, what would we do.

12 THE COURT: Yes.

13 MR. CYMROT: You just said what we've been saying

14 since the beginning of the case: All of that history is

15 irrelevant. And that's what they want to use Mr. Browder to

16 testify about, is all that history. And I've stood here and

17 said paragraphs 1 through 100, all that history is irrelevant,

18 your Honor, and it's prejudicial.

19 THE COURT: It's completely unnecessary.

20 MR. CYMROT: Exactly.

21 THE COURT: All that long pleading is completely

22 unnecessary.

23 MR. CYMROT: Exactly.

24 And what we would do is work on the Prevezon piece of

25 it, which is the last 20 paragraphs. Prevezon was unheard of

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1 in 2008 and 2009. The money laundering that's alleged in this

2 complaint as to Prevezon was unheard of in 2008 and 2009. It

3 had nothing to do with any of the materials we're talking

4 about, that they are talking about here. Nothing to do with

5 that. And we would defend Prevezon that it was not involved in

6 money laundering and didn't have the intent to engage in money

7 laundering, the last 20 paragraphs.

8 THE COURT: Look, your firm served a subpoena on

9 Browder, right?

10 MR. CYMROT: Actually, it was Baker Botts that served

11 the subpoena.

12 THE COURT: Baker Botts.

13 MR. CYMROT: Yes.

14 THE COURT: To take a deposition, right?

15 MR. CYMROT: Yes, because they named --

16 THE COURT: What do you or the other firm all seek to

17 do with the deposition?

18 MR. CYMROT: Exactly what I said before: Determine

19 what evidence he would present of this history the government

20 wants to prove. That's it.

21 MR. MONTELEONI: Your Honor, may I be heard briefly?

22 THE COURT: Just a minute.

23 In other words, you want to do what a lawyer would do;

24 and that is, if you have word that the government is going to

25 call Browder, you want to find out what he would testify to at

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1 trial, right?

2 MR. CYMROT: Exactly.

3 THE COURT: And let me ask you this: If it appeared

4 that he would give testimony unfavorably to your client, you

5 would seek to argue that that testimony is not credible or

6 you'd try to impeach and so forth, right?

7 MR. CYMROT: Well, the first thing we would say is

8 that he's not a competent witness to give any testimony in this

9 proceeding.

10 THE COURT: All right. Okay.

11 MR. CYMROT: But, yes, you're right.

12 THE COURT: You would seek to rebut or do something.

13 If he got to the point of testifying against your client, you

14 would want to defend against that, right?

15 MR. CYMROT: Correct.

16 THE COURT: Can I ask you this: Would it be your

17 client's idea to call Browder as a witness if this case went to

18 trial?

19 MR. CYMROT: No.

20 THE COURT: So it's a matter of dealing with his

21 testimony, if it was adverse to your client, right?

22 MR. CYMROT: Correct. And proved to be relevant and

23 proved to be competent. Those are two hurdles they have to get

24 over before we ever get to him being a witness at trial.

25 THE COURT: All right. Thank you.

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1 MR. CYMROT: Just one point I want to make about this.

2 You've asked another question, which is what is the

3 adversity. If Prevezon wins, there's nothing adverse to

4 Hermitage. If Prevezon loses, nothing adverse happens to

5 Hermitage. There is no adversity. A witness does not, as a

6 matter of law, have an adverse interest, as the rule requires.

7 And they don't have a single case where a nonparty witness has

8 been able to disqualify a former lawyer.

9 THE COURT: They don't have a single case what?

10 MR. CYMROT: Where a nonparty witness, they are not a

11 party to the case, has been able to disqualify a former lawyer

12 like Mr. Moscow. They haven't cited a single case that says

13 that.

14 THE COURT: I'm going to ask you to come back at 3

15 o'clock.

16 MR. MARK: Your Honor, will we have an opportunity at

17 3 o'clock for further argument, in particular, for example --

18 THE COURT: Of course.

19 MR. MARK: -- the request I made earlier about in

20 camera and so forth?

21 I do want to make one comment about Baker Botts, but

22 we'll leave that for later.

23 THE COURT: Of course. Of course.

24 (Unsealed portion concluded)

25

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1 UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x
UNITED STATES OF AMERICA,
3
Plaintiff,
4
v. 13-CV-6326 (TPG)
5
PREVEZON HOLDINGS LTD., et
6 al.,

7 Defendant. Oral Argument
------------------------------x
8 New York, N.Y.
October 23, 2014
9 3:11 p.m.

10 Before:

11 HON. THOMAS P. GRIESA,

12 District Judge

13 APPEARANCES

14 U.S. ATTORNEY'S OFFICE FOR THE SOUTHERN DISTRICT OF NEW YORK
For Plaintiffs
15 BY: PAUL M. MONTELEONI, ESQ.
CHRISTINE I. MAGDO, ESQ.
16 Assistant United States Attorneys

17 BAKER HOSTETLER LLP
Attorneys for Defendants
18 BY: MARK A. CYMROT, ESQ.
JOHN W. MOSCOW, ESQ.
19 LAURA L. ALAVERDI, ESQ.

20 BAKER BOTTS LLP
Attorneys for Defendants
21 BY: SETH T. TAUBE, ESQ.
VERNON A.A. CASSIN, III, ESQ.
22 GABRIELLA VOLSHTEYA, ESQ.

23 GIBSON, DUNN & CRUTCHER, LLP
Attorneys for Movant William Browder
24 BY: RANDY M. MASTRO, ESQ.
RICHARD W. MARK, ESQ.
25 LISA H. RUBIN, ESQ.

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1 (Case called)

2 THE COURT: Let me start by noting that we had a

3 ex parte session recently on a sealed record and I really

4 didn't hear anything that justified a sealed record or

5 justified confidential treatment, so unless there is an

6 objection, and I'd want to hear the grounds for that and I hope

7 we don't spend a lot of time on it, I think that that sealed

8 record should be unsealed, and I heard nothing justifying a

9 sealed record.

10 MR. MASTRO: Your Honor, Randy Mastro for the movants.

11 The reason why we submitted the materials in camera to you,

12 your Honor, was so that there would not be any claim later by

13 any of the parties here that there had been any sort of waiver

14 of attorney/client privilege because certain of the materials

15 involve extended communication about strategy, factual

16 background, confidences between an attorney and a client. From

17 our perspective, your Honor, that was done in an abundance of

18 caution. If all parties here are saying they're not going to

19 argue that Hermitage or Mr. Browder waived any attorney/client

20 privilege by having submitted them, I think that that will make

21 a record that addresses that, but that is why we did that, your

22 Honor.

23 THE COURT: All right. Fair enough.

24 Is anybody claiming waiver of attorney/client

25 privilege?

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1 MR. CYMROT: Your Honor, the answer to that is no as

2 to the filings. Our position --

3 THE COURT: I'm not hearing you.

4 MR. CYMROT: The position is that there's not a waiver

5 by reason of filing those materials. Our point was, they were

6 never confidential and never subject to privilege.

7 THE COURT: Look, I think there's no issue. We'll

8 unseal that record and that's that.

9 MR. MASTRO: Your Honor, just one point for the

10 record. The first exhibit, the first exhibit that was filed

11 there, which is a lengthy private communication between client

12 and attorney going through certain strategic objectives and

13 initiatives and how to approach, I think Mr. Browder and

14 Hermitage would consider that exhibit and any discussion of

15 that one exhibit to be confidential because there are

16 proceedings going on around the world not just involving

17 Prevezon but others involved in --

18 THE COURT: What do you mean going around the world

19 about?

20 MR. MASTRO: Your Honor, there are proceedings --

21 THE COURT: What?

22 MR. MASTRO: Governments around the world are looking

23 at this. There are proceedings in Switzerland, in Lithuania,

24 in several other countries where, like this one, governments

25 are investigating or pursuing formal cases against, in at least

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1 one of those cases Prevezon and in other cases others that

2 those governments consider to be involved in this tax fraud

3 scheme and money laundering. So, your Honor, that kind of

4 strategic discussion, you know --

5 THE COURT: Well, look, we can keep one document under

6 seal.

7 MR. MASTRO: Thank you, your Honor.

8 THE COURT: Why don't we do that.

9 MR. MASTRO: I really appreciate it, your Honor. And

10 there were a few pages where Mr. Mark discussed that document,

11 so we'll designate those to your Honor.

12 THE COURT: Exactly. And that will be kept under

13 seal.

14 MR. MASTRO: Thank you very much. Much appreciated.

15 THE COURT: Thank you very much.

16 Otherwise, that record is unsealed.

17 MR. MASTRO: Thank you, your Honor.

18 THE COURT: Now what do we need to do to continue what

19 we started the other day?

20 MR. CYMROT: May I speak first, your Honor?

21 MR. MASTRO: Well, actually, I thought your Honor

22 asked us to come and address the adversity issue, your Honor,

23 so I thought we were the ones who were supposed to be speaking

24 today.

25 THE COURT: Let's have Mr. Mastro speak first. That's

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1 fine.

2 MR. MASTRO: Thank you, your Honor. Very much

3 appreciated. Very much appreciated, because, your Honor, what

4 a difference a few days makes. Let me explain what I mean by

5 that, your Honor. When we left your Honor in chambers, your

6 Honor raised, rightly, that maybe this could all be avoided if

7 the parties could stipulate as to what should be indisputable,

8 that there was a $230 million tax fraud in Russia, where

9 Hermitage-affiliated entities -- there was identity theft and

10 those entities' identities were used in the commission of a

11 $230 million tax fraud in Russia, in a collusive activity

12 between Russian confederates and Russian officials. And that's

13 the first link in a series of events that lead us to where we

14 are today. And I said to your Honor then, your Honor, the

15 government may be willing to stipulate to that, but Prevezon

16 will never stipulate to that. And your Honor, I'm here today

17 to say -- because that points out the adversity here --

18 Prevezon is not willing to stipulate to that. They are not

19 willing to stipulate that that fraud occurred in Russia, that

20 Hermitage identities were used --

21 MR. CYMROT: Your Honor, that's not --

22 MR. MASTRO: Excuse me, Mr. Cymrot.

23 MR. CYMROT: Mr. Mastro --

24 MR. MASTRO: Mr. Cymrot, you'll have your chance.

25 MR. CYMROT: If you're going to say it, say it

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1 accurately, because you know we stipulated to that.

2 MR. MASTRO: Mr. Cymrot --

3 THE COURT: Look, look, the issue for today is not

4 history. The issue for today is the question of whether

5 Mr. Moscow's brief few-month retention by Hermitage

6 disqualifies him from representing Prevezon now. That is the

7 issue.

8 MR. MASTRO: Correct.

9 THE COURT: We're not going to get into a lot of

10 history, I don't think. We're going to finish up on that issue

11 and that is the issue before the court.

12 MR. MASTRO: Correct, your Honor, and that's why I

13 raised this point, your Honor, because Mr. Cymrot wrote --

14 THE COURT: Raised what?

15 MR. MASTRO: I'm raising the point about the inability

16 to stipulate because it means that Mr. Browder and Hermitage,

17 in the absence of such a stipulation, they will be called as

18 witnesses in this case, and as Mr. Cymrot just wrote to the

19 court an hour ago, "Prevezon is not in a position to stipulate

20 to facts of which it is entirely unaware." Those are the facts

21 that your Honor talked about, that history, the first chains in

22 the link of the money laundering which the government has --

23 THE COURT: I wasn't talking about that at all. Now

24 please, let's get to the point, if you will.

25 MR. MASTRO: Certainly, your Honor. The point is

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1 this: Mr. Moscow and his firm -- I'm going to tell you five

2 levels of adversity, your Honor; five reasons why the

3 representation of Mr. Moscow and BakerHostetler here create

4 adversity for our clients.

5 Your Honor, number one, the very purpose for which

6 Mr. Moscow and his firm were hired in the first place, it went

7 beyond merely collecting documents to defend in Russia. It

8 went to putting together a strategy for how this fraud

9 occurred.

10 THE COURT: They were representing Hermitage. We know

11 that.

12 MR. MASTRO: Yes, and your Honor, this is the key

13 point. He was hired to put together a strategy under RICO and

14 forfeiture laws to go to the government to collect information,

15 develop a strategy and go to the government and try to convince

16 them to bring cases just like this one, to go after those who

17 the government finds were involved in this scheme.

18 THE COURT: And to go after other people besides

19 Hermitage. We know that.

20 MR. MASTRO: But your Honor, this is the point.

21 Mr. Browder and Hermitage have committed themselves, as victims

22 of that fraud scheme -- and the government has now attested in

23 a submission to your Honor last night that Hermitage and

24 Browder qualify as victims under DOJ guidelines in this case.

25 They have spent years trying to expose this fraud and bring

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1 those to justice who were involved, and now --

2 THE COURT: Who's "they"?

3 MR. MASTRO: "They," Hermitage and Mr. Browder, have

4 spent vast amounts of resources and devoted themselves, made it

5 their life's mission to bring to justice those who committed

6 this fraud or who have been involved in the laundering of funds

7 involved in this fraud, and the government has now finally

8 taken up that mission too and brought the first of its cases.

9 Mr. Moscow went there in December 2008 and said to the

10 government: Here's our theory for a RICO or forfeiture action.

11 You should be figuring out who did this and bring those cases

12 on behalf of Hermitage and Mr. Browder. And now, the

13 government has done it, and the very first party the US

14 government has gone after in this regard, as the ultimate link

15 in the chain of money laundering, is Prevezon. And imagine

16 Mr. Browder's and Hermitage's surprise, when they have been at

17 personal risk, when they have been prosecuted in absentia, when

18 they're chased around the world by Russian authorities from

19 false criminal charges, when their own Russian lawyer, Sergei

20 Magnitsky, was not only arrested but tortured and murdered in a

21 Russian prison --

22 THE COURT: I don't understand what you're getting at

23 at all.

24 MR. MASTRO: I want to explain it clearly, your Honor.

25 I want to explain it clearly.

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1 Mr. Moscow, in his own words, was hired -- and this is

2 Exhibit 4 that we submitted to you. He was hired by Hermitage

3 and Mr. Browder to "analyze the behavior at issue with a view

4 to causing criminal prosecutions where appropriate in New York,

5 in the United States generally, or elsewhere."

6 THE COURT: But we went through all that the other

7 day.

8 MR. MASTRO: We did.

9 THE COURT: We went through all that the other day.

10 MR. MASTRO: Correct, your Honor, but the point is,

11 and the government, you know, agrees with us completely, that

12 the fruits of those labors, Mr. Moscow going down and pitching

13 the government in late 2008 and the work he did for Hermitage,

14 which, your Honor, was nearly a hundred hours of personal time

15 on his part, nearly 200,000 in fees charged, hundreds of hours

16 of BakerHostetler lawyers, to put that case together, to make

17 that presentation, to try to convince the government to go

18 after those who were involved in the fraud and the money

19 laundering. Now the government has done it, and the very first

20 party the government has gone after and established was

21 involved in the money laundering is Prevezon. Mr. Moscow shows

22 up on the opposite side. It completely undermines the very

23 purpose of the representation that he endeavored to pursue, to

24 take on.

25 THE COURT: I don't agree with that at all.

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1 MR. MASTRO: Well, let me continue, your Honor. I

2 have to say that I see the link --

3 THE COURT: Look, let's not repeat what we went

4 through.

5 MR. MASTRO: I'm not trying to repeat, your Honor,

6 just trying to explain.

7 THE COURT: There is no doubt that Mr. Moscow was

8 hired by Hermitage. He was. And he was retained by them for a

9 few months at the end of 2008 and the very beginning of 2009,

10 at which time, in his words, there was a parting of the ways.

11 So here he is, representing Hermitage without question for a

12 few months to try, obviously, to deflect any prosecution

13 against Hermitage, maybe persuade the government to prosecute

14 others. All of that was involved for a few months in '08 and

15 the beginning of '09. We are now five years later. We have a

16 brand new lawsuit against Prevezon. Prevezon wasn't sued then.

17 MR. MASTRO: It isn't --

18 THE COURT: Excuse me. Now Hermitage is not being

19 sued, Prevezon is being sued, and the issues are about

20 Prevezon.

21 MR. MASTRO: Your Honor, it's not a brand new lawsuit

22 in this sense. Its origins are the $230 million tax fraud --

23 THE COURT: Of course.

24 MR. MASTRO: -- and the laundering of the money.

25 THE COURT: Please. It's like saying that, you know,

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1 there's a relation between Canada and Brazil because they're in

2 the Western Hemisphere. Of course there's some relation. But

3 that $230 million was a vast thing which produced obviously

4 money laundering, which goes way, way beyond anything we know

5 about. And it goes way beyond what is alleged in the action by

6 the government, which is a very limited, small action.

7 MR. MASTRO: But your Honor, the government can tell

8 you, better than I, that the government's money laundering case

9 is based on the $230 million tax fraud scheme.

10 THE COURT: Of course it is. We know that.

11 MR. MASTRO: And therefore, the money has to be

12 traced, your Honor, and Mr. Moscow, and BakerHostetler, were

13 hired by Hermitage and Mr. Browder to help them convince the

14 government to follow that money trail wherever it led and bring

15 to justice and forfeit ill-gotten gains of anyone who was

16 involved in the money laundering, and that led to Prevezon now.

17 THE COURT: He was retained to deflect legal action

18 from Hermitage.

19 MR. MASTRO: With all due respect, your Honor, those

20 are not Mr. Moscow's own words at the time of his retention.

21 Mr. Moscow's own words, including in the conversations he had

22 with the client, which some of them are before your Honor now,

23 are, yes, you have to defend against Russian criminal charges,

24 but the point is, to expose those who were responsible for the

25 fraud and who had been involved in the money laundering.

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1 That's the necessary corollary.

2 THE COURT: And to do that and avoid prosecution of

3 Hermitage.

4 MR. MASTRO: It was both, your Honor.

5 THE COURT: You leave that out all the time.

6 MR. MASTRO: I do not, your Honor. It was --

7 THE COURT: Yes, you do.

8 MR. MASTRO: It was both. It was both things, your

9 Honor. It was both to defend in Russia and to expose who was

10 really involved, and then get them prosecuted or forfeiture

11 actions brought. Those are Mr. Moscow's words, your Honor.

12 THE COURT: But Mr. Moscow was not retained as a

13 commissioner for the benefit of humanity; he was retained to

14 protect Hermitage, and he was only retained for that for a few

15 months, ending five years ago.

16 MR. MASTRO: But your Honor, your Honor, again,

17 Mr. Moscow said and did the following. He said: I am going to

18 put this together in a way that the government will -- easily

19 understood by the prosecutors -- this is Exhibit 4 -- in this

20 country and make presentations to prosecuting agencies to

21 suggest their taking action against the fraudsters. One

22 possibility I see is having the proceeds of the frauds to --

23 THE COURT: And he did that representing Hermitage,

24 did he not?

25 MR. MASTRO: Correct, because Hermitage was the victim

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1 of the --

2 THE COURT: He did not do that as kind of a

3 commissioner for the benefit of humanity. He was representing

4 Hermitage.

5 MR. MASTRO: Correct, your Honor. Hermitage hired him

6 to do that, to bring the people who victimized Hermitage by

7 identity theft and then using its identity, causing this series

8 of events of Hermitage officials and lawyers being prosecuted

9 in Russia, to expose those involved and get them prosecuted in

10 the US and the money laundering, ill-gotten gains to be

11 forfeited. Those are his words. To the extent they're trading

12 through New York subject to forfeiture by the Department of

13 Justice. Now we didn't know all the players back then. He was

14 trying to get the Justice Department, Southern District, to

15 investigate. He spent hours on a presentation. Exhibit 3

16 before your Honor is how he put the case together to present to

17 the government as a RICO or a forfeiture, and then he went

18 down, spent hours with the assistant US attorneys trying to

19 convince them to bring cases just like this one, and the fact

20 that Mr. Moscow and Hermitage then parted ways, as Mr. Moscow

21 put it, and Hermitage continued in that mission because its own

22 Russian tax lawyer had been arrested, tortured, and killed in

23 Russia, eventually, relatively soon thereafter, within a period

24 of years, the government had put that case together, the one

25 that John Moscow suggested to them in the first place, because

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1 that's why Hermitage hired him. This was a mission to expose

2 those who had used Hermitage and its corporate affiliations to

3 commit a tax fraud and thereby exposed Browder to criminal

4 conviction and prosecution in absentia, their lawyers and other

5 personnel to criminal charges, and one of their lawyers to be

6 literally arrested, tortured, and murdered in Russia. And your

7 Honor, it's links in a chain. The government has to prove the

8 tax fraud and then it has to prove the money laundering out of

9 Russia to get to the US and then who was involved in the money

10 laundering, eventually coming to Prevezon. That's what the

11 government needs to prove. And that's why Mr. Browder and

12 Hermitage will be witnesses in this case, unless there is a

13 stipulation, and it's what they hired Mr. Moscow to get the

14 government to do, to prosecute, to bring forfeiture actions

15 like this one when the wrongdoers were identified, and that's

16 what the government has now done. In that sense, Fordham

17 ethics professor and ethics expert Bruce Green says this is a

18 clear case of a conflict. It doesn't matter whether Mr. Moscow

19 worked ten hours or a hundred. That's what he set about to do,

20 and he went down to the U.S. Attorney's Office, made that

21 presentation, and the U.S. Attorney's Office later took up that

22 cause, the one that Hermitage and Browder hired him to do.

23 And your Honor, I'm going to go on to other subjects.

24 THE COURT: Took up the cause by suing whom?

25 MR. MASTRO: The money launderers, your Honor.

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1 Hermitage and Browder didn't know who was involved in the money

2 laundering chain.

3 THE COURT: Can you name the party they sued?

4 MR. MASTRO: Prevezon, your Honor.

5 THE COURT: All right.

6 MR. MASTRO: And imagine the surprise of those who

7 hired Mr. Moscow, paid his firm quite a bit of money, were

8 pleased to see him go down to the U.S. Attorney's Office and

9 make a presentation that the government should be following the

10 money and figuring out who's involved in the money laundering

11 and whether there are any assets here, that the government then

12 later does that, determines Prevezon is that party, decides to

13 prosecute Prevezon, and then John Moscow, Hermitage and

14 Browder's champion to get the government to do this back in

15 2008 and 2009, shows up on the other side for Prevezon. It's

16 really unfathomable to me, your Honor, that that could happen.

17 It wouldn't happen -- you would never do it. I would never do

18 it.

19 Let me go on to some other points, your Honor, because

20 they're very, very important.

21 Now we have the case, your Honor, since there will not

22 be a stipulation, since the government has said Browder and

23 Hermitage are victims here. They're victims of identity theft.

24 They've been victimized, persecuted, prosecuted in Russia.

25 Mr. Browder can't even travel around the world safely because

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1 Russian authorities keep trying to get Interpol to go after

2 him, an outrage that the US Congress, US State Department, and

3 Justice Department have all said was a sham criminal

4 prosecution resulting from a collusive tax fraud. Your Honor,

5 did Mr. Moscow receive any confidences from our client?

6 THE COURT: Did what?

7 MR. MASTRO: Did Mr. Moscow and BakerHostetler receive

8 any confidences from our clients? Now of course --

9 THE COURT: Did he receive what?

10 MR. MASTRO: Confidences, confidential information.

11 Your Honor, as your Honor knows, the legal standard is, when

12 it's the same lawyer representing one party and then later

13 shows up representing another party on the other side, my

14 client, the victim, adverse to Prevezon, trying to see that

15 Prevezon and the government's prosecution against Prevezon is

16 successful so cooperating with the government, okay, were there

17 any confidences that Mr. Moscow and BakerHostetler learned?

18 The legal standard is, when that's the same lawyer in

19 circumstances like that, involving such a sensitive matter,

20 where the client is facing criminal jeopardy and goes to

21 Mr. Moscow for his help and asks Mr. Moscow to find evidence of

22 the wrongdoing and present it to the government and get the

23 government to go after the wrongdoers, the law is that there is

24 an irrebuttable presumption that confidences were conveyed, but

25 your Honor asked us for more, and we're prepared to give you

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1 more. We were prepared to give you more in camera, but --

2 THE COURT: Whatever you're going to give me is going

3 to be right in public.

4 MR. MASTRO: I'm going to discuss it right now, your

5 Honor, and I'm going to ask your Honor to permit us to have the

6 opportunity to make that additional submission. There was

7 frank discussion with Mr. Moscow --

8 THE COURT: We had a session in camera and there was

9 no reason for such a session, and we're not going to have any

10 more in camera sessions.

11 MR. MASTRO: Your Honor, I'm going to go right to it,

12 but it's precisely why the law does not require us to reveal

13 confidences under these circumstances, in fact creates an

14 irrebuttable presumption that confidences were involved in the

15 communication.

16 THE COURT: What confidences were shared?

17 MR. MASTRO: The frankest conversations about the

18 criminal charges, the criminal charges against Mr. Browder,

19 against lawyers of Hermitage, against other officials at

20 Hermitage, and in Russia, those criminal charges are not made

21 public until there has been a conviction --

22 THE COURT: I don't understand what you're telling me.

23 I thought you were going to tell me what confidential

24 information was shared.

25 MR. MASTRO: Yes, I am telling you, your Honor. The

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1 confidences about the criminal cases and criminal charges,

2 which are not a matter of public record in Russia, and how to

3 respond to them and what strategies to employ, those were

4 intimate conversations, attorney/client, between Mr. Moscow and

5 his colleagues and Mr. Browder and his colleagues at Hermitage.

6 And without discussing how many such charges are out there or

7 who else is involved in such charges, Mr. Browder, it's

8 publicly known, was prosecuted and convicted in absentia. So

9 was his former tax lawyer, who was tortured and murdered. He

10 was tried in absentia after he was dead. But those criminal

11 charges were something that was discussed at length with

12 Mr. Moscow and how they were --

13 THE COURT: He was representing Hermitage.

14 MR. MASTRO: Correct, your Honor, but now -- and if I

15 may, your Honor, just a second point, and then I want to come

16 back to this confidential information. Of course this is all

17 about tracing the money. Mr. Browder and Hermitage also shared

18 with Mr. Moscow nonpublic bank records that they were able to

19 obtain that showed the first links in the chain of the money

20 laundering and what funds went through certain bank accounts

21 that ultimately led, in the money laundering chain, to Prevezon

22 being prosecuted today. Mr. Browder and Hermitage were able to

23 put some of those early pieces together, and that information,

24 never shared anywhere else, publicly, was given to Mr. Moscow

25 and his firm at the time, and I'd be prepared to make

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1 submissions to your Honor on these points, but just as

2 importantly, your Honor, here's the key, why this is so

3 important. Issue number three --

4 THE COURT: Let me interrupt you.

5 MR. MASTRO: Certainly.

6 THE COURT: There's no question that Mr. Moscow

7 represented Hermitage for a short time, but he represented

8 them. Presumably he gave advice, he took steps I think of a

9 very limited nature, and he's described that. But he certainly

10 was attempting to deflect any possible prosecution in Russia or

11 elsewhere from Hermitage. There's no doubt about that. And in

12 the course of that he undoubtedly had discussions about

13 strategy, about how to do what he was trying to do, without any

14 doubt. The question is: Does that disqualify him when the

15 government brings a different action that is an action against

16 Prevezon and the action now is not against Hermitage?

17 Hermitage is not being sued. Nobody's suing Hermitage.

18 Somebody from Hermitage may have to give a deposition, but that

19 is simply what happens in litigation. So we know all of that.

20 MR. MASTRO: Your Honor, here's why that doesn't work

21 under our conflicts rules.

22 THE COURT: It doesn't work what?

23 MR. MASTRO: Why it doesn't work that Mr. Moscow and

24 his firm could now represent Prevezon under our conflict rules.

25 The duty of loyalty that the lawyer owes his client, even a

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1 former client, it doesn't end because the relationship has

2 ended. The duty of loyalty that John Moscow and BakerHostetler

3 took on when they represented Hermitage and Browder was a duty

4 to not only defend and help them defend in Russia but also to

5 go on the offensive in the United States and help prosecutors

6 understand the case and prosecute the wrongdoers and expose the

7 victimization of Hermitage and Browder. Of course Hermitage is

8 not a party defendant to this forfeiture action. The

9 government has explained to your Honor in crystal clear terms

10 last night that Hermitage is the victim of this crime.

11 THE COURT: Is what?

12 MR. MASTRO: The victim. That's what the government

13 has said to you, your Honor, and it has said that under DOJ

14 guidelines, Hermitage and Browder are the victims here. They

15 have a stake in this controversy because their identity,

16 Hermitage's affiliate identities, were used to effectuate this

17 fraud and subsequent money laundering, and at the end of the

18 trail, the links in the chain, it's Prevezon that has the money

19 that's part of that ill-gotten gains that the government is

20 going after. So your Honor, that duty doesn't end. Mr. Moscow

21 and his firm took an oath. Took an oath: We're going to press

22 your case, we're going to help defend you in Russia, and we're

23 going to help convince the government to bring the very kind of

24 action it has now brought against Prevezon for you, Hermitage

25 and Browder, as victims.

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1 THE COURT: I see what you're getting into, but it's

2 awfully vague.

3 MR. MASTRO: Not intended to be vague at all.

4 THE COURT: Please.

5 MR. MASTRO: Certainly, your Honor.

6 THE COURT: It is very vague. You're getting into the

7 subject of the issues in the current lawsuit.

8 MR. MASTRO: I am, your Honor, and that's --

9 THE COURT: You are. And that, of course, is very

10 important, but you are very vague about it.

11 MR. MASTRO: Not --

12 THE COURT: And would you spell out clearly and

13 precisely, in what way is Hermitage at issue in the current

14 lawsuit.

15 MR. MASTRO: Absolutely, your Honor, and I think the

16 government will tell you the same thing when it has the chance

17 to speak.

18 THE COURT: Please don't tell me what the government

19 will say. I'm speaking to you.

20 MR. MASTRO: Of course, your Honor, and I appreciate

21 that, your Honor. As I understand the government's case and as

22 I understand Hermitage and Browder's role in that case,

23 Hermitage and Browder will be witnesses, affirmative witnesses

24 for the government to prove that they were victims of an

25 identity theft of Hermitage-associated entities, $230 million

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1 tax fraud resulted involving Russian government officials and

2 Russian mob, and that then the money was laundered through

3 Russian banks and then to overseas banks, including banks in

4 the US; links in the chain that ultimately resulted in Prevezon

5 having gotten the ill-gotten gains as part of the money

6 laundering scheme that end up in the Southern District of New

7 York that can now be forfeited. Your Honor, I'm being as

8 specific as I can be. The $230 million fraud and Browder and

9 Hermitage's role as a victim in that and then the subsequent

10 prosecutions, persecutions, and money laundering to get the

11 money out of the country are things that both Browder and

12 Hermitage will provide the government with testimony about and

13 that that's necessary to the government's case because it has

14 to show a crime, the $230 million tax fraud, it has to show

15 money laundering, has to show the links in that chain, and it

16 has to show that eventually Prevezon got ill-gotten gains and

17 then it had the mens rea to know that they were ill-gotten

18 gains and they end up here in the Southern District. It has to

19 prove each link in that chain. Browder and Hermitage helped

20 them prove the links in that chain, particularly the earlier

21 links. That is why the government is calling them. They are

22 witnesses in this case, and Mr. Moscow and his firm and their

23 co-counsel now propose to --

24 THE COURT: Can I just interrupt you.

25 MR. MASTRO: Certainly, your Honor.

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1 THE COURT: Please.

2 MR. MASTRO: Certainly.

3 THE COURT: There are at times unique cases, and this

4 is surely one, and one could describe a chain just as you've

5 described it, starting with the $230 million stolen from Russia

6 and going on with certain victims, including Hermitage, and

7 then the undoubted money laundering, most of which we know

8 nothing about, but I want to tell you that I will not dispose

9 of this case by looking at this broad universe of

10 circumstances. Right or wrong, I won't do it.

11 MR. MASTRO: I understand.

12 THE COURT: Let me finish.

13 MR. MASTRO: Certainly, your Honor.

14 THE COURT: The reason is that when we come to the

15 conduct of an attorney and the participation of an attorney in

16 certain matters, in my view, rightly or wrongly, I believe that

17 we should look at that participation because to look at the

18 whole picture is too broad. Nobody participated in everything.

19 This was a very big scheme, most of which at least the people

20 in the Southern District of New York know nothing about. We

21 don't know the full details of money laundering that went on.

22 We don't begin to know. But we do know that there was a

23 massive theft, there was certainly victimization of Hermitage

24 and I'm sure victimization of other people that we know nothing

25 about. But rightly or wrongly, I'm not going to determine the

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1 ability of Mr. Moscow to act as an attorney except by looking

2 carefully and closely at what he did for Hermitage, and he

3 certainly did things for Hermitage, and the relationship of

4 that activity to what he's doing now in representing Prevezon.

5 Now the thing is, when you speak, you speak broadly,

6 and there's nothing wrong with what you're saying. Everything

7 you say is valid, it happened, and so forth. But I'm just

8 going to let you know, and your colleagues, right away that I

9 take a different view of what is relevant to determining the

10 ability of Mr. Moscow to continue in his representation. So

11 that's really the issue. What you're saying is good, valid,

12 well presented, and that's fine. But let's not keep going back

13 and forth without you understanding that I come from a

14 different spot.

15 MR. MASTRO: I understand and appreciate your Honor

16 saying that, and I know your Honor is very familiar with the

17 law in this area and I know your Honor knows and respects

18 Professor Bruce Green, who's very conservative on these issues.

19 He's often an expert for attorneys on why -- including in a

20 case where I was challenged on a conflict, which Mr. Cymrot I'm

21 sure will want to point out that that motion was denied last

22 week, your Honor. But Mr. Green, Professor Green, says that,

23 his words -- very unusual for Professor Green -- that that

24 history is important because that history is a lawyer, and his

25 duty of loyalty, in representing somebody to try and get

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1 justice and expose a fraud, years later, when it's finally

2 being exposed, showing up on the other side, Professor Green's

3 word, is a betrayal.

4 Your Honor, clear conflict of interest. But I'm going

5 to tell your Honor in very real, concrete, present terms why

6 Mr. Moscow cannot be here in this case and BakerHostetler can't

7 be. The very real consequences of this. What are they about

8 to do on the other side of the table? And I respect them all.

9 So this isn't about -- some very great lawyers have faced

10 conflict motions and been conflicted out of cases, including

11 Ted Wells and Ike Sorkin and David Boise, and I had one brought

12 against me but I was not disqualified. They were in their

13 cases. But your Honor, this isn't about something personal or

14 any kind of indictment of any individual. But there's a

15 question of injustice and confidences and how the lawyer who

16 represented a client in something that is related -- and I

17 appreciate your Honor saying there's clearly some relationship

18 since Hermitage and Browder are victims in this case, but I

19 understand what your Honor is saying about the history. Here's

20 why they can't represent Prevezon now, because they know a lot

21 about Mr. Browder and Hermitage in having represented them, and

22 what are they going to do now? They're taking discovery,

23 they've issued sweeping --

24 THE COURT: They what?

25 MR. MASTRO: They've taken discovery, they're issuing

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1 sweeping subpoenas, and Mr. Moscow and Mr. Cymrot tried to tell

2 you: It's just a discovery deposition to prepare for trial. I

3 just need to know what his story is. Well, they didn't give

4 you the straight scoop, your Honor, and you can't decide the

5 conflict in a vacuum without understanding the breadth of that

6 subpoena, without understanding what Mr. Cymrot and his

7 colleagues have been saying about Mr. Browder and Hermitage and

8 what they're going to do to Mr. Browder and Hermitage in this

9 case, having learned all about his past criminal case and the

10 private communications about that, the other criminal charges

11 pending against persons associated with Hermitage, the

12 company's secrets, most confidential secrets, because they came

13 to John Moscow because he's John Moscow, and they came to

14 BakerHostetler to handle the most sensitive matter they

15 possibly could, which involved the history we're talking about.

16 And now they're going to use that knowledge, you can rest

17 assured, to go after Mr. Browder and try and vilify him and

18 crucify him in the deposition. Don't take my word for it, your

19 Honor. Mr. Cymrot, Mr. Cymrot, in the press and in their court

20 filings, they intend to go after -- and I'm going to hand this

21 up to your Honor. They intend to impeach him by showing "his

22 willingness to cheat on taxes." They intend to examine him

23 "about his criminal conviction for tax fraud, other nefarious

24 activities, and the indifference with which he wrongfully

25 accuses others of misconduct."

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1 THE COURT: What are you reading from now?

2 MR. MASTRO: I'm reading from newspaper articles, your

3 Honor, that are in the record, and I'm going to hand this up to

4 your Honor. Perhaps it would be helpful if I did hand it up.

5 If I may approach, your Honor. These are all quotes from

6 Mr. Cymrot and his colleagues in their briefs about what

7 they're going to do to their former client when they depose him

8 in this case.

9 THE COURT: I think this is where we left off in the

10 earlier hearing.

11 MR. MASTRO: Yes, your Honor, this is the adversity

12 argument.

13 THE COURT: And obviously I want to get into this.

14 MR. MASTRO: Thank you, your Honor, and we're going to

15 come to the subpoena next, but let me just finish.

16 Some of the other things that Mr. Cymrot has said

17 publicly to the press he's going to do to Mr. Browder. We're

18 going to have him answer "hard questions about his tax cheating

19 in Russia and other aspects of his operations to show that he

20 has no credibility as a source for the US attorney to rely upon

21 for the lawsuit they filed against the company."

22 THE COURT: As against what?

23 MR. MASTRO: Against the company, Prevezon.

24 THE COURT: Oh, yes.

25 MR. MASTRO: He intends to show "there's a black mark

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1 on his character." That's Browder, their former client, a

2 black mark on his character, that he's unreliable, that he's a

3 "criminal tax cheat." That's the words of Mr. Cymrot, that

4 they're going to expose "the many discrepancies in Browder's

5 concocted story. We welcome every opportunity to lay bare his

6 cynical and scurrilous attacks." And that Browder's convicted

7 of a scheme, he made false statements, he bankrupted the

8 company and got prosecuted. Now your Honor, it sure sounds to

9 me like they learned a lot about Hermitage and Browder and they

10 are intending now to vilify him, to go after their former

11 client in the most vicious way. They've done it publicly.

12 And your Honor, let's go to the subpoena next. And

13 I'm going to hand up to your Honor a little analysis of the

14 subpoena. These are the most overbroad subpoenas I've ever

15 seen, but they go to the heart of the criminal charges against

16 Browder and others at Hermitage, they go after his personal

17 character, and in other districts, before they ever got here,

18 your Honor, these lawyers told the District of Columbia, before

19 the case was transferred back to you on related subpoenas to

20 Hermitage-related entities, they told them that these sweeping

21 requests were necessary because they directly related to "the

22 credibility, motive, and bias of the Hermitage entities and

23 Mr. Browder." The clients, Mr. Moscow was entrusted with

24 carrying their most sensitive, tragic matters, an identity

25 theft and false criminal prosecution, bogus ones, that have

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1 dogged this company and dogged Mr. Browder and all those

2 associated with it. They're going to go after their former

3 clients with these subpoenas that they ask you to enforce, to

4 attack their credibility, motive, and bias. How can they

5 possibly be here, your Honor? I am shocked. I'm going to hand

6 it up to your Honor, if I may. I'm shocked that we're here

7 about this.

8 The requests are on the left. What Prevezon's lawyers

9 have said are the rationales for the sweeping discovery are on

10 the right. That's what they said to the District of Columbia.

11 It's not what they said to your Honor the other day when they

12 were in here trying to say this was just discovery to find out

13 what a witness would say at trial. Now, your Honor, you don't

14 do that to a former client. You don't do that to a former

15 client who's experienced what this client experienced. It's

16 wrong. I'm not asking to indict anyone here. I'm asking for

17 fairness and justice for Mr. Browder and Hermitage to not be

18 subjected to their former lawyers doing this to them, vilifying

19 them in public, seeking to go into all of these sweeping things

20 to try and impeach them and vilify them and to then come here

21 and say to you, like they did the other day, it's just a simple

22 discovery deposition. That's just not right, your Honor. They

23 weren't straight with you, they weren't straight with

24 Mr. Browder and Hermitage in how they're approaching this.

25 Now I have other reasons of adversity, your Honor.

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1 Now, your Honor, that should end the inquiry, because

2 you cannot do this to a former client who is adverse because

3 he's the victim, and Hermitage is a victim in this case. The

4 government tells you that. You can't do that to a former

5 client. This is not discovery deposition. This is an attempt

6 to vilify him, to intimidate him, to go after him and his

7 credibility and his reliability and impeach him, and you knew

8 all of his most private information, most private thoughts

9 about what he's been through from all those criminal charges,

10 and now you're trying to get discovery on that and impeach him

11 with it? Excuse me, your Honor. I get a little upset about

12 this, but it is an outrage to me. And I agree with Professor

13 Green. It's a betrayal.

14 Now, your Honor, let me get -- in terms of the last

15 two points --

16 THE COURT: Can I interrupt you.

17 MR. MASTRO: Certainly, your Honor.

18 THE COURT: If you're quoting Mr. Moscow correctly,

19 you're quoting him correctly.

20 MR. MASTRO: Absolutely, your Honor. I put the quotes

21 in.

22 THE COURT: Just a minute.

23 MR. MASTRO: Thank you, your Honor.

24 THE COURT: And the thing that puzzles me is that I

25 don't see how any of this relates to the issues in the case.

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1 And I have not gotten deeply into the case. The case is in its

2 infancy. But I think I have some idea of what it is about.

3 And I think what it's about is whether Prevezon, which brought

4 certain monies to the United States and invested in real

5 estate, etc., whether Prevezon obtained those monies as part of

6 money laundering of the $230 million theft. Obviously what

7 came to the United States was vastly less than $230 million. I

8 think the government alleges that about $800,000 came to the

9 United States. But anyway, it's $800,000. But the issue as I

10 understand it is, how did Prevezon get that money that they

11 brought to the United States? Did they get it as part of money

12 laundering or did they get it through legitimate investments

13 and deposits and so forth? That is my understanding of the

14 issues in the case. I did not understand that the issues

15 involved anything beginning to cover what you have talked

16 about.

17 MR. MASTRO: Your Honor, I have several things I

18 want --

19 THE COURT: And the thing is --

20 MR. MASTRO: Yes, your Honor.

21 THE COURT: The thing is, the danger in this case is

22 that somehow the original big, big, big theft of $230 million

23 from the Russian government spills over into everything. Well,

24 it's not going to spill over into everything as far as I'm

25 concerned. Everything is a big thing. And there are limits.

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1 There are limits.

2 MR. MASTRO: I appreciate --

3 THE COURT: So let us not every time we open our

4 mouths start talking about the big fraud and so forth. We know

5 all that. We've heard it, if not a million times, a hundred

6 thousand times.

7 MR. MASTRO: 230 million times, your Honor. But your

8 Honor, the problem -- I want to say a few things in response to

9 that, if I may, your Honor, because it goes to some fundamental

10 issues here.

11 THE COURT: Please.

12 MR. MASTRO: First, if that's the case and your Honor

13 ends up fashioning a way to limit the case and let's say we

14 stay in the case, what your Honor should be doing is quashing

15 those subpoenas because, knowing what they know about their

16 former clients, they can't be going after their former clients,

17 and your Honor is suggesting that maybe they're not so

18 important after all. The government will have to do a

19 deposition at some point. They'll be able to ask their

20 questions too. But that's not what they're trying to do now.

21 Because they anticipate their former clients being witnesses

22 for the government in the case, they have issued overbroad,

23 sweeping, and, yes, I suggest to you, when you go through the

24 requests, that's why you can't decide this in a vacuum. When

25 you go through the requests, you will see --

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1 THE COURT: Can't decide what?

2 MR. MASTRO: You can't decide this conflict issue in a

3 vacuum. If you go through the subpoenas as I've handed them up

4 to you, you will see the confidential kind of subjects that

5 they've asked about that they know about from representing

6 Browder and Hermitage.

7 THE COURT: Where is that?

8 MR. MASTRO: I've handed up to your Honor different

9 parts of the subpoena, particularly about the criminal charges

10 and other aspects. Your Honor, the point being that there's an

11 obligation to make sure that confidences aren't used or

12 violated. Therefore, the quashing of the subpoenas should be

13 the minimum that comes out of these proceedings, and maybe down

14 the road your Honor is right that you will be able to narrow

15 the case. But you left us with that mission in chambers when

16 we left your chambers the other day. And the government tried

17 in good faith a week ago to get stipulations that they don't

18 have to prove the $230 million tax fraud and those early links

19 in the chain of the money laundering.

20 THE COURT: Can I just interrupt you.

21 MR. MASTRO: Sure.

22 THE COURT: If this case comes to trial, nobody will

23 spend time proving those things that are known by all humanity.

24 I don't have to suffer through proof of things that are

25 stipulated. The court can handle that.

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1 MR. MASTRO: But they're not willing to --

2 THE COURT: We're not going to have a trial about

3 history. We're not going to have a trial about things that are

4 well known as really recent history. That will all be disposed

5 of, as any trial judge in this court would do. We don't sit

6 around and try the discovery of America. We just don't do it.

7 MR. MASTRO: I know, your Honor, and I know your Honor

8 well from having had the honor of trying cases in front of your

9 Honor, and I know what a tight courtroom you run. But your

10 Honor has to appreciate that the government said it would

11 stipulate to those things, and Prevezon is not stipulating to

12 those things.

13 THE COURT: I don't care.

14 MR. MASTRO: Okay. Well, then if those things are

15 going to --

16 THE COURT: I do care about this. Now look, let's get

17 back --

18 MR. MASTRO: Yes, please, your Honor.

19 THE COURT: -- to if Mr. Moscow and his firm are going

20 on the attack against Hermitage and Browder. That's the

21 question we left the closed hearing with and that's what we

22 should be dealing with now, but let's try to stick to the point

23 and not get off into things because I don't want to get

24 diverted from the issue.

25 MR. MASTRO: Appreciate it, your Honor. And that's

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1 why I put before you an analysis of Prevezon's subpoena to

2 Browder. It defines Browder as including Hermitage,

3 Hermitage-related entities, Hermitage representatives, and

4 personnel. So this is really a subpoena to Browder and

5 Hermitage and everyone associated with Hermitage, and requests

6 2 through 8, your Honor, 2 through 8 all ask about criminal

7 cases, interactions with Interpol, the criminal charges against

8 Browder or any other people from Hermitage. That's what they

9 go to right off the bat in the subpoena, to try and impeach

10 them, to try and attack their credibility, to try and attack

11 their reliability.

12 THE COURT: Take it easy. Take it easy.

13 MR. MASTRO: I will, your Honor. I get a little

14 animated on this subject because it is upsetting to me.

15 THE COURT: Well, it's not going to help to get upset.

16 What is the document --

17 MR. MASTRO: Certainly, your Honor. I'm going to hand

18 it up. If I may approach, your Honor.

19 THE COURT: -- that you say discloses Mr. Moscow's and

20 BakerHostetler's intention in taking that deposition? That's

21 what you're talking about, is it not?

22 MR. MASTRO: Yes, your Honor.

23 THE COURT: What is the document that discloses that?

24 MR. MASTRO: The subpoena is Exhibit 17. That's the

25 one that went to Browder. And your Honor, we've done an

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1 analysis of it that we just handed up to you going through

2 specific requests that go to impeachment, and they're about

3 evidence in the criminal case, criminal conviction, criminal

4 charges, and the response of the defendants when this same

5 information was asked for --

6 THE COURT: Don't hand up some 6-inch-thick document.

7 We don't have to have that.

8 MR. MASTRO: No. When these same requests going after

9 Hermitage and Browder and persons affiliated with Hermitage,

10 their criminal cases, their criminal charges, what's going on

11 in that regard --

12 THE COURT: Look, just somehow make yourself clearer

13 than you're making it right now.

14 MR. MASTRO: All right. I'm going to --

15 THE COURT: What documents should I be looking at

16 and --

17 MR. MASTRO: Your Honor should be looking at the

18 subpoena, which is Exhibit 17. We have quoted the subpoena on

19 the left-hand side of this chart that we created for today.

20 THE COURT: Do I have the subpoena, please?

21 MR. MASTRO: Yes. Here it is. And if your Honor

22 reads requests 2, 3, 4, 5, 6, 7, and 8 --

23 THE COURT: All right. I've got the subpoena.

24 MR. MASTRO: They all go to --

25 THE COURT: Just a minute. Just a minute, please.

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1 Please.

2 MR. MASTRO: Certainly, your Honor. It starts on

3 pages 4 and 5, your Honor.

4 THE COURT: All right. Very good. Very good. And

5 what numbered paragraphs, please?

6 MR. MASTRO: It would be 2 through 8, your Honor, and

7 you'll also have to see, your Honor, the definition of "you"

8 that's on the very first page. It includes not simply Browder

9 but any corporation --

10 THE COURT: Just a minute. Let me read. I think I've

11 read this before, but let me read it again.

12 MR. MASTRO: Yes.

13 (Pause)

14 THE COURT: Okay. I've read this. Where do we go

15 from here?

16 MR. MASTRO: And your Honor, just one other thing to

17 point out to you there. The very first definition on page 1 of

18 "you," it defines "you" as Browder and any Hermitage-affiliated

19 entities or persons.

20 THE COURT: Okay. Fine.

21 MR. MASTRO: So your Honor, how do we know all these

22 requests going to their criminal convictions and their tax

23 returns and those issues are to impeach? We know it because

24 BakerHostetler has told us so. They told us so in the brief

25 they filed in the District of Columbia against Hermitage

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1 Global, they subpoenaed Hermitage Global, an affiliated entity,

2 and same subpoena, almost identical word for word, and your

3 Honor, this is what they said in their brief on virtually

4 identical requests that's now also before your Honor. It's

5 Exhibit 22, your Honor, in the book there, pages 15 through 17.

6 Their words, not mine. That they are seeking this information

7 because it's "directly related to the credibility, motive, and

8 bias of the Hermitage entities and Mr. Browder." And they go

9 on at great length to criticize --

10 THE COURT: Where are you reading from now, please?

11 MR. MASTRO: This is Prevezon, Exhibit 22 in your

12 binder there, your Honor. It's Prevezon's memo in support of

13 its motion to compel Hermitage Global to have to respond to the

14 same requests. If your Honor goes to Exhibit 22, that's

15 Prevezon's motion. That subpoena is now before your Honor.

16 THE COURT: But where are you reading, please?

17 MR. MASTRO: Go to page 15, please, your Honor, and if

18 you read pages 15 through 17, starting on page 15, bottom of

19 the page, bottom of that paragraph, they spell it out very

20 clearly that they intend to go after Browder and Hermitage and

21 impeach them. Their words.

22 THE COURT: Where does it say that?

23 MR. MASTRO: Your Honor, very last lines of the page,

24 your Honor, it says under header Defendant's Document Requests

25 Are Relevant and Reasonably Calculated to Lead to the Discovery

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1 of Admissible and Relevant Evidence, they say the information

2 is directly related to --

3 THE COURT: Where are you reading, please?

4 MR. MASTRO: Yes. At the very bottom of the page,

5 your Honor, the last four lines of the page.

6 THE COURT: Of what page?

7 MR. MASTRO: On page 15.

8 THE COURT: All right.

9 MR. MASTRO: Credibility, motive, and bias, of

10 Hermitage and Browder.

11 THE COURT: I'm sorry. Is it under III or --

12 MR. MASTRO: III. Sorry, your Honor, my mistake.

13 III. And at the bottom of the page, under item 2 in

14 parentheses, the credibility, motive, and bias of the Hermitage

15 entities and Mr. Browder. And if you read on, your Honor, they

16 further criticize --

17 THE COURT: Wait a minute. Wait a minute. I'm not

18 seeing your language. I'm sorry.

19 MR. MASTRO: That's all right. May I approach, your

20 Honor?

21 THE COURT: Yes.

22 MR. MASTRO: Thank you, your Honor. Much appreciated.

23 Right here, your Honor, they seek the information

24 directly related to the credibility --

25 THE COURT: Wait, wait, wait.

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1 MR. MASTRO: Credibility, motive, and bias of the

2 Hermitage entities and Mr. Browder.

3 THE COURT: Okay. Thank you.

4 MR. MASTRO: And the requests are virtually identical.

5 THE COURT: Thank you very much.

6 MR. MASTRO: Thank you, your Honor. And if you go on

7 to read further what they say there on pages 16 and 17, your

8 Honor, they say they're entitled to test Browder's assertions

9 that the conviction was a sham, that they are seeking

10 information related to investigations or convictions for tax

11 evasion or fraud, which they say remarkably is similar to the

12 crime, the proceeds defendants are alleged to have laundered,

13 and they say that they want the tax returns and tax rates and

14 they intend to go into that history, and that they intend to

15 explore that because, as they put it, quote, they're going

16 after the credibility, motive, and bias of the Hermitage

17 entities and Mr. Browder, directly going after their former

18 clients, despite with whom their most intimate confidences were

19 shared in their time of greatest stress. Now they're going

20 after them on their criminal case.

21 THE COURT: I think we'd better hear from the other

22 side a little bit.

23 MR. MASTRO: I appreciate that. May I just finish one

24 point for your Honor's benefit?

25 THE COURT: Of course.

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1 MR. MASTRO: I appreciate it, your Honor. And I know

2 our time is limited today, and we'll come back tomorrow or any

3 other time your Honor can give us, but let me just make two

4 more quick points on adversity, because this is extremely

5 important.

6 The adversity for Mr. Browder and Hermitage and those

7 associated with them continues to this day. Mr. Browder is

8 still hounded by Russian authorities, who convicted him in

9 absentia of tax fraud, and they go after Interpol. They have

10 made their third request to go after Mr. Browder. So even

11 though in the US our Congress, Justice Department, State

12 Department recognize this sham, he has to continue to defend

13 himself around the world.

14 THE COURT: Against?

15 MR. MASTRO: Against Russian authorities trying to --

16 THE COURT: Moscow.

17 MR. MASTRO: Against literally the Moscow in Russia,

18 your Honor.

19 MR. MOSCOW: I want a correction from Mr. Mastro. I'm

20 not representing --

21 MR. MASTRO: I'm not saying Mr. Moscow represents the

22 Russian Republic, your Honor, the Russian Federation. The

23 Russian Federation is still going after Mr. Browder, still

24 going after Mr. Browder's associates, Mr. Browder's lawyers,

25 and --

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1 THE COURT: Let me hear from the other side.

2 MR. MASTRO: This case, this case has consequences,

3 your Honor, that go well beyond this one representation and

4 this one case, because there are multiple cases elsewhere in

5 the world where Browder and Hermitage have been recognized as

6 claimants and victims. Not only here by our US government but

7 also in Switzerland and Lithuania.

8 THE COURT: Let me hear from the other side.

9 MR. MASTRO: Okay. But that's why the adverse -- the

10 adverse effects are real and just as real and palpable today.

11 THE COURT: All right. There is another side. Let's

12 hear from it.

13 MR. MASTRO: Certainly, your Honor. I really

14 appreciate it. Thank you very much for all your time, your

15 Honor. It's always much appreciated.

16 THE COURT: All right. All right.

17 Okay.

18 MR. CYMROT: All right, your Honor. You asked a

19 simple question, we have a simple answer. You left us with the

20 question: Under Rule 1.9, what does material adversity mean?

21 All right. Hermitage is not a party in this proceeding. It

22 does not have a claim to the proceeding, has no claim to the

23 money. It is at most --

24 THE COURT: You are?

25 MR. CYMROT: Mark Cymrot.

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1 THE COURT: Okay. Fine, fine, fine.

2 MR. CYMROT: So your Honor, Mr. Mastro's main point is

3 that if some day Mr. Browder were to appear, he would be a

4 witness, and under the law, that is not a new question. Does

5 that make material adversity? And that's not a new question.

6 And there are about four or five cases in this district that

7 say that is not material adversity.

8 And to his point that he just made that if Mr. Browder

9 were a witness, would we be entitled to impeach him, and in the

10 Skidmore case, the court said just because the former lawyer

11 may attempt to impeach a former client's credibility, while it

12 may be unseemly to treat a former client as a hostile witness

13 or even embarrassing to the former client, it's not a basis for

14 disqualification. And they have not cited one case, and we

15 have not found one case, on which a witness, nonparty witness

16 constitutes an adverse interest that justifies

17 disqualification.

18 So he talked for an hour and 20 minutes about how we

19 might impeach Mr. Browder but he never said how Mr. Browder --

20 and this was a question you asked -- would be prejudiced other

21 than this general impeachment, which may be embarrassing but is

22 not a basis for disqualification.

23 So when you read the Browder brief and the

24 government's brief, it never talks about the law.

25 THE COURT: It never talks about what?

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1 MR. CYMROT: It never talks about the law. It doesn't

2 give you the cases, because the cases all go the other way.

3 Yes, we asked about the conviction. Now what about the

4 conviction? They say they talked to Mr. Moscow about that in a

5 private conversation. He has gone public with that for years,

6 that he has been convicted. There's nothing confidential about

7 that. And every time you ask -- and they try to suggest there

8 was confidential information in those conversations. We've

9 shown that it's on the internet, that it's public information.

10 And in those subpoenas, we used no confidential information.

11 We used information that was available publicly on the

12 internet, and we asked questions. And you may find them

13 overbroad, you may not find them overbroad. You may find

14 they're irrelevant. You know what's really relevant about

15 those subpoenas? If they are going to be a witness here, why

16 are they moving to quash subpoenas? They're not saying they're

17 overbroad. They want them quashed entirely. They say they

18 shouldn't have to testify. Well, if they don't have to

19 testify, then they're not even a witness in this proceeding.

20 So why are we here? They have no adverse interest under the

21 law. That was the question you asked. And the answer is, they

22 have no adverse interest in this proceeding. They may never be

23 a witness. They're trying to quash subpoenas to being a

24 witness. And yet they say even if they are a witness, the

25 cases that have examined it have said that is not an adverse

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1 interest that justifies disqualification. What some judges

2 have done is they've said the lawyers who have confidential

3 information, you have to demonstrate you have confidential

4 information. If they had confidential information, they can't

5 cross-examine. There needs to be another lawyer that

6 cross-examines, which would be Mr. Taube and another law firm

7 who is not involved in any of the prior representation. That's

8 what the judges have said before about this situation. It is

9 not a unique situation. And you have to look at the law. They

10 should be looking at the law. I know your Honor knows the law.

11 They should be looking at the law. And they never reference

12 the law. They have one case, the Cole case they cite in their

13 brief. It was a case where the witness intervened and became a

14 party, the judge granted the intervention, and then he was a

15 party, then he granted the disqualification. It was not a

16 nonparty witness.

17 What the government's most recent letter said was

18 Hermitage is a victim of this fraud. Well, that's irrelevant

19 too. Under the criminal guideline, that is irrelevant. First

20 of all, the way they are a victim is their names were used.

21 That's it. They had no financial loss. And the fact that they

22 are, according to the government, a victim, it does not make

23 material adversity under the law of Rule 1.9. And this point

24 was made by Professor Roy Simon of Hofstra in an opinion

25 submitted with our briefs, where he said you can have what he

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1 calls a rooting interest, like rooting for a baseball team.

2 You might root that the government wins this case for, as you

3 say, a commission for humanity, but that is not an adverse

4 interest under Rule 1.9, and Professor Simon pointed that out

5 to your Honor. And the cases say that.

6 Now Mr. Mastro --

7 THE COURT: Can I interrupt you.

8 MR. CYMROT: Yes, of course.

9 THE COURT: It may well be that I have to review the

10 record and that I'm not at this moment as fully acquainted with

11 the record as I should be. But what Mr. Mastro did was to say

12 that you and your firm made statements, in one form or another,

13 hostile to Hermitage and indicating that you wanted to attack,

14 discredit Hermitage and Browder in connection with the case

15 currently pending before the court. In other words, what

16 Mr. Mastro said is that this was not a matter of simply serving

17 a subpoena to find out what Mr. Browder and Hermitage might say

18 at a trial but there was an intention, even in the deposition,

19 to attack and do damage to the credibility of Browder and

20 Hermitage. I think that's what he said.

21 MR. CYMROT: Correct, your Honor. That's what he

22 said.

23 THE COURT: Now what do you say to that?

24 MR. CYMROT: I say, your Honor, I made those

25 statements, and under the Skidmore case, I'm entitled to make

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1 those statements.

2 THE COURT: What statements did you make?

3 MR. CYMROT: That if he appeared, we would attack his

4 credibility, because I'm entitled to attack his credibility

5 under the Skidmore case. I'm reading the law and it says I'm

6 entitled to do it. But I want to say one additional thing,

7 your Honor. I did not start that. I was responding to

8 Mr. Browder's public statements.

9 THE COURT: Wait. Start again. I didn't hear that

10 last part.

11 MR. CYMROT: I didn't start that public exchange. I

12 was defending our law firm and our client from Mr. Browder's

13 public criticism. And my response was --

14 THE COURT: Is that in the record?

15 MR. CYMROT: I believe we've submitted articles.

16 MR. MASTRO: Your Honor, we submitted all the articles

17 that I quoted and they're not responding to anything

18 Mr. Browder said.

19 THE COURT: Say that again?

20 MR. MASTRO: Your Honor, we submitted to the court as

21 exhibits all of the articles where Mr. Cymrot was quoted

22 attacking Mr. Browder as a criminal tax cheat, saying it's a

23 black mark on his character, that he's concocted a story and

24 he's going to go after him and show he's unreliable and lacks

25 credibility. He's not responding to anything Mr. Browder said.

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1 MR. CYMROT: Absolutely not true. I have it here,

2 your Honor.

3 THE COURT: One at a time.

4 MR. MASTRO: The articles that I submitted, your

5 Honor, he's not responding to something Mr. Browder said. He

6 is talking about what he's going to do to Mr. Browder now that

7 he has subpoenaed him and wants to force him to have a

8 deposition. They issued the subpoenas, your Honor, not us,

9 okay? They're the ones who are trying to force him to come

10 here.

11 MR. CYMROT: Excuse me. Wait a minute. Excuse me.

12 You had like an hour and a half of a filibuster. Can I have a

13 say? Your Honor, if you look at --

14 THE COURT: What do you mean by filibuster?

15 MR. CYMROT: I'm sorry. He went for an hour and a

16 half, your Honor.

17 THE COURT: Well, it was hardly a filibuster.

18 MR. CYMROT: All right. I'm sorry, your Honor. Okay.

19 My point was, it was a very simple question you asked. He

20 didn't answer, in all that time.

21 All right. But if you look at Exhibit 2 to our

22 defendant's memorandum of law, I can hand it up. That's one.

23 Then there's two Wall Street Journal articles.

24 So Hermitage files a confidential bar complaint

25 against Mr. Moscow and our firm and Mr. Browder immediately

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1 leaks it to the New York Post and it's published on

2 December 13, 2013, long before we said anything. Then there

3 are a couple Wall Street Journal articles. Then there are a

4 couple Wall Street Journal articles, which Ms. Alaverdi will

5 help me find, where, again, he criticizes Mr. Moscow and our

6 firm. Well, you can't expect us to sit quietly in response to

7 that. We didn't do anything wrong. We're following the law.

8 We've read the law. We quoted the law. They talked about

9 everything else except the law.

10 THE COURT: The law being what?

11 MR. CYMROT: The law being, for instance, the Skidmore

12 case, where a judge of this district said: A former lawyer may

13 attempt to impeach a former client's credibility. While it may

14 be unseemly to treat a former client as a hostile witness or

15 even embarrassing to the former client, it is not a basis for

16 disqualification. It is permitted to do that.

17 In the case that Mr. Mastro was challenged, the judge

18 did not disqualify him. That was a case against a current

19 client. And the judge did not disqualify him last week because

20 he said there was no prejudice to him going after a current

21 client. And that was the question you asked. You asked

22 exactly the right question: What is the prejudice? The fact

23 that there is some public relations fight here and he's

24 embarrassed, that is not a prejudice that justifies

25 disqualification.

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1 So from the very beginning we have been carefully

2 following the law, the comments, and the cases. And there is

3 no adverse interest here. And we didn't start this. At the

4 beginning of the case they weren't a party, and they had no

5 claim. There's no adverse interest. Then the government says,

6 well, we're going to make them a witness. Okay. Well, that's

7 in March. So what do we do? We file subpoenas. That's what

8 we have to do to defend our client. And we file subpoenas, and

9 he says he won't show up.

10 THE COURT: Who says he won't show up?

11 MR. CYMROT: Hermitage and Browder, they will not show

12 up. That's their position. They're quashing the subpoenas.

13 It's not just that the subpoenas are overbroad. Mr. Browder

14 will not come to this court and testify.

15 THE COURT: Well, he's moving to quash.

16 MR. CYMROT: He's moving to quash, exactly. So if

17 those subpoenas are quashed, then he's not a witness.

18 THE COURT: Well, they haven't been quashed yet.

19 MR. CYMROT: Okay. But my point is, what if you quash

20 them? Then he's not a witness. Then he has no interest here.

21 He only has an interest because the government brought it up.

22 We didn't bring it up. We're not making him a witness. And

23 what do you do when you take a deposition of a witness? You

24 hear his story but then you challenge his story. That's just

25 the way the system works. You know that. If you have a

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1 witness, you ask him what he's going to say and then you

2 challenge the story. You test his credibility. And what he's

3 saying about these criminal cases, well, he's a convicted

4 felon. That's a ground of impeachment right under the rules.

5 And that's not confidential. That is not confidential. That's

6 public knowledge for five years already, if not longer. And

7 we're permitted to do it. The law says we're permitted to do

8 it. So we're doing it. And if he attacks me in public and he

9 attacks Mr. Moscow in public, I'm going to defend ourselves in

10 public. We have to. This is about reputation. You said it

11 yourself.

12 So your Honor, there are a couple of signposts here.

13 Is there material adversity? Under the law, there is not

14 material adversity.

15 THE COURT: And that is because?

16 MR. CYMROT: He's a nonparty witness. He does not

17 have a financial interest in this case. He's a nonparty

18 witness. That's it.

19 THE COURT: There's no adversity, right?

20 MR. CYMROT: There's no material adversity under

21 Rule 1.9, correct. There are about four or five cases that say

22 that. And we've cited them.

23 THE COURT: Do you want to finish up or are you

24 finished?

25 MR. CYMROT: Yeah, I just want to respond to a couple

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1 points he said.

2 He said that we wouldn't stipulate to the $230 million

3 fraud. We specifically said we would stipulate to the

4 $230 million fraud. The government wanted us to stipulate to

5 paragraphs 1 through 75 in the complaint, which we've

6 challenged 1 through 75 in the complaint.

7 THE COURT: The defendant doesn't have to stipulate.

8 MR. CYMROT: Okay. Yes, we don't have to stipulate

9 to -- we did, however, say we would try to take Hermitage out

10 of the case. We tried to make the effort that you invited us

11 to make at the end of the last hearing: How do we take

12 Hermitage out of the case? Well, if there's a $230 million

13 fraud and if you look at what the government said they wanted

14 them to testify to, the testimony is unnecessary. Now when I

15 said we'll stipulate that there was a $230 million fraud, the

16 government said: No, we want paragraphs 1 through 75 in the

17 complaint; otherwise, Hermitage is a potential witness.

18 Whether they will be a witness or not is speculative at this

19 point. Your Honor could narrow this case so that they are an

20 unnecessary witness. All of this in 1 through 75 should not be

21 part of the trial.

22 THE COURT: Okay. Let me dictate a ruling.

23 MR. CYMROT: Thank you.

24 MR. MASTRO: Your Honor, may I just add one thing to

25 the record, please?

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1 THE COURT: Sure.

2 MR. MASTRO: Your Honor, it is in fact the case --

3 THE COURT: What?

4 MR. MASTRO: Your Honor, it is in fact the case that

5 there are multiple cases in this district and in the circuit

6 where a nonparty witness has been found to have a right to

7 disqualify their former counsel from continuing on the case.

8 The Cole case, decided right here in the Southern District,

9 held that where someone was represented by a lawyer in making a

10 claim and it got resolved without a claim ever being filed, the

11 lawyer only spent ten hours working on the matter -- you might

12 want to sit, Mr. --

13 MR. CYMROT: I don't want to sit. The Cole case, your

14 Honor, I mentioned --

15 MR. MASTRO: Your Honor, may I please, so that we

16 could finish this? I know Mr. Cymrot wants to interrupt me,

17 but let me just finish, please, so your Honor has the benefit

18 of this.

19 Less than ten hours on the case. The court found that

20 he didn't even receive enough information to be able to have

21 brought a claim, but when then there was a subsequent

22 litigation where he showed up on the other side for the party

23 against whom the claim would have been brought, his client,

24 former client, had a right to intervene for the limited purpose

25 of disqualifying counsel, and even that limited engagement gave

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1 rise, since there was adversity, to disqualification. And your

2 Honor, it is also the case that Lund v. Chemical Bank, a Judge

3 Weinfeld case, and In Re Cendant Corp., where Ted wells was

4 disqualified, are similar cases that support this proposition.

5 The case in which I was involved was a parent versus a

6 subsidiary, and in that circumstance, your Honor, the court

7 does look to prejudice and whether representing a parent and

8 then suing a sub creates any kind of conflict of interest that

9 requires disqualification. That's a completely different

10 ballpark than representing a client, having a continuing duty

11 of loyalty, and then showing up on the other side against a

12 party whose interests are adverse in a substantially related

13 matter.

14 THE COURT: What do you mean showing up on the other

15 side?

16 MR. MASTRO: I mean that my client is the victim --

17 the government has said it -- of the money laundering fraud and

18 now the government is prosecuting, in a forfeiture action, one

19 of the parties involved in the money laundering. That's the

20 government's allegation. And has assets in this district. My

21 client was the victim of that fraud that led to the money

22 laundering.

23 THE COURT: Again, again, we get so broad in our

24 discussion and lose what is really relevant and that is, what

25 are the issues in this case? And the issues, as far as I'm

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1 concerned, do not involve Hermitage at all.

2 MR. MASTRO: But the government -- it has been

3 submitted to your Honor to explain why Hermitage and Browder,

4 absent a narrowing of the case, are part of this case, and they

5 issued the subpoena to Hermitage. The Skidmore case does not

6 say what he says it says. It says you have to look at the

7 factual record and determine the extent to which the one

8 representation related to the other, the extent to which

9 confidences may be used now as opposed to later. Here, you can

10 see it, your Honor, in the subpoena --

11 THE COURT: I'm not following you at all now. I'm

12 sorry.

13 MR. MASTRO: I'm sorry, your Honor. Let me try and be

14 clear. You can look at this subpoena and see that the subject

15 matters of the subpoena are not just the criminal complaint

16 against Browder.

17 MR. CYMROT: Your Honor, he's just repeating himself.

18 He's been doing it for an hour and a half.

19 MR. MASTRO: I'm not. I'm explaining to your Honor

20 the adversity. Mr. -- excuse me.

21 MR. CYMROT: He is --

22 THE COURT: Please. One at a time.

23 MR. MASTRO: Your Honor, Mr. Browder and Hermitage

24 shared with their counsel all of the most difficult stressful

25 situations, including multiple criminal charges that have never

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1 seen the light of day involving people affiliated with

2 Hermitage that Russian authorities brought, and now they've

3 requested in that subpoena to go after that information. You

4 can see it in 2 through 8, to impeach Mr. Browder. That's the

5 direct use of those very intimate confidential conversations,

6 to now try and impeach him.

7 THE COURT: Look, what is in the subpoena is a request

8 really essentially for what is public. I don't see that the

9 subpoena asks for intimate confidential things.

10 MR. MASTRO: It asks, your Honor, for anything

11 relating to investigations or charges. And it defines "you"

12 broadly, so that would include criminal charges that have been

13 brought against Hermitage affiliates that have never seen the

14 light of day.

15 THE COURT: Get to the language. Here's the subpoena.

16 Paragraph 2 on page 4 --

17 MR. MASTRO: Correct, your Honor.

18 THE COURT: -- criminal convictions. Certainly a

19 public matter.

20 Paragraph 3. Finding of liability. Certainly a

21 public thing.

22 MR. MASTRO: Your Honor, number 9 --

23 THE COURT: I'm not familiar with some of this, but --

24 MR. MASTRO: Your Honor, number 9. Number 9 says:

25 All documents, including but not limited to pleadings,

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1 evidencing any civil or criminal proceeding brought against you

2 in any jurisdiction, including but not limited to lawsuits --

3 THE COURT: Well, again, public documents.

4 MR. MASTRO: Doesn't say public. Doesn't say public.

5 THE COURT: Well, what do you think it means when it

6 says --

7 MR. MASTRO: Your Honor, it says any documents

8 evidencing any civil or criminal proceeding. In Russia, a

9 criminal complaint is not a public document and in Russia,

10 there have been criminal complaints that have never seen the

11 light of day but Mr. Moscow and his colleagues know about them,

12 and we've offered to submit them to the court. And now

13 Mr. Browder is being required to produce them in this

14 litigation, when the only way they would know about that is

15 because Mr. Browder and Hermitage were their clients. This

16 subpoena goes to --

17 THE COURT: Mr. Moscow definitely represented

18 Hermitage at a former time.

19 MR. MASTRO: Correct, your Honor.

20 THE COURT: If Mr. Moscow was now turning on the

21 former client and attacking the former client, I mean, that

22 wouldn't even be a hard case. Obviously he could not do that.

23 But the thing is, what is going on in my mind is, is he in any

24 way now taking an adverse position against your client in the

25 sense of seeking to hold your client liable or obtaining a

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1 finding of something against your client?

2 MR. MASTRO: Yes, he is, your Honor. Yes, he is.

3 He's going to try to impeach his former clients to show that

4 they are unreliable, lacking in credibility, liars, have

5 concocted a story, so that all that they have worked for to

6 expose this fraud could be destroyed by what they intend to do.

7 THE COURT: Look, that's really different from what

8 I'm talking about.

9 MR. MASTRO: Okay, your Honor.

10 THE COURT: Obviously if Hermitage and Browder, or one

11 of them, if they're going to be a witness in the trial before

12 me, and that's what we're talking about, then obviously a party

13 to the case before me would seek to take the deposition.

14 That's just simple prudent trial preparation, but it doesn't

15 seem to me to be an attack upon your client. If your client

16 isn't telling the truth, that's your client's problem and he

17 can be impeached. If he tells the truth, he's got no problem.

18 If he doesn't tell the truth, well, you expect he doesn't get

19 impeached. Of course not. Well, you finish up.

20 MR. MASTRO: Okay. Your Honor, it's not simply a

21 question of Mr. Browder and Hermitage telling the truth. It's

22 that their former counsel, with whom they had a confidential

23 relationship, is now going to be questioning them on areas that

24 were of most confidential concern to them, including going

25 after them on things like the criminal charges that were

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1 outstanding against them, and we know that this isn't going to

2 be a normal discovery deposition about what they're going to

3 say at the trial because Mr. Cymrot and others at his firm have

4 publicly said what their intentions are in going after

5 Mr. Browder. They issued the subpoena.

6 THE COURT: Wait a minute, wait a minute, wait a

7 minute. What part of the record says that? Give it to me.

8 MR. MASTRO: Certainly, your Honor. I'm going to hand

9 up again every one of Mr. Cymrot's quotes about impeaching

10 Browder as a criminal tax cheat, as somebody who's concocted a

11 story, as somebody who has made cynical and scurrilous attacks.

12 This is, unreliable, lacking in credibility --

13 THE COURT: Where does that appear?

14 MR. MASTRO: Your Honor, if I may hand up, you'll see

15 everywhere in the record that this is, and I have to say,

16 Mr. Moscow --

17 THE COURT: Where does this appear in the record?

18 MR. MASTRO: They're exhibits to our papers, your

19 Honor, or set in court filings previously. And your Honor, one

20 more thing --

21 THE COURT: These exhibits, where do they come from?

22 MR. MASTRO: They're exhibits that we have submitted.

23 They're press accounts that quote Mr. Cymrot, and Mr. Cymrot

24 said: Yes, I said those things. I said --

25 MR. CYMROT: Your Honor, I said scurrilous attacks as

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1 to Mr. Moscow. He is just twisting everything and he is

2 repeating himself, your Honor.

3 MR. MASTRO: May I please finish, your Honor?

4 MR. CYMROT: Could we have an end?

5 MR. MASTRO: May I please finish, your Honor?

6 Mr. Moscow was prepared to go into court -- his firm drafted

7 and he reviewed affidavits for Hermitage, and as an officer of

8 the court, he was going into court -- and this is Exhibit 12.

9 It's a draft declaration of Hermitage's former general counsel

10 that they prepared, and they were prepared to go into court to

11 try and get discovery based on that declaration.

12 THE COURT: I've heard about the declaration. Please

13 don't repeat and start talking about that again.

14 MR. MASTRO: But your Honor, as officers of the court,

15 that meant they believed what was in that declaration. And now

16 instead --

17 MR. CYMROT: Your Honor, we didn't file it so what is

18 this? This is just -- he's getting wilder and wilder.

19 MR. MASTRO: But your Honor, your Honor, now, having

20 represented Browder and Hermitage, and having been prepared to

21 go into court to plead their case, now they want to impeach

22 Browder, take that relationship, the trust that they had and

23 loyalty they had and impeach him and try and say he was lying

24 all along. That doesn't work in our system. And the caselaw,

25 if your Honor would please review those cases that I just

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1 cited, and if your Honor would review the other Second Circuit

2 cases, you would see that in a circumstance like this, the law

3 is crystal clear. It's not the New York Code. It's the

4 federal rule and approach. It's what Professor Green says,

5 it's what the Second Circuit has repeatedly said. When it's

6 the same lawyer that had shared confidences in the past, you

7 can't be the one who's now doing the work to impeach your

8 client, having learned things from your client from the

9 relationship before. Can't do it. Your Honor's recognized

10 they're related. Your Honor can see the adversity. And your

11 Honor, it's just not permitted, and it's wrong.

12 THE COURT: Now maybe I'm mistaken, maybe I'm missing

13 something, but I don't see that the record before me shows that

14 Mr. Moscow is going to use information he gained in 2008 and

15 early 2009 to really do anything to impeach or anything. Am I

16 right, Mr. Cymrot?

17 MR. CYMROT: Yes, your Honor. Everything that we've

18 been using is public information from the internet, and

19 Mr. Browder speaks, week after week after week, repeating the

20 same story.

21 MR. MASTRO: Your Honor, your Honor --

22 THE COURT: Week after week doing what?

23 MR. CYMROT: Repeating the same story that he's now

24 saying, or his lawyer is saying is confidential. There's

25 nothing confidential about any of this, and we demonstrated it.

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1 MR. MASTRO: Your Honor, if I may --

2 MR. CYMROT: We are using nothing from 2008 and 2009.

3 Nothing.

4 MR. MASTRO: That is not the case, your Honor, and we

5 offered to make a submission, and your Honor has said no more

6 in camera submissions. If your Honor would please allow me to

7 make on-the-record submissions --

8 THE COURT: What is the in camera submission you want

9 to make?

10 MR. MASTRO: Conversations that Mr. Moscow had with

11 Mr. Browder where he said, I'm not worried at all about your

12 tax case, where he basically said, I know you didn't do

13 anything wrong, and now that firm and Mr. Moscow are going to

14 go after Mr. Browder as a tax cheat, when they represented him,

15 discussed his tax case, and Mr. Moscow, I will submit to your

16 Honor, is saying, I'm not at all worried about your tax case.

17 I'm not --

18 THE COURT: Who said that?

19 MR. MASTRO: Mr. Moscow. And I will submit it to your

20 Honor. I will get my client to allow me to submit it. Please

21 give me that opportunity, your Honor.

22 THE COURT: Now wait a minute. Wait a minute.

23 Obviously Mr. Moscow gave some advice to Hermitage. Of course

24 he did. And the question is, in a new lawsuit against

25 Prevezon, which is not against Hermitage, is that circumstance

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1 enough to disqualify him? Of course he gave some advice to

2 your client. But your client is not even a party to the new

3 lawsuit. Please. The new lawsuit involves its own completely

4 different issues, and I'm not talking about the historical

5 issues. I'm talking about the real issues in the case, and

6 that is vastly different from what was involved in that

7 conversation you're talking about.

8 MR. MASTRO: But your Honor --

9 THE COURT: The conversation you're talking about has

10 nothing whatever to do with the issues in the case before me

11 which he is representing a client on.

12 MR. MASTRO: Your Honor, may the government please be

13 heard on this point? Because the government has told your

14 Honor that Mr. Browder and Hermitage are victims of this crime,

15 and they do have a direct stake in this case and they are

16 adversely affected by this case if their former counsel --

17 THE COURT: I read the letter. I'm familiar with the

18 letter.

19 MR. MASTRO: But perhaps the government would like to

20 be heard, if your Honor would permit it.

21 MR. MONTELEONI: Your Honor, Paul Monteleoni for the

22 government. With me at counsel table is my colleague Christine

23 Magdo.

24 I don't intend to repeat what's in the letter. I do

25 want to clarify several things that may have come out about

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1 what this case is going to be about.

2 In addition to the matters which you've described as

3 historical, which I'm not going to go into, in addition to

4 that, regarding the tracing of assets to Prevezon, we do

5 currently intend to call at least one, possibly more

6 Hermitage-affiliated persons as witnesses because of things

7 that they've learned that are relevant to that, and then

8 additionally, because this is a case where intent is going to

9 be proved circumstantially, some of the details of the history

10 will be relevant to the question of Prevezon's intent, so we do

11 believe that there is factual overlap between the issues that

12 will be in dispute in the prior representation, and we do

13 believe that we will be attempting to prove and BakerHostetler

14 will be attempting to disprove some of the same matters that

15 BakerHostetler attempted to state in the draft declaration, it

16 appears. And yes, we do believe that Hermitage is a crime

17 victim in this case and Hermitage-affiliated people will be

18 significant government witnesses.

19 And if the court has any other questions about what we

20 anticipate, I'm happy to answer them.

21 THE COURT: Look, you brought a case against Prevezon,

22 right?

23 MR. MONTELEONI: That's correct, your Honor.

24 THE COURT: You didn't, of course, sue Hermitage. Of

25 course you didn't. Now the case against Prevezon is about

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1 whether Prevezon participated in money laundering to get

2 $800,000 into the United States, right?

3 MR. MONTELEONI: That's correct, your Honor.

4 THE COURT: Okay. And are you claiming that -- I'm

5 sure you're not, but I'm going to ask you anyway. Are you

6 claiming that Prevezon was somehow working with Hermitage to

7 perform the money laundering?

8 MR. MONTELEONI: No. Prevezon certainly wasn't

9 working with Hermitage. Hermitage was the victim and Hermitage

10 people will be important witnesses against Prevezon in this

11 case.

12 THE COURT: If Prevezon was guilty of money

13 laundering, what is your case on that?

14 MR. MONTELEONI: Well, at present before discovery,

15 it's circumstantial based on the exceedingly suspicious nature

16 in which the funds were transferred through a series of shell

17 companies and --

18 THE COURT: All right. Enlarge on that.

19 MR. MONTELEONI: Yes, your Honor. So after the

20 payments from the Russian Treasury to the first layer of shell

21 companies, there were transfers over a very short period of

22 time, just a series of weeks, for five layers of transfers, I

23 think potentially hundreds of separate transactions, at least

24 dozens, through a number of different shell companies in

25 Russia. Then the transfers went to two shell companies in

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1 Moldova. Those two shell companies then transferred the money

2 to Prevezon, and they did so using wire transfers that gave

3 false descriptions for the purpose for the transfer. They

4 claimed to be payments for goods that actually weren't being

5 shipped to them. So from that and from the sophisticated

6 pattern of laundering activity, even if discovery doesn't

7 reveal more evidence of their intent, we believe that there is

8 a strong circumstantial case that they had some awareness with

9 the people who sent them the money, that the people who sent

10 them the money weren't just doing it --

11 THE COURT: And who sent them the money?

12 MR. MONTELEONI: Two Moldovan money laundering

13 companies as part of a chain of transfers from Russian shell

14 companies through several layers of transfers over a short

15 period of time.

16 THE COURT: Now how does Hermitage get into that?

17 MR. MONTELEONI: Well, some persons affiliated with

18 Hermitage did gather some information and are likely to be

19 persons in a position to authenticate that.

20 THE COURT: What?

21 MR. MONTELEONI: Documents relating to those transfers

22 and demonstrating that those transfers happened. Additionally,

23 documents that relate to --

24 THE COURT: That sounds to me like a very slim

25 connection of Hermitage.

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1 MR. MONTELEONI: Well, that may be. We don't know to

2 what --

3 THE COURT: Maybe it's the way you describe it. Now,

4 look, I'm going to make a ruling.

5 The issue before the court is whether an attorney,

6 John Moscow, and his firm, BakerHostetler, are to be

7 disqualified from this case. Another firm was working with

8 BakerHostetler, but I'm not going to refer to that other firm.

9 The court is ruling that Mr. Moscow and his firm are not to be

10 disqualified from this case.

11 MR. MONTELEONI: Your Honor, may I --

12 THE COURT: I'm dictating a ruling.

13 MR. MONTELEONI: I apologize, your Honor.

14 THE COURT: There have been arguments about this

15 matter of the most vigorous nature. A former client of

16 Mr. Moscow, namely, Hermitage and a man by the name of Browder,

17 are arguing that Mr. Moscow should not be allowed to continue

18 in the case.

19 One of the prime facts is that neither Mr. Browder nor

20 Hermitage are parties to this action. The action is against a

21 company called Prevezon, completely different from Hermitage,

22 and whatever happens in this case, whether Prevezon is held

23 liable or not held liable, will not redound to the liability or

24 legal position of Hermitage or its principals.

25 Now it is true that Mr. Moscow represented Hermitage

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1 at an earlier point for a few months in 2008 and a month or so

2 spilling over into 2009. And he represented Hermitage because

3 it appeared that, either in Russia or elsewhere, legal

4 proceedings might be brought against Hermitage, and he was

5 retained not as the principal lawyer but as a lawyer in the

6 United States to assist in trying to deflect legal proceedings

7 against Hermitage and direct the attention of the Department of

8 Justice to other possible people who might be liable besides

9 Hermitage. This representation terminated before any real work

10 was brought to fruition. There was a parting of the ways

11 between him and Hermitage. That was in early 2009, five years

12 ago.

13 Now he has been retained to represent a defendant in

14 an entirely new action, an action which is not related in any

15 substantial way to what he was doing then. He is retained to

16 represent a new client in a brand new lawsuit, raising issues

17 far beyond what he dealt with in 2008 and '9. And as far as

18 the court is concerned, the idea that he could not represent

19 his new client in this brand new lawsuit is absolutely without

20 merit.

21 It is true that he represented Hermitage at one time.

22 Hermitage is not a party to the current action. There is no

23 indication that he is in any substantial way taking a position

24 which involves an attack upon or an attempt to hold liability

25 with regard to Hermitage. There's nothing approaching such a

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1 situation. And it seems to me evident beyond any question that

2 he should be allowed to represent his brand new client in this

3 brand new lawsuit which has issues that are relevant to what is

4 claimed here, and that is that Prevezon, through a couple of

5 Moldovan companies, participated in money laundering, which

6 managed to get the grand total of $800,000 into the United

7 States, and that $800,000 has been invested in real estate.

8 That is what the current action is about. Hermitage was not

9 one of the Moldovan companies. As far as the record shows,

10 there is no connection between Hermitage and any of the

11 Moldovan companies, which are the alleged instruments of the

12 money laundering in this case. The issues in this case are

13 different in all substantial respects from what he dealt with

14 when he represented Hermitage back in 2008 and early 2009.

15 It is true that the principal of Hermitage has been

16 served with a subpoena by Moscow and his firm, and it is true

17 that the government may very well call Hermitage and its

18 principal as witnesses in its case. From a description which

19 the government has just given of what its case is, it is not at

20 all clear why that should be, but that is up to the government,

21 and if they feel they want to go into history and so forth and

22 call Hermitage or its principal as a witness, that's up to the

23 government, and I'm certainly not ruling on the government's

24 evidence at this hearing. Not at all. But in what the

25 government represents, there is not any indication that the

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1 issues are such that Moscow and his firm cannot represent their

2 new client. There's no conflict of interest which would

3 indicate that they cannot properly, without inhibition,

4 represent their new client. They are not suing Hermitage.

5 Hermitage is not a party to the new action. It is not a party

6 to the new action. The government and Prevezon are the parties

7 to the new action. And the court sees no reason whatever why

8 Moscow cannot represent Prevezon, his new client, in this new

9 action. As I have said, this new action is a different animal.

10 It is a different set of issues from anything that Mr. Moscow

11 dealt with back in his brief representation of Hermitage in

12 2008 and early 2009, five plus years ago.

13 The issue of Mr. Moscow's ability to continue to

14 represent his client has been the subject of extensive

15 litigation before me. It has raised some vigorously heated

16 controversy. All of that is, in my view, rather unfortunate.

17 But in response to obviously the requirements of their clients,

18 all the lawyers have litigated vigorously in this matter, and

19 it is time to put it to a close. And the court rules that

20 Mr. Moscow is not subject to any conflict of interest, anything

21 that impairs his ability to do his job, anything that in a

22 substantial way puts him adverse to his former client, and

23 therefore he can continue representing his client in this case.

24 Thank you very much.

25 ALL COUNSEL: Thank you, your Honor.
o0o

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1 UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x
UNITED STATES OF AMERICA,
3
Plaintiff,
4
v. 13 CV 6326 (TPG)
5

6 PREVEZON HOLDINGS LTD., et
al.,
7
Defendants.
8 ------------------------------x
New York, N.Y.
9 November 5, 2014
12:00 p.m.
10
Before:
11
HON. THOMAS P. GRIESA,
12
District Judge
13
APPEARANCES
14
U.S. ATTORNEY'S OFFICE
15 FOR THE SOUTHERN DISTRICT OF NEW YORK
For Plaintiffs
16 BY: PAUL M. MONTELEONI
Assistant United States Attorney
17
BAKER & HOSTETLER LLP
18 Attorneys for Defendants
BY: MARK A. CYMROT
19 JOHN W. MOSCOW
LAURA L. ALAVERDI
20 -and-
BAKER BOTTS LLP
21 BY: VERNON A.A. CASSIN, III
RICHARD HARPER
22 GABRIELLA VOLSHTEYA

23 GIBSON, DUNN & CRUTCHER, LLP
Attorneys for Movant William Browder
24 BY: LISA H. RUBIN
RICHARD W. MARK
25

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1 THE COURT: Good morning, everybody. What motions do

2 we have now pending?

3 MR. MONTELEONI: Good morning, your Honor. Paul

4 Monteleoni, for the government. Before the Court, the

5 government has a motion to file a proposed amended complaint

6 and a motion to file a proposed amended protective order to

7 conform to the amended complaint. The defendants have a motion

8 to dismiss.

9 THE COURT: Wait. You're going a little fast for me.

10 MR. MONTELEONI: Sorry.

11 THE COURT: You have a motion to file an amended

12 complaint and an amended protective order.

13 MR. MONTELEONI: Yes.

14 THE COURT: Okay.

15 MR. MONTELEONI: The defendants have a motion --

16 THE COURT: Let the defendants speak for themselves.

17 MR. MONTELEONI: Sure.

18 THE COURT: What other motions?

19 MR. MOSCOW: Your Honor, the defendants have, most

20 urgently, a motion to vacate or modify protective orders. We

21 have also other motions addressed to the pending indictments,

22 but the protective order motion is the urgent one.

23 THE COURT: Wait a minute. I don't have the usual

24 appearance sheet. You're Mr. Moscow?

25 MR. MOSCOW: Yes. Sorry, your Honor. John Moscow.

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1 THE COURT: Just a minute. We've got the government's

2 motion to amend the complaint and to have an amended protective

3 order. Go ahead now, Mr. Moscow. I wasn't quite up to you.

4 MR. MOSCOW: The defendants have a motion to vacate or

5 modify the protective orders, and I have to apologize to

6 Mr. Monteleoni. I thought that there had been a proposed

7 amended complaint. I hadn't seen a motion.

8 THE COURT: It doesn't make any difference. I don't

9 care about the motion.

10 MR. MOSCOW: I was rising to speak, if I might, to the

11 motion to vacate or modify the protective order entered

12 September 11, 2013. That is the one that is in effect at this

13 time.

14 THE COURT: Any other motions?

15 MR. MOSCOW: We have motions to dismiss the complaint

16 that are pending.

17 THE COURT: All right.

18 MR. MOSCOW: And I believe that those are the

19 substantive motions that we have pending at this time.

20 MR. MONTELEONI: Your Honor, may I also be heard.

21 THE COURT: Yes.

22 MR. MONTELEONI: The nonparties that were served with

23 or attempted to be served with certain subpoenas have submitted

24 a motion to quash those subpoenas, and the briefing on that is

25 currently incomplete and on hold.

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1 THE COURT: Which subpoenas are you talking about?

2 MR. MONTELEONI: There were subpoenas served on

3 multiple occasions by the defendants to various nonparty

4 entities seeking certain third-party discovery, and these

5 nonparty entities have filed a motion to quash. There is a

6 briefing schedule for further filings, including a motion by

7 the government to quash at least portions of those subpoenas,

8 and that has also been stayed by this Court's order on Friday

9 until today. So that's something that we believe we should

10 determine, what the schedule for that will be going forward.

11 We believe that that is the motion that should be dealt with

12 after all these other ones we've been discussing.

13 THE COURT: Would you please describe your proposed

14 amended complaint and how it differs from the original

15 complaint.

16 MR. MONTELEONI: Absolutely, your Honor. There are

17 two categories of changes that the proposed amended complaint

18 makes to the original complaint. One is that it significantly

19 narrows the amount of property that the government is seeking

20 to forfeit, and it describes that property with more

21 specificity. Both of those are changes that the defendants

22 have said that they wanted to be made, and this Court thought

23 that the action should be streamlined back in February, and the

24 government promptly submitted an initial version of a proposed

25 amended complaint with those changes. Now there's more

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1 information, but the new proposed amended complaint makes those

2 changes.

3 THE COURT: All right.

4 MR. MONTELEONI: It streamlines the action by focusing

5 on a more limited set of properties.

6 THE COURT: What does it focus on?

7 MR. MONTELEONI: There is real property in New York

8 that's worth approximately $10 million and then there are Euros

9 that are restrained in the Netherlands worth a little less than

10 $4 million, so the total universe of property that the proposed

11 amended complaint seeks to forfeit is a little less than $14

12 million. And we believe that that is the property that was

13 involved in the laundering of the funds.

14 Now, the other category of changes that the proposed

15 amended complaint makes are additional allegations that support

16 the defendants' knowing involvement in laundering of money and,

17 in fact, allege that defendants have laundered over twice as

18 much money as was previously alleged. The Court remembers that

19 there were numerous discussions since we've been in this case

20 about $857,000 that defendants received from the Russian fraud

21 scheme. It turns out that the proposed amended complaint

22 alleges, based on an ongoing investigation, that it's not just

23 $857,000; it's almost $2 million. And that, we believe,

24 strongly supports the government's position that it is entitled

25 to forfeit the property that's involved in laundering that $2

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1 million.

2 The complaint is still seeking to forfeit more than $2

3 million, but that's allowed under the forfeiture laws.

4 THE COURT: You're seeking to forfeit 14.

5 MR. MONTELEONI: That's correct, your Honor, and the

6 forfeiture laws permit the forfeiture of property.

7 THE COURT: The government alleges that that was used.

8 MR. MONTELEONI: Yes, exactly. And so in addition to

9 this, the fact that there is more fraud money coming in that

10 was laundered, the circumstances in which it's coming in, the

11 proposed amended complaint alleges, strongly support the

12 defendants' intent. It's coming in from a third company. It's

13 coming in with other false descriptions of what the money is

14 for. The first $857,000 was falsely described as payments for

15 sanitary equipment. This next $1.1 million was falsely

16 described, we believe, as payments for spare auto parts. So

17 from multiple different sources using multiple different false

18 descriptions of the purpose of the funds, the defendants

19 received the money and they also received it, the complaint

20 alleges, over multiple different transactions. Previously, the

21 complaint said it was just two transactions from two companies.

22 Now it's nine transactions from three companies, over a period

23 of about two months.

24 Additionally, the proposed amended complaint has other

25 evidence regarding the defendants' intent. It turns out that

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1 the companies that sent the initial $857,000 didn't just

2 falsely put in the wire transfer instructions that it was for

3 sanitary equipment. They actually doctored up fake contractual

4 documents, a contract and an invoice, in both cases claiming to

5 be between the shell company and Prevezon Holdings, the

6 defendant, that also falsely said that this money was for

7 sanitary equipment. Those contracts are signed by someone

8 unnamed purportedly from Prevezon Holdings, and the complaint

9 doesn't allege whether that was actually a genuine signature or

10 whether the money launderers who sent the money to Prevezon

11 Holdings forged a Prevezon Holdings signature. But we believe

12 that, either way, the fact that they would go to these type of

13 lengths makes it just inconceivable that they would send money

14 in that way to someone who they didn't have a trust

15 relationship with, someone who wasn't in on it, because the

16 recipient of the money, if they were innocent, might look at

17 the bank records and say I didn't sell anyone any sanitary

18 equipment, might call the bank, and might try to find out

19 what's going on, and the fact that the money launderers forged

20 sham documents would expose them to tremendous risk. So we

21 believe that that also strongly supports the inference of

22 intent.

23 And then it also alleges that the principal of the

24 defendant companies, an individual named Denis Katsyv, had

25 knowledge of Israeli laws prohibiting money laundering, which

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1 are exactly the same, in relevant part, to the U.S. laws

2 prohibiting money laundering, because he previously settled an

3 investigation about money laundering involving those laws. So

4 the idea that these transactions were innocent and that he had

5 no reason to know that they were suspicious is further undercut

6 by the fact that he had awareness of basically the same laws.

7 That's the category of changes that the amended

8 complaint makes. It limits what the government is seeking. It

9 narrows it and it focuses it, and it provides additional

10 evidence that the defendants laundered more money and stronger

11 evidence that the defendants knew that they were laundering the

12 money. And then the proposed amended protective order conforms

13 the amount of property restrained to that narrower set of

14 property that the amended complaint seeks, so that the other

15 properties sought in the amended complaint currently restrained

16 under the original protective order would be released and that

17 that would be, we believe, from what the defendants have been

18 saying, a significant benefit to the defendants. We certainly

19 have no opposition to the Court entering our proposed amended

20 protective order right away to free up that other money that's

21 not covered by the amended complaint, but we do think that we

22 should be granted permission to file the amended complaint and

23 narrow the action in that way.

24 THE COURT: Is there any opposition to the motion to

25 amend the complaint and to amend the protective order?

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1 MR. MOSCOW: Yes, your Honor.

2 THE COURT: What is the opposition?

3 MR. MOSCOW: The opposition to the motion to amend is

4 based on the fact that the complaint continues to include the

5 death of Magnitsky and it raises irrelevant and extremely

6 prejudicial remarks about Katsyv in Israel in a case which went

7 to trial against the banker where the judge found there was no

8 crime. That omission changes the fact that the owner of the

9 company settles a case with the government from knowledge of

10 misconduct to one of chicanery. We're talking here about

11 saying he should have known there were these laws even though

12 there was no crime, and he should have known about the laws in

13 Israel. Therefore, he's responsible for the laws in the United

14 States, even if he is a Russian-speaking Russian living in

15 Russia. We object to those. We cannot agree to having

16 anything to do with Magnitsky at all, flat-out, because it's

17 not true, and it is totally improper to include the stuff about

18 Israel.

19 We would like to be able to address the motion to

20 amend the complaint on papers. I understand the distinction

21 that counsel makes about the motion to amend the protective

22 order. I think he is right that it is appropriate without the

23 complaint being there; he can move to amend the protective

24 order to take cognizance of what he thinks he has learned.

25 THE COURT: Here is what I would like to do. I think

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1 it is necessary to have an amended complaint and I think it is

2 necessary to have an amended protective order. Now, I also

3 don't think that we should wait on having those documents in

4 place. I don't think we should wait on what may be valid

5 objections to parts of those documents. Consequently, I am

6 granting the government's motion to file the amended complaint

7 and the amended protective order. That is subject to the right

8 of the defense to move to strike portions as you describe.

9 MR. MOSCOW: Your Honor, could I speak to the

10 protective order, because we submitted a proposed amended

11 protective order on March 5.

12 THE COURT: Start again.

13 MR. MOSCOW: If I might speak to the proposed amended

14 protective order because we had submitted one March 5, we

15 submitted two, one which vacated a protective order altogether

16 because, in our view, Rule G, which provides protection from

17 the seizure of property, was violated. We believe that the

18 taking of this property was based on inadequate factual bases.

19 Those are spelled out in our papers, but, quite frankly, the

20 government does not spell out facts from which you can infer

21 that they're going to win this case. There is a problem with

22 tracing the money, and then there is a problem with knowledge

23 and intent, which Mr. Monteleoni spoke about. I would like to

24 focus, if I could, on the complaint itself, because the

25 government says, in connection with the protective order -- I'm

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1 sorry.

2 I would like to ask you to modify the protective order

3 down considerably from $14 million. The complaint says that

4 Prevezon had $2 million in it when Denis Katsyv bought it for

5 $50,000. That means that it was an investment company because

6 he didn't pay $50,000 for 2 million. He paid $50,000 for a

7 company which had cash on hand of 2 million and liability to

8 return that to the investors. The implication of that from the

9 complaint is that the money that was there was not his. To the

10 extent that the government says, well, gee, we think that money

11 is dirty, Denis Katsyv and Prevezon can only say we received

12 it. Receiving it does not mean we generated documents in

13 Moldova; they did not. It does not mean that they can call up

14 a bank in another country and ask what happened; they cannot.

15 Banking doesn't work that way.

16 What it means is they received money in Zurich and all

17 the money that they received was invested in Holland in buying

18 for 3 million Euros 3 percent of a $100 million real estate

19 company, which is good leverage, 90 percent from Deutsche Bank

20 and 7 percent from AFI. When they bought that, they bought

21 interest in a company, and money which was alleged to be dirty,

22 whether it's 857 or slightly less than $2 million, all of that

23 money went from Zurich to Amsterdam to buy a share of real

24 estate companies. And it stayed there.

25 THE COURT: To buy what?

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1 MR. MOSCOW: Shares, to buy an interest in real estate

2 companies.

3 They didn't put the cash in the bank accounts so they

4 could get it out again. They bought shares. And when they

5 bought the shares, the shares stayed in their names. They were

6 their assets until it was sold and the proceeds are what is now

7 frozen in Holland. We know what happened to that money. It

8 went to Holland and is frozen there. All the money that is

9 alleged to be dirty is frozen in Holland.

10 THE COURT: Can I interrupt you.

11 MR. MOSCOW: Yes.

12 THE COURT: You're making arguments about the merits

13 of the case, which, of course, your client is entitled to make

14 at the appropriate time in the appropriate way. But I cannot

15 decide the merits of the case this morning, and I haven't heard

16 anything that indicates that the government's proposed

17 complaint is improper. It may ultimately lack merit. It may

18 be that you will win the arguments that you are putting forward

19 now, but what I have said is, and I stick to it, I am granting

20 the motions. I am granting the government's motion to amend

21 the complaint. I am granting the government's motion to amend

22 the protective order, obviously, without prejudice to any

23 motion that the defense may make for summary judgment, or

24 otherwise, putting forth the arguments you are now putting

25 forth. That is the procedural way that I have said we'll

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1 proceed and I stick to that. I've said this about three times,

2 or more, the government's motions are granted and then there

3 will be an opportunity, obviously, under our rules, to make

4 defense motions to strike or dismiss or for summary judgment,

5 but I really cannot entertain such motions this morning because

6 they haven't yet been made and they don't need to be made this

7 morning.

8 MR. MOSCOW: Your Honor, if I may, just for the sake

9 of clarity, I hear you, I understand you, I was trying to

10 speak, apparently unpersuasively, to the protective order and

11 to say that the only money that the government says is tainted

12 is in Holland, and we say, cool, you want to freeze the money

13 that you say is dirty, freeze the money in Holland, it's

14 frozen, and release the other money. You're restraining cash

15 and there is no basis to do so. We've said this in our papers.

16 I am asking you, please, based on the complaint that you are

17 granting the government the right to file, the money that is

18 alleged to be from the Russian treasury is less than $2 million

19 in Holland. That's where they say it went. It is frozen

20 there. A good deal more than that is frozen there, but I am

21 speaking only to releasing the other property that is held in

22 the United States. That is not the proceeds of anything except

23 investment.

24 THE COURT: I understand what you're saying, but it

25 seems to me that the government makes allegations to the

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1 contrary of what you are saying. In other words, the

2 government says that the laundering of the money involved more

3 than what you're saying and the laundering of money involved

4 money coming into the United States and being used in the

5 United States to buy properties as part of money laundering.

6 Do I understand the government correctly?

7 MR. MONTELEONI: That's right, your Honor.

8 THE COURT: All right.

9 MR. MOSCOW: If I might, the government says because

10 Prevezon had money in Holland that whatever Prevezon did in New

11 York was part of money laundering. The money came in from

12 Zurich.

13 THE COURT: I don't think the government's allegation

14 is that narrow.

15 Am I right?

16 MR. MONTELEONI: That's correct, your Honor. A

17 representative of the defendant company said that the initial

18 $857,000 was invested in New York real estate. That's alleged

19 in the complaint.

20 MR. MOSCOW: It's all connected by bank records.

21 THE COURT: Mr. Moscow, please.

22 MR. MOSCOW: Surely.

23 THE COURT: All I can say to you is that I am granting

24 the government's motion. I'm granting the government's motion

25 to have the protective order.

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1 It is much more narrowed, is it not, Mr. Monteleoni?

2 MR. MONTELEONI: Yes, your Honor. It's significantly

3 narrower.

4 THE COURT: It's much narrower. The defense would

5 like it further narrowed, and you are certainly able to make a

6 motion to that effect, but I cannot, today, on the present

7 record go farther than that.

8 MR. MOSCOW: Your Honor, we have made a motion to

9 vacate. If you are going to deny that motion, I would ask, for

10 the sake of the record, that you say you are denying our motion

11 to vacate and granting the government's motion.

12 THE COURT: I am so ruling.

13 MR. MOSCOW: Thank you.

14 THE COURT: All right. Is there anything else we need

15 to cover today?

16 MR. MONTELEONI: Your Honor, we do believe that these

17 motions about the third-party discovery should await at least

18 the disposition of any motions that would involve the complaint

19 and preferably a discovery schedule, which we've been trying to

20 negotiate with defense at times and we understand is on hold

21 pending the dispositive motions, so we would propose that these

22 subpoena motions be further stayed.

23 THE COURT: What subpoenas are out?

24 MR. MONTELEONI: There are, I believe, five different

25 third-party subpoenas that have been filed to various

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1 nonparties. The nonparties have moved to quash.

2 THE COURT: Who has served the subpoenas?

3 MR. MONTELEONI: Sorry. The defense has.

4 THE COURT: Yes.

5 MR. MONTELEONI: The nonparties have moved to quash.

6 The United States has moved to quash in part for some of them.

7 The United States is likely to move to quash at least in part

8 for the remainder, but we think that these issues could be

9 significantly narrowed or perhaps obviated after both the

10 disposition of motions such as the pending motion to dismiss

11 the complaint, which the defendants say they wish to make at

12 the amended complaint and also narrowed by party discovery,

13 which the defendants have put on hold pending these dispositive

14 motions. What we would propose is that, once the Court

15 disposes of the dispositive motions, we set a discovery

16 schedule and that that will set a time for third-party

17 discovery and that the pending subpoena motions be stayed until

18 the time for third-party discovery.

19 MR. CYMROT: Your Honor, Mark Cymrot, for the defense.

20 We object to that proposal. Can I explain?

21 THE COURT: Of course.

22 MR. CYMROT: The subpoenas that were issued were

23 issued to Hermitage and William Browder and certain companies

24 that they have used in connection with their business in the

25 United States. Based upon what you did, we may move to strike

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1 two paragraphs of this amended complaint, but I'm not clear

2 that we're going to renew our motion to dismiss. We may get

3 right into discovery, in which case these motions to quash

4 ought to go forward, and we would like to see them resolved and

5 we would like to see discovery move forward. There's no reason

6 to wait for dispositive motions because I think at this point

7 we may not file them.

8 MR. MONTELEONI: Your Honor, may I.

9 MR. MOSCOW: Could I just follow up, Mr. Monteleoni.

10 MR. CYMROT: I'm talking about motions to dismiss,

11 your Honor. Perhaps after discovery, we'd move for summary

12 judgment. I'm not precluding that, but I'm just talking about

13 a general motion to dismiss at this point. We will move to

14 strike the allegations regarding the death of Sergei Magnitsky.

15 We will move to strike the allegations regarding the Israeli

16 money-laundering case and about the Magnitsky Act, but beyond

17 that, it may be time for us not to file a motion to dismiss and

18 see what discovery brings and file a motion for summary

19 judgment, or go to trial. These motions have been on file.

20 They are partially briefed. Why don't we finish the briefing.

21 THE COURT: What motions are you talking about?

22 MR. CYMROT: The motion to quash the subpoenas we

23 issued to Hermitage and Browder.

24 MR. MOSCOW: Very simply, your Honor, Mr. Browder was

25 physically served in the United States.

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1 THE COURT: Who?

2 MR. MOSCOW: We believe Mr. Browder was served in the

3 United States. If his counsel's arguments are correct that he

4 was not, then we would have to re-serve him.

5 THE COURT: You served him with a subpoena?

6 MR. MOSCOW: Correct. So we would like that issue

7 determined. The question of modifying the subpoena and what

8 has to be produced is something which counsel can productively

9 speak among themselves about without burdening the Court. But

10 the question of whether service was effected is one of temporal

11 urgency. We would ask that that issue be determined before

12 anything else. Thank you.

13 THE COURT: Let me just follow up on that.

14 MR. MONTELEONI: Sorry. Would you like me to address

15 that?

16 THE COURT: No. When I asked about what motions there

17 are, there are apparently motions to set aside or to quash

18 subpoenas.

19 MR. MOSCOW: Correct.

20 THE COURT: And is one ground of one motion the

21 improper service of the subpoena on Browder?

22 MR. MOSCOW: Yes.

23 THE COURT: All right.

24 MR. MOSCOW: It is that point that we need determined.

25 THE COURT: Fair enough. What's the problem about the

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1 service?

2 MS. RUBIN: Your Honor, if I may, I represent

3 Mr. Browder and Hermitage Capital Management, and we are here

4 solely to observe today's proceedings, but now that we are

5 discussing the subpoenas that have been issued to Mr. Browder

6 and to other entities, if I may, I'd like to continue the

7 special appearance that my firm has entered on behalf of

8 Mr. Browder and Hermitage to discuss these issues.

9 THE COURT: You can certainly appear specially, of

10 course.

11 MS. RUBIN: Thank you, your Honor. I appreciate that.

12 THE COURT: Before we have any further discussion,

13 what is the issue about Mr. Browder's service? Can somebody

14 address that?

15 MS. RUBIN: Sure. I would be happy to, your Honor.

16 There are issues both about the service of Mr. Browder and

17 whether or not he is subject to Rule 45 that have been

18 addressed in the motion to quash that we filed on September 12.

19 I would, however, address those, your Honor, and I would like

20 to come back to our request which we made last night in the

21 letter for a stay of the motion to quash and related

22 proceedings with respect to the nonparty subpoenas.

23 The issue with the service, your Honor, is that we do

24 not believe Mr. Browder was properly served with the subpoena.

25 THE COURT: Why not? What was the problem?

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1 MS. RUBIN: It was not handed to him personally. It

2 was attempted to be delivered by means that are not recognized

3 by the Rules of Civil Procedure.

4 MR. CYMROT: Your Honor, can I describe it for you?

5 What happened was Mr. Browder was speaking at a conference in

6 Aspen, Colorado. A process server walked up to him in a public

7 space, tried to hand it to him. He wouldn't take it, he

8 dropped it. He turned around, he ran into a car. The process

9 server put the subpoena under the windshield wiper of the car.

10 He had the driver or another person remove it from the

11 windshield wiper and drop it. It was then served at a house we

12 believe is his residence in Aspen, Colorado, and we have

13 evidence for that as well, including his own registration of a

14 car citing that address as his official residence in Colorado.

15 That they are saying was not proper service.

16 MS. RUBIN: May I, your Honor.

17 THE COURT: Can I follow up on what you said.

18 MR. CYMROT: Yes, your Honor.

19 THE COURT: The subpoena was served in relation to

20 this case pending in the Southern District of New York, right?

21 MR. CYMROT: Correct, your Honor.

22 THE COURT: And I'm probably going to recite things

23 that are so obvious, but certainly somebody can be subpoenaed

24 to appear for a deposition, etc., in this case. Right?

25 MR. CYMROT: Right, in Colorado, yes.

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1 MS. RUBIN: Your Honor, may I.

2 THE COURT: Wait a minute.

3 Isn't there something about territorial limits of

4 service?

5 MR. CYMROT: It was service in Colorado for deposition

6 in Colorado, your Honor, so it was within the territory of the

7 subpoena.

8 THE COURT: In other words, if he had been subpoenaed

9 to appear in New York City, that would have been outside the

10 territorial limits, right?

11 MR. CYMROT: Correct. This was a pretrial deposition

12 to be taken in Colorado.

13 THE COURT: But I'm sure it's the law that somebody

14 can be served with a subpoena for a deposition as long as the

15 deposition does not require the person to go, what, more than

16 100 miles, or something like that?

17 MR. CYMROT: Correct, your Honor.

18 THE COURT: So you're saying that he was properly

19 served for the taking of a deposition in Colorado.

20 MR. CYMROT: Correct.

21 THE COURT: And you have recited what your

22 understanding of the facts are, correct?

23 MR. CYMROT: That's correct.

24 THE COURT: What's the opposition?

25 MS. RUBIN: Your Honor, there are a few oppositions.

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1 First of all, we contest the facts as Mr. Cymrot just presented

2 them with respect to the service of the subpoena.

3 THE COURT: You contest what facts?

4 MS. RUBIN: The description of the service that

5 Mr. Cymrot just made. My client contests the accuracy of those

6 facts.

7 THE COURT: What do you say the facts were?

8 MS. RUBIN: Mr. Browder was walking out of a

9 conference center where he was delivering a speech. He was

10 approached by people he did not recognize who shouted his name.

11 Mr. Browder, as we have documented in some of our filings, has

12 a fear for his personal safety, your Honor, based on some of

13 the events that are at issue in this case. He heard someone

14 yell his name in a way that seemed particularly hostile to him.

15 He was with his minor son. He walked toward his car, and he

16 drove away.

17 The issues about service of the documents at other

18 places, including a residence that the Prevezon defendants

19 allege is owned by our client, we dispute. We dispute that

20 service was made there in a way that's recognized by the

21 federal rules. We also dispute that the residence is directly

22 or indirectly owned by Mr. Browder.

23 More importantly, your Honor, while Mr. Browder was

24 within Aspen at the time of the events Mr. Cymrot and I have

25 described to you, he is not subject to a Rule 45 subpoena. He

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1 does not live in Colorado. He does not work in Colorado. And

2 he does not regularly transact business in person in Colorado.

3 And all of those are the factors by which service of a Rule 45

4 subpoena is measured.

5 In our motion to quash, document 113 on the docket, we

6 argue that in addition to the improper service of the subpoena,

7 Mr. Browder is not subject to a Rule 45 subpoena in Colorado or

8 any other place. But I believe, your Honor, we have come far

9 afield from the issue that Mr. Monteleoni raised, which is why

10 Mr. Browder and the Hermitage defendants should have to

11 litigate at this juncture in the case whether or not the six

12 nonparty subpoenas that were issued to it, in addition to two

13 others that were served on Hermitage Global, which is another

14 Hermitage entity, and Mr. Browder in his purported capacity as

15 a director of that entity in March, whether any of those eight

16 nonparty subpoenas should continue to be litigated now. And,

17 your Honor, it's our position that they should not.

18 There has been no party discovery in this case. There

19 has been no party discovery planned. As Mr. Monteleoni recited

20 for you, there has been no meeting of the minds among the

21 parties as to what discovery is appropriate, and there may be

22 further briefing about what this complaint should even look

23 like. We believe that the pleadings should be settled and some

24 party discovery should be had before the Prevezon defendants

25 continue their campaign to make Mr. Browder and Hermitage the

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1 centerpiece of the case. They told you, your Honor, last month

2 that my client is not a party here. They have distanced him at

3 every possible opportunity from the events that are at issue

4 here, and yet they want to proceed with motion practice that is

5 extraordinarily costly and burdensome to Mr. Browder, who is

6 not even a citizen of the United States, nor subject to

7 jurisdiction in any of its states, rather than proceed with

8 their defense of this litigation and party discovery. That

9 simply makes no sense to us.

10 Our application last evening to your Honor in a letter

11 was that your Honor has the discretion to stage proceedings

12 here in a way that makes sense. Your Honor has the authority

13 to put these subpoenas on hold, that aspect of discovery on

14 hold, until the pleadings are more settled and until the

15 parties can come up with a reasonable plan amongst themselves

16 for party discovery, which may obviate the need for any

17 discovery from Mr. Browder in the first place.

18 Mr. Cymrot told you when we were here on the motion to

19 disqualify that he viewed the testimony that our clients could

20 give for the government as irrelevant, incompetent, and

21 unnecessary, given his view of the complaint. It's our

22 position that those issues should be resolved before any

23 further expense is shifted on to Mr. Browder, a nonparty to

24 this case.

25 MR. CYMROT: May I respond, your Honor.

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1 THE COURT: Not for a minute.

2 MR. CYMROT: Okay. Thank you.

3 THE COURT: The case before the Court now is a suit

4 against Prevezon alleging money laundering. It is being

5 defended. Like all cases, there can be discovery as long as

6 the case is pending and discovery is not closed. There are

7 various ways to obtain discovery, which we all know about. In

8 the prior proceeding, I was told about the fact that a subpoena

9 for discovery was served on Mr. Browder. However, on that

10 prior occasion, there was no need to litigate the validity of

11 the subpoena or any validity of the service. If Mr. Browder

12 came into New York City, presumably, he could be served with a

13 subpoena. He has not. What I'm told by Mr. Cymrot is that he

14 was served in Colorado, in Aspen.

15 Is that right?

16 MR. CYMROT: Yes, your Honor.

17 THE COURT: Now, if he is in Aspen and a process

18 server finds him, it is my understanding he can be served with

19 a subpoena. Am I right, Mr. Cymrot?

20 MR. CYMROT: Yes, your Honor. That's exactly what

21 happened.

22 THE COURT: Now, my understanding, and maybe I'm

23 oversimplifying things, is if he can be found by the process

24 server in Aspen, he can be served, whether he lives in Aspen,

25 whether he addresses meetings in Aspen, whether he has business

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1 in Aspen, for the sake of taking his deposition. If he can be

2 found there and served, he can be served. Am I right or wrong?

3 MS. RUBIN: Your Honor.

4 THE COURT: Please.

5 Mr. Cymrot.

6 MR. CYMROT: Yes, your Honor.

7 THE COURT: That is my understanding. And the facts

8 recited by Mr. Cymrot would indicate that proper service was

9 made. Now, if there is a factual dispute about what occurred,

10 then there obviously needs to be a way to resolve that factual

11 dispute.

12 MR. CYMROT: Your Honor, there's no factual dispute

13 because Mr. Browder has not put in an affidavit. You have

14 nothing in front of you on the record of this case other than

15 lawyers' statements in a brief. There are affidavits that we

16 submitted that put those facts in the record and no affidavit

17 from Mr. Browder that puts those facts in dispute.

18 THE COURT: That's what I wanted to get to.

19 Obviously, as an initial proposition, Mr. Browder could contest

20 the propriety of the service. Right?

21 MR. CYMROT: Correct.

22 THE COURT: And there's a way to do that.

23 MS. RUBIN: Mr. Browder has also --

24 THE COURT: Excuse me just a minute.

25 MS. RUBIN: Certainly, your Honor.

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1 THE COURT: There is a way to do that and a way to get

2 the factual contentions of the two sides before the Court.

3 MS. RUBIN: Your Honor, may I.

4 THE COURT: I'm going to ask you a question.

5 MS. RUBIN: Of course, your Honor.

6 THE COURT: What has Mr. Browder done, personally or

7 through counsel, to put the facts at issue?

8 MS. RUBIN: Your Honor, our motion to quash discusses

9 the service issues, as does my attorney declaration.

10 THE COURT: You have a motion to quash.

11 MS. RUBIN: We do.

12 THE COURT: And what factual record is contained in

13 the motion to quash?

14 MS. RUBIN: Information that was passed to counsel

15 from Mr. Browder. Mr. Browder could not put in a declaration,

16 your Honor, because to do so would risk some of the same

17 jurisdictional defenses that we have raised before, your Honor.

18 Our concern is that Mr. Browder, in submitting a declaration to

19 this Court, would be submitting himself to the jurisdiction of

20 this Court or for a deposition, which Mr. Browder maintains he

21 is not required to do as someone who is not amenable to

22 jurisdiction here.

23 THE COURT: That is just plain wrong. Somebody who is

24 contesting service of process in Aspen, Colorado, can put in a

25 declaration, can verify in an appropriate way the facts that he

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1 claims --

2 MS. RUBIN: Certainly, your Honor.

3 THE COURT: -- without under any circumstances

4 becoming a party to this litigation, which he's not a party to,

5 so I don't really know what you're even talking about.

6 MS. RUBIN: His concern, your Honor, to be clear, is

7 not about becoming a party to this litigation. It's about

8 submitting himself to the jurisdiction of this Court.

9 But, your Honor, if I may, we have talked a lot about

10 service this morning.

11 THE COURT: That is completely illusory.

12 MS. RUBIN: I appreciate that, your Honor.

13 THE COURT: It's completely illusory. I don't know

14 how he would come to be submitting himself to the jurisdiction

15 of the Court. He's not being sued. I don't know any basis for

16 what you are saying.

17 MS. RUBIN: Your Honor, Mr. Browder does not want to

18 create any predicate, factual or legal, for being called to

19 testify in this matter in this court when his position and the

20 facts support that he is not amenable to jurisdiction here.

21 But, your Honor, if I may, we have spoken quite a bit

22 about service.

23 THE COURT: Please. You're getting so far afield.

24 MS. RUBIN: I'm not trying to, your Honor.

25 THE COURT: And the thing is that if he is properly

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1 advised, and I'm sure he will be by you, he can sign a

2 declaration. He can sign it in Aspen, he can sign it in

3 London, he can sign it anywhere in the world. He can sign a

4 declaration.

5 MS. RUBIN: Mr. Browder does not reside in Aspen.

6 THE COURT: Excuse me, please.

7 He can state his side of the facts.

8 MS. RUBIN: Okay.

9 THE COURT: And he can do it through the usual

10 appropriate way, and that is to do it under oath in the form of

11 an affidavit or declaration. Apparently he has not done that

12 and apparently there is some misconception about a problem that

13 might arise. If he, in Aspen or London, or wherever, signs a

14 declaration or an affidavit and swears to it, stating that he

15 was never served or stating whatever he wants to state, then

16 that will be a proper factual record.

17 MS. RUBIN: I understand.

18 THE COURT: Apparently right now, there is no such

19 proper factual record, and I don't know why there is not. You

20 made a motion. Why didn't you submit a proper factual record?

21 MS. RUBIN: Your Honor, as I explained, it was our

22 understanding at the time that for Mr. Browder to submit a

23 declaration would be submitting to the jurisdiction of the

24 Court.

25 THE COURT: I don't understand how you could

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1 possibly -- did you advise, I'm not going to get into that.

2 That is simply wrong. Just plain wrong.

3 MS. RUBIN: Your Honor, there are issues in the

4 subpoena. We have somehow gotten into this very in-depth

5 discussion of the service of the subpoena as if our motion is

6 predicated entirely on the question of service, when that is

7 but one small component of our motion to quash. And, your

8 Honor, the reason that I appeared this morning and the reason

9 that I am here is because we have made an application to your

10 Honor that any further litigation on this motion to quash

11 should be stayed because it is putting the cart before the

12 horse.

13 Your Honor, I apologize if I am treading on ground

14 that we've covered many times, but everyone in this courtroom

15 knows that Mr. Browder is not a party, and to shift to him the

16 burden of having to respond and further litigate six nonparty

17 subpoenas that are either to or about him, when Mr. Cymrot,

18 when he was here last month, told you on the record that he is

19 interested in my client's pretrial discovery solely to the

20 extent that Mr. Browder is going to be a witness for the

21 government and otherwise it would be unnecessary. In fact, he

22 implored your Honor. He said the Court could take action to

23 make that discovery entirely unnecessary by striking

24 allegations of what was then the government's operative

25 complaint. I'm not sure how we're getting to the point where

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1 service has become the cause du jour.

2 MR. CYMROT: Your Honor, can I answer that.

3 THE COURT: Yes.

4 MR. CYMROT: The government has said Mr. Browder is

5 its key witness. Then it has said Browder is a witness. It

6 has said various things about Browder being a witness, but it

7 has always said that Mr. Browder is a witness. The scope of

8 what the government has in mind changes almost every time they

9 send a letter on this, but the fact of the matter is what

10 doesn't change is he is a witness and we're entitled to take

11 his deposition.

12 MR. MONTELEONI: Your Honor, if I could be heard on

13 that briefly.

14 THE COURT: Sure.

15 MR. MONTELEONI: We do believe that as in the course

16 of any case, the course of discovery may narrow and refine and

17 sometimes eliminate the need for certain parties to serve as

18 witnesses. That's something that, as we've been continuing our

19 investigation throughout and we intend to continue to do so

20 through discovery, we do believe that party discovery could

21 potentially entirely eliminate, the need for any action on this

22 subpoena, or could significantly limit its scope. So we think

23 that the prudent thing to do in the interest of everyone's

24 economy and in narrowing the issues before the Court and

25 avoiding potentially unnecessary burden to nonparties is to put

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1 this on hold until party discovery has progressed

2 substantially.

3 THE COURT: When you say party discovery, what are you

4 talking about?

5 MR. MONTELEONI: Both sides served document requests

6 earlier this year. However, the actual exchange of documents

7 hasn't happened yet because both sides need there to be a

8 confidentiality order of at least some kind or have asserted

9 that view. We proposed a confidentiality order to defense back

10 in March, and, as the most recent round of some negotiations,

11 and we just didn't hear back from them, and we later heard in a

12 brief that party discovery was on hold pending the dispositive

13 motions, and there were dispositive motions on the previous

14 complaint. I'm glad to hear that they're now not potentially

15 going to be instated as to this complaint, but that's the first

16 that I'm hearing of it because up until today, there was a

17 dispositive motion pending.

18 We can meet with the defendants again, see if there's

19 common ground on the discovery plan. If there is, we can

20 jointly propose it to the Court, and if not, we can propose

21 separate discovery plans to the Court. But we think that the

22 exchange of documents and other progress of the early stages of

23 party discovery, which haven't really happened yet, might go a

24 long way towards making this issue either disappear or if not

25 disappear at least diminish substantially.

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1 MR. CYMROT: Your Honor, what Mr. Moscow suggested, I

2 think, makes sense, which is we need to know whether we have

3 served Mr. Browder. Otherwise, we have to continue to attempt

4 to serve him. Issues of scope that Mr. Monteleoni and

5 Ms. Ruben are talking about are something we are perfectly

6 prepared to have conversations with counsel about. We're not

7 asking you to decide scope right now. We're just asking you to

8 decide that we have properly served him so that we know that we

9 can get his deposition and get his pretrial deposition. That's

10 the only issue that we need a decision on right now.

11 MS. RUBIN: Your Honor, may I.

12 THE COURT: Look, this Court has no reason and no

13 occasion to say that the service of a subpoena upon Mr. Browder

14 was unnecessary, was not a proper part of discovery. I have no

15 warrant for saying such a thing.

16 MS. RUBIN: Your Honor, there's a motion pending on

17 those issues and they're not just about service. Mr. Cymrot

18 has mischaracterized what our motion is about.

19 THE COURT: Can you just let me finish.

20 MS. RUBIN: Of course, your Honor.

21 THE COURT: I go back to the basic proposition that

22 the defense has a right to take discovery in the form of a

23 deposition of Mr. Browder. Now, they must properly serve

24 Mr. Browder, and if he is more than 100 miles away from New

25 York, they can't serve him with a subpoena and require him to

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1 come to New York. Things like that are well understood. Now,

2 there are several subpoenas and they're the subject of a

3 motion, but the way the Court is going to leave it is this way:

4 To start with the method of service, if Mr. Browder

5 wishes to make a motion complaining about the method of service

6 or the lack of service, he can do that with a declaration of

7 his own, and there's not any merit to the idea that that would

8 subject him to jurisdiction somewhere. All of that has no

9 merit at all. If he wishes to make a motion objecting to the

10 service, he can do so, but he needs to file a declaration or an

11 affidavit. You will undoubtedly talk to him and see if he

12 wants to make such a motion.

13 Now, as far as the substance of the subpoenas, there's

14 no reason to have a long discussion about the substance of

15 subpoenas in response to some motion. That just is never done

16 here. It is never done. All that can be done through the

17 subpoenas, and I'm sure this is included in the subpoenas, is

18 to obtain any documents he has relevant to the case and take

19 his testimony on matters relevant to the case. That's the

20 beginning and the end of it.

21 MS. RUBIN: May I, your Honor.

22 THE COURT: Please. That is the beginning and the end

23 of it, and that is my ruling relevant to all such motions.

24 That is my ruling.

25 Now, if he is properly served, he can be deposed at an

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1 appropriate place and that does not need to be the subject of a

2 lot of litigation. This goes on in case after case after case,

3 and it will go on here and it will go on in a straightforward

4 way, and that's what will go on. That's my ruling and that

5 concludes that subject.

6 MS. RUBIN: Your Honor, I'm sorry. May I.

7 I believe that your Honor has a little bit of a

8 misapprehension about the subject of our motion and one other

9 issue that is important to and tangential to the service issue.

10 Your Honor, in this court and in the Second Circuit, a court

11 must quash or modify a Rule 45 subpoena, and that is what

12 defendants have issued to Mr. Browder, where it requires a

13 person who is neither a party nor a party's officer, and that

14 describes Mr. Browder, to travel more than 100 miles from where

15 that person resides, is employed, or regularly transacts

16 business in person.

17 Mr. Browder does not reside in Aspen. He does not own

18 a home in Aspen. He was traveling to Aspen on a family

19 vacation where he also made a speech when the subpoena issuance

20 or the events in question happened. He is not employed in

21 Aspen. He does not regularly transact business in person. So

22 the validity of the subpoena issued to Mr. Browder does not

23 just turn on whether he was properly served, but there is a

24 separate and different issue as to whether he is subject to

25 Rule 45 in the first instance. Mr. Browder has no documents in

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1 Aspen. Hermitage has no documents in Aspen.

2 THE COURT: Where does he live?

3 MS. RUBIN: He lives in London, your Honor, where he

4 is a citizen.

5 THE COURT: What about that, Mr. Cymrot?

6 MR. CYMROT: Yes, your Honor. We have documents that

7 show that he has a house in Aspen. It is in the name of a

8 shell company, but in his Colorado driver's registration, he

9 listed that address as his official residence, and so he

10 resides in that official residence, according to the Colorado

11 DMV, and so he is a resident of Colorado for that purpose.

12 He was also in Colorado on what is his current

13 business, which is going around giving speeches. He was there

14 on business and so he was transacting business in Colorado as

15 well as he was present, and they're saying that by merely being

16 present in Colorado and being served by a process server is not

17 good service. And that is a novel argument.

18 MS. RUBIN: Your Honor, may I respond to that.

19 THE COURT: Just a minute.

20 MS. RUBIN: Sure. Your Honor, may I.

21 THE COURT: Look, I think briefing was actually stayed

22 to some extent. What we want to do is to get this now

23 organized. The defense asserts in court what has just been

24 asserted. Now let me ask you this. I know briefing has been

25 stayed and so forth. Mr. Cymrot, is what you're saying on the

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1 record in the form of declarations, affidavits, etc.?

2 MR. CYMROT: Correct. Yes. From our side, your

3 Honor.

4 THE COURT: From your side.

5 MR. CYMROT: From our side, not from Mr. Browder's.

6 THE COURT: But from your side, and that is in

7 response to a motion to quash?

8 MR. CYMROT: Correct.

9 THE COURT: Okay.

10 MS. RUBIN: It was a Rule 45 statement filed by

11 Mr. Cymrot sometime in September.

12 THE COURT: Okay.

13 MS. RUBIN: Your Honor, may I add one more thing.

14 THE COURT: I want to address you.

15 MR. CYMROT: Your Honor, let me explain a little. We

16 filed the service documents.

17 THE COURT: You did what.

18 MR. CYMROT: Filed the service documents. We filed

19 affidavits of service.

20 THE COURT: Right.

21 MR. CYMROT: We have not yet responded with a brief

22 because the briefing was stayed.

23 THE COURT: It was stayed.

24 MR. CYMROT: But the documents I described, the

25 affidavits I described, were filed as return of service.

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1 THE COURT: You have filed a motion to quash, right?

2 MS. RUBIN: Yes, I have, your Honor. And in it we

3 discuss a case called --

4 THE COURT: Please. You filed a motion. Does your

5 motion contain a declaration or an affidavit of Mr. Browder?

6 MS. RUBIN: No, it does not, your Honor.

7 THE COURT: All right. We go back to something

8 earlier. I am considering your motion incomplete. I'm not

9 denying it, but I'm considering it incomplete. You must, if

10 you wish to pursue this, complete your motion and have a

11 declaration or an affidavit of Mr. Browder dealing with what is

12 in those returns. If there is any question about it, I'm sure

13 you can call Mr. Cymrot and he will clear it up as to what is

14 needed, but you must complete your motion. It is not complete

15 and will not be complete without a declaration or an affidavit

16 of Mr. Browder. When that motion is complete, and you can

17 agree on a schedule, when your motion is complete, obviously

18 the defense will have the opportunity to answer that motion,

19 but none of that has been completed now, and I am not going to

20 rule on motions that are incomplete.

21 MS. RUBIN: Your Honor, we were not asking you to rule

22 on the motion. In fact, my client's application was for a

23 further stay of the motion to allow discovery to go forward.

24 THE COURT: That motion is denied.

25 MS. RUBIN: Thank you, your Honor.

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1 THE COURT: All right. Is there anything else to do

2 today?

3 MR. MONTELEONI: Your Honor, just to clarify about the

4 final procedure, my understanding, based on the comments from

5 defense, was that the current motion practice will be about the

6 service issue and we can work with defense and the nonparties

7 to work out a schedule for any issues, if there are any, about

8 the scope or content of the subpoenas. Is that right?

9 THE COURT: Right.

10 Let's adjourn. Thank you.

11 (Adjourned)

12

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25

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1 UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x

3 UNITED STATES OF AMERICA,

4 Plaintiff,

5 v. 13 Civ. 6326 (TPG)

6 PREVEZON HOLDINGS, LTD. et
al.,
7
Defendants.
8
------------------------------x
9 New York, N.Y.
March 9, 2015
10 2:35 p.m.

11 Before:

12 HON. THOMAS P. GRIESA,

13 District Judge

14 APPEARANCES

15 PREET BHARARA
United States Attorney for the
16 Southern District of New York
MARGARET GRAHAM
17 PAUL MONTELEONI
Assistant United States Attorney
18
BAKER & HOSTETLER, LLP
19 Attorneys for Movants "The Prevezon Defendants"
BY: MARK CYMROT
20 JOHN W. MOSCOW
LOURA ALAVERDI
21
BAKER BOTTS, LLP
22 BY: SETH TAUBE

23 GIBSON, DUNN & CRUTCHER, LLP
Attorneys for Non-party Browder
24 BY: RANDY M. MASTRO
LISA H. RUBIN
25 RICHARD MARK

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1 (Case called)

2 THE COURT: Sit down, please.

3 Let's just get square on the procedural posture. What

4 do we have here, procedurally, in the way of motions or

5 whatever? What do we have?

6 MR. MASTRO: Your Honor, what we have is --

7 THE COURT: Your name, please.

8 MR. MASTRO: Yes, Randy Mastro, your Honor, Gibson

9 Dunn, with my colleagues Lisa Rubin and Richard Mark,

10 representing non-party William Browder who is the person on

11 whom these subpoenas were directed.

12 THE COURT: All right.

13 MR. MASTRO: And purportedly served.

14 We are here today, your Honor, in connection with

15 two --

16 THE COURT: Can you keep seated? Then the microphone

17 will pick you up. Or, go to the lectern.

18 MR. MASTRO: Certainly, your Honor.

19 Your Honor, we are here today about two subpoenas that

20 defendants -- we will call defendants Prevezon -- purported to

21 serve on our client, William Browder.

22 THE COURT: Is it a motion? I want to get technical

23 about the procedural posture. We are?

24 MR. MASTRO: Yes, your Honor; one, our motion to quash

25 the Aspen subpoena.

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1 THE COURT: All right.

2 MR. MASTRO: Two, we are ordered to show cause about

3 potential validity of the New York subpoena --

4 THE COURT: Okay.

5 MR. MASTRO: -- that Prevezon purported to serve in

6 February.

7 THE COURT: So you have got a motion about the Aspen

8 subpoena and then we will consider we are having a return on

9 the order to show cause.

10 MR. MASTRO: Correct, your Honor; on the New York

11 subpoena. They're both largely identical subpoenas and, your

12 Honor, to be clear, your Honor directed this hearing on the

13 limited issue of the following limited issues: One, whether

14 either the Aspen or the New York subpoenas are valid under Rule

15 45 of the Federal Rules of Civil Procedure; and two, whether

16 they were properly -- either of them was properly served. So,

17 we are here for that limited purpose. We are not here today

18 about the scope of the subpoenas. We are not here today about

19 the merits of the government's forfeiture case against Prevezon

20 although I should note, your Honor, that in that case a motion

21 to dismiss is pending, the case has not yet been defined for

22 purposes of what scope it will be going forward after that

23 motion. There is in fact party discovery hasn't gotten off the

24 ground yet because of the posture that Prevezon has taken.

25 THE COURT: Look. I just asked you a very limited

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1 question.

2 MR. MASTRO: Certainly, your Honor. Certainly, your

3 Honor.

4 THE COURT: Now, well, I would think on the merits to

5 be discussed your side should go first.

6 MR. MASTRO: Thank you very much, your Honor. And I

7 am prepared to go right to the heart of the matter because your

8 Honor will recall, there was some heated rhetoric at prior

9 hearings. I am here today to talk, your Honor, just about the

10 application of the law to these two subpoenas and that law is

11 Rule 45. And what does Rule 45 say? It says that a subpoena

12 may not command a person "who is neither a party nor a party's

13 officer, to travel more than 100 miles from where that person

14 resides, is employed or regularly transacts business in

15 person."

16 Now, your Honor, Rule 45 further requires that a

17 subpoena that requires a person to comply beyond the

18 geographical limits specified in Rule 45C cannot stand. It has

19 to be quashed. This is not optional. It is not how important

20 a witness may or may not be in a case. It is these geographic

21 limitations are mandatory, quote, without exception in

22 prevailing case law in this circuit.

23 So, if you are not the person to whom this subpoena is

24 directed, if that person does not reside, is employed or

25 regularly transacts business in person within a hundred miles

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1 of the jurisdiction, the subpoena must be quashed.

2 And, your Honor, we are going to spell out for you

3 today as to how both the Aspen subpoena and the New York

4 subpoena, controlling case law as to which there is no response

5 by the other side and Rule 45 case law in this circuit mandates

6 that these subpoenas be quashed under Rule 45.

7 Now, your Honor, if I may? Your Honor has already

8 been over some of this territory in connection with Hermitage

9 Global. Your Honor issued a ruling in recent weeks quashing

10 the subpoenas to hermitage Global and recognized in that

11 opinion these very limitations of Rule 45 and they apply with

12 equal force to Mr. Browder. And in that opinion your Honor

13 recognized that Browder is "a citizen of the United Kingdom"

14 that Browder's residence "is in London," that's where he also

15 works in his investment management business. And your Honor

16 also recognized there that party discovery between the

17 government and Prevezon which, as I said before, hasn't even

18 really begun because of the pendency of a motion to dismiss,

19 "could eliminate the need for Hermitage affiliated witnesses at

20 trial." Yet, we are here today about multiple subpoenas

21 directed to Mr. Browder before party discovery has even

22 commenced.

23 Now, your Honor, let's talk about Aspen first, the

24 Aspen subpoena and the thin read on which Prevezon seeks to

25 predicate a Rule 45 subpoena on Mr. Browder.

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1 Mr. Browder does not reside in Aspen. It is not even

2 alleged here that he, by Prevezon, that he works or regularly

3 transacts business there. So, let's focus on whether

4 Mr. Browder resides -- that's the word used in Rule 45 -- in

5 Aspen.

6 Uncontroverted record, he does not own any real

7 property in Aspen. He has been there from time to time with

8 his family on vacations. He has stayed in a particular

9 property that he does not own, either "directly or indirectly."

10 THE COURT: Who owns the house?

11 MR. MASTRO: It is owned by an LLC called Sundance

12 Aspen, LLC.

13 THE COURT: Let me get the name. Sundance?

14 MR. MASTRO: Aspen, LLC. Sundance Aspen, LLC, and the

15 manager of Sundance Aspen, LLC --

16 THE COURT: What is Sundance Aspen, LLC?

17 MR. MASTRO: It is a limited liability corporation.

18 THE COURT: Well, all right. That doesn't tell me

19 anything. What is it?

20 MR. MASTRO: Well, your Honor, I can only tell you

21 what it is. People often have had properties that the

22 ownership of the property --

23 THE COURT: I asked you a question.

24 MR. MASTRO: Yes, your Honor.

25 THE COURT: And I would like an answer. What is

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1 Sundance Aspen, LLC?

2 MR. MASTRO: Your Honor --

3 THE COURT: What does it do?

4 MR. MASTRO: It exists, your Honor, simply as the

5 vehicle for owning that piece of property. That's its sole

6 interest, as I understand it. Sundance Aspen, LLC is the

7 limited liability corporation whose sole asset is the ownership

8 of that property.

9 THE COURT: And who owns Sundance Aspen, LLC?

10 MR. MASTRO: Your Honor, I can tell you that the

11 uncontroverted record in this case is that it is -- as to who

12 doesn't own it --

13 THE COURT: I want to know who does own it.

14 MR. MASTRO: Well, your Honor, the uncontroverted

15 record in this case tells you who doesn't own it. William

16 Browder does not own it. But, if your Honor wants us to get

17 from Sundance Aspen, LLC the entity immediately in ownership

18 line of the LLC, we will submit that information to the Court

19 if your Honor requires that. But, I have to say, so your Honor

20 knows, the record is uncontroverted, sworn statements by both

21 Mr. Browder and the manager of Sundance Aspen, LLC -- that's

22 docket 112, Exhibit 38, paragraph 7, that "William Browder does

23 not, directly or indirectly, own Sundance Aspen, LLC."

24 Mr. Browder says in his declaration, docket 185, paragraph 51,

25 that he also does not "own, directly or indirectly, that piece

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1 of property." Mr. Browder makes clear that there are family

2 members of his who indirectly own the property but he does not

3 directly or indirectly own that property. And that's the

4 uncontroverted, sworn statements of him and the manager of

5 Sundance Aspen, LLC in this case.

6 THE COURT: In other words you have -- he is on the

7 record in this case as not owning Sundance and not only that

8 house, right?

9 MR. MASTRO: Correct, your Honor. He has sworn to it

10 and so has the manager of Sundance Aspen, LLC.

11 THE COURT: Say that again?

12 MR. MASTRO: So, not only has Mr. Browder sworn to it,

13 your Honor, but also the manager of Sundance Aspen, LLC.

14 Now, your Honor, what does their claim come down to?

15 Because Mr. Browder was on a vacation with his family when

16 there was an attempt to serve him in Aspen. Their argument

17 comes down to, your Honor, that Mr. Browder acknowledges he has

18 taken, from time to time, vacations in Aspen that he keeps --

19 he has auto registration there, he keeps a vehicle there in his

20 name. And he cites the place where he has stayed, this

21 property Sundance Aspen, LLC.

22 Now, your Honor, the very slim read on which they try

23 to establish that Browder resides in Aspen when we know he

24 resides and works in London is the fact that he has had, from

25 time to time, vacations in Aspen where he has stayed at this

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1 property he neither owns, directly nor indirectly, and has

2 vehicle registration in his name identifying that property as

3 the place where he stays in Aspen.

4 Now, your Honor, the case law is crystal clear in this

5 circuit and elsewhere that that is woefully insufficient to

6 come anywhere close to establishing for Rule 45 purposes that

7 Mr. Browder resides in Colorado. Let me be more specific, your

8 Honor. The leading case in this circuit decided by a New York

9 District Court --

10 THE COURT: I am going to interrupt you.

11 MR. MASTRO: Certainly, your Honor.

12 THE COURT: I don't want you or any other lawyers

13 waste their time. I would recommend that you not spend any

14 more time on Aspen. We will hear what the defendant says and

15 then you can reply, but I think that's the most efficient way

16 to use your time and I think we had better switch to New York.

17 We may come back to Aspen and that depends on what the

18 defendant says, but I think what I need to hear from you about,

19 really, is New York.

20 MR. MASTRO: I appreciate that, your Honor, and if I

21 can just finish the one sentence that I was saying about the

22 precedent in this circuit on Aspen it will close a loop and

23 then I'm sure Prevezon's counsel will want to respond to it.

24 THE COURT: Okay.

25 MR. MASTRO: The leading case in this area decided by

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1 a New York District Court in this circuit is called Yukos. In

2 Yukos, involving someone who had a relationship with Russian

3 spent six months, nearly, in Auburn, New York; owned property

4 there, maintained a driver's license there, voter registration

5 and car registration, all of those things over a nearly

6 six-month period. Nevertheless, the Court found when that

7 person returned to Russia, as Mr. Browder returns and lives and

8 resides in London, that there was no clear intent on his part

9 to establish residence in Auburn, New York and that, therefore,

10 Rule 45 was not meant despite all of those factors being

11 present.

12 In our case Mr. Browder neither rents nor owns,

13 directly or indirectly, in Aspen. The only indicia that they

14 point to is vehicle registration which isn't enough. It isn't

15 enough under the law here in New York. It isn't enough under

16 the law of Colorado which they point to where vehicle

17 registration, you are allowed to register a vehicle even though

18 you don't reside there.

19 So, your Honor, I think it is very clear that Aspen --

20 THE COURT: Cover New York now.

21 MR. MASTRO: Yes, I will now.

22 THE COURT: Cover New York.

23 MR. MASTRO: Thank you, your Honor. I have no

24 rejoinder to Yukos, your Honor.

25 Now, your Honor, let's talk about the New York

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1 subpoena because in New York, again, Mr. Browder does not

2 reside here, he is not employed here, so their argument reduces

3 to --

4 THE COURT: Well, was he served here?

5 MR. MASTRO: Your Honor, we are talking about Rule 45

6 first but I am happy to address service as well.

7 THE COURT: Start with service.

8 MR. MASTRO: As to service, your Honor, as your Honor

9 recognized in your recent ruling on Hermitage Global, there has

10 to be personal service under Rule 45 and in Mr. Browder's

11 case -- and I think when one looks at the videotape that was

12 done -- it was not at all clear to him as he was entering his

13 car, that given the credible threats the government has

14 described exists now for Mr. Browder, that he was being --

15 someone was attempting to serve him with a subpoena and he left

16 his car. Someone rushes his car as he is getting in trying to

17 close the door, and he left his vehicle in fear not knowing,

18 walking away and then running if you watch the entire video,

19 not knowing what was going on. To us, your Honor, that is not

20 proper service. That is not proper personal service.

21 But, your Honor, more importantly, you don't even have

22 to reach that question because under Rule 45 they can't

23 possibly meet the standard for a valid subpoena on William

24 Browder in New York. Let me explain.

25 Browder, it is not even alleged here that he resides

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1 here. He resides in London. It is not alleged here that he is

2 employed here in New York. He is not. It comes down to the

3 third Rule 45 factor which is related to the employment factor,

4 it is whether Mr. Browder regularly transacts business --

5 business -- in person in New York. And, your Honor, once

6 again, the case law in this circuit, in this very district

7 could not be clearer on the point and Prevezon has no rejoinder

8 to it. Let me explain, your Honor.

9 Regularly transacting business in person. Business

10 has a plain meaning. It involves employment, work, commercial

11 activity. Mr. Browder's commercial activity is he has been

12 running an investment management firm, an investment management

13 firm that now invests his own assets accumulated over time, but

14 that has been an investment management firm for more than two

15 decades.

16 Now, your Honor, that's his business. On that basis

17 where Courts have consistently interpreted Rule 45 to mean your

18 work or your employment, the advisory committee notes on Rule

19 45 refer to where a person is employed or transacts business in

20 person means where the person works. That's the word from the

21 advisory.

22 And, your Honor, the case law consistently, including

23 in the Second Circuit itself, talks about where someone has

24 their home or works. The Edelman case on which they purport to

25 rely, Edelman and the Kohne case which talks about regularly

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1 transact business in person means just what it says, where the

2 person works: In a commercial business activity.

3 Having said that, your Honor, here is the clear case

4 law to which they have no rejoinder. Judge Chin, right here in

5 the Southern District now on the Second Circuit, one of your

6 colleagues for many years, Judge Chin issued really what we

7 consider to be the applicable if not controlling authority in

8 this area. A case involving someone from the UK -- a UK

9 resident like Browder -- who came to New York on business,

10 commercial business, an average of between seven and a half to

11 almost 10 days a year on average. And the person I have to

12 add, your Honor, had a concrete interest in the litigation, a

13 pecuniary interest. Remember your Honor pointed out that

14 Mr. Browder has no pecuniary interest in this litigation, he is

15 a mere potential witness. In that case Judge Chin was faced

16 with someone subpoenaed who was paying the attorneys' fees of

17 the plaintiff and actually had a right to a share of the

18 judgment if the plaintiff proceeded and Judge Chin ruled --

19 ruled -- seven and a half to nearly 10 days a year is not --

20 not -- regularly transacting business in person in New York.

21 THE COURT: That's very nice to hear about that case.

22 What are the facts here?

23 MR. MASTRO: Thank you, your Honor, which is exactly

24 where I was going to come next. Thank you.

25 Here Mr. Browder has explained in his sworn

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1 declaration that starting in 2010 he has been in New York for

2 work relating to his investment management business 33 days

3 since the beginning of 2010.

4 THE COURT: Starting in 2010?

5 MR. MASTRO: Yes. So, your Honor, we can do the math,

6 and the math is --

7 THE COURT: Wait a minute. Repeat the number.

8 MR. MASTRO: Yes. 33 days here in New York on

9 investment management business. That's six years if you count

10 2015 so that would be about five and a half days a year. If

11 you take 2015 out where he has only had one day here on

12 investment management business, that's 32 days between 2010 and

13 2014, that would be an average of less than six days a year or

14 just barely six days a year.

15 THE COURT: What about other activities because he

16 certainly has other activities.

17 MR. MASTRO: That's correct, your Honor, but those

18 other activities, to be a human rights advocate, to be here on

19 issues relating to personal beliefs that are not commercial

20 activity, your Honor, that is not here on business.

21 Mr. Browder has a right to come to New York to visit. That

22 doesn't count towards Rule 45.

23 The fact of the matter is that what the defendants try

24 to conflate here is that Mr. Browder being here as a human

25 rights or a civil rights advocate, the unpaid activism for

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1 which he is here, that that should count towards "regularly

2 transacting business, in person, in New York." There is not a

3 single case, they cite none and we are aware of none, where any

4 court has ever held in the Rule 45 context that non-commercial

5 activity counts at all, one wit, towards determining whether

6 someone is regularly transacting business.

7 THE COURT: You are saying it cannot.

8 MR. MASTRO: Correct.

9 THE COURT: In other words there are things called

10 non-profits.

11 MR. MASTRO: Correct, your Honor.

12 THE COURT: And they engage in all kinds of activities

13 and can a non-profit which is active in some cause, can't that

14 be the transaction of business within the meaning of Rule 45?

15 MR. MASTRO: Well, your Honor, they've cited no case

16 to that effect but I'm going to take your Honor's hypothetical.

17 THE COURT: I'm asking you whether as a matter of

18 principle.

19 MR. MASTRO: And, your Honor, the principle, if I work

20 for a non-profit, if I were the president of the Legal Aid

21 Society, I happen to be a volunteer vice chair, not a paid

22 president of the Legal Aid Society, your Honor, if I were the

23 paid president of the Legal Aid Society I would be here, in

24 that sense, in my employment.

25 THE COURT: I'm not understanding you now. Say that

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1 again.

2 MR. MASTRO: Your Honor, if I were paid staff of a not

3 for profit that would be my employment and I would be covered

4 by Rule 45 because Rule 45 says where I reside, am employed or

5 regularly transact business in person. But when I am here of

6 my own free will volunteering as part of a cause of advocacy,

7 I'm an unpaid activist who cares about the cause, your Honor,

8 it is no more consistent with Rule 45 to say that when Martin

9 Luther King was Marching in Selma because he was compelled by

10 that cause, that he would be subjecting himself to Rule 45

11 subpoena power when he was there of his own volition as a

12 volunteer leading a march. And that's what Bill Browder does

13 in his advocacy. He has never taken a dime for his advocacy,

14 your Honor. His advocacy is about a human rights campaign and

15 he has written a book. He is not taking a dime from his book

16 he is giving it all to that cause. Volunteer, that is not

17 transacting business.

18 THE COURT: What cause is that?

19 MR. MASTRO: Your Honor, it is the human rights cause

20 about the oppression and corruption of the Putin scheme and

21 what they did to Mr. Browder's Russian lawyer, Sergei

22 Magnitsky, imprisoning him, torturing him, and murdering him

23 and advocating that the Putin regime in Russia -- we have all

24 seen the horrors -- the regime in Russia is corrupt to its core

25 and he wants to expose that internationally. That's his human

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1 rights advocacy, your Honor. In the memory of his one Russian

2 lawyer and to expose the corruption in Russia. He has a right

3 to do that in his free time.

4 Your Honor, I have been involved in some causes in my

5 day too and I have gone to multiple jurisdictions to advocate

6 on behalf of those causes. When I am an unpaid volunteer and I

7 am going there because I care about the cause, I am not

8 subjecting myself to Rule 45 jurisdiction subpoena power for

9 regularly transacting business in person there because it is

10 not business, it is not commercial activity.

11 Now they point to, your Honor, only one case -- one

12 case -- it is called Operation Rescue. It is not a Rule 45

13 case. Rule 45, it is a very clear mandate. You have to

14 reside, be employed, or regularly transact business in person

15 in a jurisdiction to have a Rule 45 subpoena be valid. They

16 point to the Operation Rescue case which was about long-arm

17 personal jurisdiction in New York, a different standard about

18 doing business or transacting business under New York Law for

19 purposes of long-arm jurisdiction as to whether you could be

20 made a party to a case, completely different standard. Court

21 after Court, including Kohne in California and others, have

22 rejected just that and said what a state views as longarm

23 jurisdiction has nothing do with Rule 45. Rule 45, as the

24 Kohne Court said means just what it says: You have to be

25 regularly transacting business, a commercial activity, in

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1 person in the jurisdiction.

2 Now, your Honor, they do not cite to a single case in

3 this country, anywhere, where any Court has ever held that you

4 can be regularly transacting business as person in a

5 jurisdiction simply for showing up as an unpaid advocate. No

6 place, no how, no Court, yet they ask you to do that, your

7 Honor. We are aware of no case but we are aware of Judge

8 Chin's decision.

9 THE COURT: All right. I have heard about that.

10 MR. MASTRO: And just to be crystal clear, your

11 Honor --

12 THE COURT: All right.

13 MR. MASTRO: -- it wouldn't -- they've had Bill

14 Browder trailed for a long time; investigators trying to find

15 out where he is, what he is doing. They crow to you in this

16 case, in this particular application, that they've managed to

17 track down what they say are 20 other days when Bill Browder

18 was in New York. That's how closely they're monitoring him, 20

19 other days since 2010 when Bill Browder has been in New York on

20 his unpaid human rights campaign and they ask you to count

21 those days.

22 Now, your Honor, we explain in our papers, and of

23 course if Browder had been here they would know because they've

24 been trailing him, they're on him like a cheap suit like they

25 say about the investigative trade, and they have an army of

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1 people trying to track him but they came up with what they say

2 are 20 extra days on top of the business days when Browder was

3 here since 2010.

4 Now, your Honor, we went over those days. They only

5 actually identify 19 dates in their papers but we went over

6 them and some of them, they are basing that on something like a

7 TV interview or something that showed up in the press when, in

8 fact, Browder was not here in New York on those days. Some of

9 them are duplicates of days that Browder has acknowledged of

10 having been here on business for his investment firm. But, the

11 fact of the matter is even if you counted all 20 of the extra

12 days they want you to count, it is a wrong count, it is

13 overinflated, but they want you to count those 20 days. That's

14 53 days since 2010, 10 of them they say have been in 2015 since

15 the book came out and there was more advocacy work in

16 connection with the book coming out, again, a book where Bill

17 Browder is not making a dime, it is all for the campaign. He

18 has not made a dime on his advocacy work at all, it is not

19 business for him.

20 If you use just the 43 days from 2010 through 2014

21 that's less than nine days a year. If you included 2015 --

22 THE COURT: I am going to interrupt you.

23 MR. MASTRO: Certainly, your Honor.

24 THE COURT: There obviously has been an extensive

25 amount of work, investigative work, other kinds of work, legal

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1 work on the issue of Mr. Browder's deposition. I am going to

2 tell you as a Judge listening to all of this, this is all way

3 out of line. He can be deposed. He can be deposed in England

4 where he resides and I just have to tell all of you that the

5 amount of observance and calculation and so forth about what he

6 does or does not do in the United States of America is such a

7 colossal waste.

8 He is not the only witness in the case, there will be

9 other witnesses, presumably called by the government and called

10 by the defense. And it may very well be that Mr. Browder has

11 testimony to give which is germane to the case but the way to

12 get it is to go to his residence in England.

13 MR. MASTRO: Correct, your Honor.

14 MR. CYMROT: May I speak to that your Honor?

15 MR. MASTRO: If your Honor --

16 THE COURT: The thing is the effort of investigators,

17 the effort of lawyers with respect to whether he is deposed in

18 the United States to me has not been not a useful exercise. In

19 the first place if he stays in England, he can't be deposed in

20 New York City or Aspen or anywhere else in the United States.

21 Now, I'm sort of short changing you in a way in your

22 argument but I am going to have to tell all of you, as a

23 federal judge I feel that we could carry on, this is all very

24 well done, very good legal work on your part and the other

25 people who will speak but when all is said and done, if he is

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1 in England he can't be deposed in New York City or Aspen or

2 anywhere else here. That's where he resides.

3 MR. CYMROT: May I speak to that your Honor?

4 THE COURT: Yes.

5 MR. MASTRO: Your Honor, I would --

6 MR. CYMROT: Thank you.

7 MR. MASTRO: Your Honor, may I just respond briefly?

8 I am almost done, your Honor.

9 THE COURT: You go ahead.

10 MR. MASTRO: Thank you very much.

11 THE COURT: You are doing fine but I have to make that

12 comment and I will hear from the other people, of course.

13 MR. MASTRO: I appreciate it, your Honor, because I,

14 in one sense I have to say, I couldn't agree more with what

15 your Honor just said, and it is something that we have been

16 saying. Our client got these subpoenas. Our client recognizes

17 that in London, through the Hague Convention and other

18 mechanisms, he could be deposed in London. And, your Honor,

19 the only point that I was making about counting the days is no

20 matter how you count them, about regularly transacting business

21 in New York under Judge Chin's M'Baye decision, it is less days

22 here even though all the days they want you to count than Judge

23 Chin found to be insufficient for regularly transacting

24 business now having said that.

25 THE COURT: What you are presenting is very relevant

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1 to the issues that have, are being discussed here, of course

2 they are.

3 MR. MASTRO: I understand, your Honor. And I

4 appreciate I have to present them because Rule 45 is mandatory

5 and they cite no case that would permit a Rule 45 subpoena to

6 stand against Bill Browder in New York or Aspen, but I had to

7 litigate those things for Bill Browder because Bill Browder is

8 not consenting to jurisdiction in the United States. He has

9 not even agreed to be a witness in this case and we have told

10 the government that and in our papers that he has not agreed to

11 appear here or be subject to subpoena here for trial. But,

12 your Honor, the fact of the matter is --

13 THE COURT: I don't understand what you are saying

14 right now. Please.

15 MR. MASTRO: I am saying, your Honor, he has not

16 consented to be a witness at this trial. He has told the

17 government that he doesn't agree that he could be subpoenaed by

18 either Prevezon or the government. But your Honor is

19 absolutely right, we have three things that should have been

20 done here, we think, before Mr. Browder was hounded around the

21 world, literally, to try and throw a subpoena at him if he

22 showed up someplace for a vacation or showed up someplace for

23 his advocacy.

24 Now, your Honor, one, there is party discovery.

25 THE COURT: What?

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1 MR. MASTRO: There is party discovery. The party

2 discovery. Whatever Browder has given to the government that

3 will be the subject of party discovery eventually and may

4 obviate the need, as your Honor pointed out, for Browder to be

5 a witness in the case. Two --

6 THE COURT: Well, I don't agree with you on that. A

7 party can subpoena and take the deposition of a non-party.

8 MR. MASTRO: Correct, your Honor.

9 THE COURT: And they don't have to -- they're not

10 limited to the parties. Don't waste time on that.

11 MR. MASTRO: No, not suggesting they're limited, your

12 Honor, suggesting that when you are talking about a non-party

13 foreigner, typically party discovery occurs first and there is

14 a legion of cases on this, your Honor, and to reduce the burden

15 on the non-party foreigner. Not suggesting it would obviate

16 any testimony necessarily but it certainly is how things

17 typically happen. Number one.

18 Number two, the Hague Convention provides a mechanism

19 for obtaining both deposition in London and specifically

20 identified documents. The other side has told you, your Honor,

21 incorrectly, that England has restricted that in some way. The

22 actual rules of England are submitted in the materials to you

23 and you will see that under the Hague Convention they can get a

24 deposition of Browder in London and they can get specifically

25 identified documents.

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1 Finally, your Honor,the fact of the matter is that

2 there will be no prejudice to Prevezon here from Rule 45 being

3 applied as it's mandatorily required to be applied under the

4 federal rules.

5 The question of Browder now as opposed to Browder

6 after party discovery or Browder after Hague Convention or

7 whether Browder would ever even be a witness at the trial

8 because, as your Honor has noted, the government's theories

9 have changed. The other side has said Browder may not have

10 anything relevant to say that this case given that he didn't

11 even live in Russia when the money laundering occurred.

12 Your Honor, my point is a simple one. The defendants

13 are not prejudiced in any way by having party discovery first,

14 pursuing other options. We are simply pointing out under

15 well-established case law, Rule 45 -- and I am forced to

16 litigate these issues, your Honor, because my client was

17 purportedly served with subpoenas and I have to respond, so I

18 have had to make these legal arguments, they are mandatory.

19 That's what Judge Chin said right here in this court house and

20 that's all I have to say, your Honor.

21 THE COURT: Look. Wait a minute.

22 We do have the issue about whether there was proper

23 service in New York.

24 MR. MASTRO: Correct, your Honor.

25 THE COURT: And of course there is the issue which you

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1 have addressed and devoted time quite properly on and that is

2 the other aspect of Rule 45. But what I would suggest to you

3 is that you suspend now and if it is necessary for you to come

4 back and discuss further the service or anything, but so we can

5 move along, let's hear from the other side now and we will be

6 back to you, if necessary.

7 MR. MASTRO: Thank you, your Honor. It is covered in

8 our papers, the proper service. I just wanted the Court to

9 know how disproportionate this effort is to try to force

10 Browder into a subpoena where Rule 45 doesn't permit it.

11 Thank you, your Honor.

12 THE COURT: Thank you.

13 MR. CYMROT: Thank you, your Honor. Mark Cymrot for

14 Prevezon.

15 First of all, your Honor, Mr. Mastro has misdescribed

16 Rule 45 because 45(c) says that a subpoena can be served

17 anywhere in the United States. The place of compliance has

18 been separated when they made amendments and that is a place

19 where the person resides or transacts business.

20 So, what did we do first? We went to his lawyers and

21 we said, Will you sit for a deposition under the U.S. rules?

22 And he said, No. Under no circumstances. And he points to the

23 Hague Convention. And the Hague Convention cannot be used for

24 pretrial discovery. In England there is a specific reservation

25 and the Second Circuit has described pretrial deposition in

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1 England under the Hague Convention as not helpful and it is

2 not, it is extremely limited, and for our purposes would be

3 largely useless.

4 If he had agreed to a U.S.-style deposition in London,

5 none of this would have happened but he refused.

6 THE COURT: Say that again.

7 MR. CYMROT: If Mr. Browder had said he would sit for

8 a deposition under the Federal Rules of Civil Procedure, in

9 London, we would have accepted that and none of this would have

10 been necessary. But he said no.

11 So, we then served him through a registered agent, the

12 least imposition on an individual. He challenged that and you

13 quashed it. So then we have the issue we have to personally

14 serve him. So, we served him, personally, in Aspen, Colorado.

15 Now, he says he does not reside in Aspen, Colorado. But, he

16 has put in the DMV records of Colorado an admission that this

17 is his residence. It is an admission subject to penalty of

18 perjury. End of inquiry, he resides there whether he owns the

19 house or he doesn't own the house or he put the house in shell

20 corporations owned by members of the family, all of that is

21 irrelevant. He has an admission --

22 THE COURT: Wait a minute. Can I interrupt you?

23 MR. CYMROT: Yes.

24 THE COURT: In what form and exactly what is the

25 language about him, as you say, admitting residence in

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1 Colorado?

2 MR. CYMROT: It is docket 189, 12 and 13. Let me get

3 it right here.

4 MR. MASTRO: Your Honor, I'm happy to hand it up, your

5 Honor. It refers to legal address in Aspen, not residence. I

6 am happy to hand it up to your Honor, a very different thing.

7 That's the legal address in Colorado where the car is going to

8 be kept, it is not residence.

9 Thank you.

10 THE COURT: Where on this form? My eyes don't travel

11 that fast.

12 MR. MASTRO: Sorry, your Honor.

13 MR. CYMROT: Sorry, your Honor. Let me point it out.

14 Legal address.

15 MR. MASTRO: Legal address.

16 THE COURT: Oh, I see. All right. All right.

17 MR. CYMROT: And what he says about that is, your

18 Honor, that he doesn't own it personally, it is owned by

19 Sundance. We subpoenaed Sundance to find out who owns it and

20 Sundance, represented by the same lawyers, objected to that

21 subpoena; that is in front of you today. If there is any

22 question about the legal residence you can let us proceed with

23 those subpoenas.

24 But this is a house he admits his family owns and he

25 appeared there and he has registered two cars there. This

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1 isn't some occasional place that he goes to. But, the fact of

2 the matter is if he served there, which we say he was, then you

3 can order a deposition in London under the Federal Rules of

4 Civil Procedure. What we will not do voluntarily and go under

5 the Hague Convention where he has already had and he admits in

6 his papers, he has had subpoenas quashed under the Hague

7 Convention.

8 THE COURT: I don't understand what you are saying

9 now. Go over that again, please.

10 MR. CYMROT: Yes.

11 The procedure Mr. Browder wants us to follow is the

12 Hague Convention on the taking of evidence abroad except

13 England, when it acceded to the convention, made a resolution.

14 The resolution is it cannot be used for pretrial discovery.

15 This is in our papers we have attached the relevant documents.

16 So, the Hague Convention and the Second Circuit has

17 said the Hague Convention is not a useful procedure for

18 depositions in London but once he is served in the United

19 States under Rule 45(c) you have jurisdiction over him and you

20 can order him to a deposition under the Federal Rules of Civil

21 Procedure in London. And you are right, that would put an end

22 to all of this. But he wouldn't agree to it. We offered that.

23 THE COURT: Let's pause there just a minute.

24 MR. CYMROT: Yes.

25 THE COURT: I want to make sure I understand what you

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1 are saying.

2 MR. CYMROT: Yes.

3 THE COURT: Let's assume -- and I haven't held yet but

4 let's assume -- that he was properly served in New York City.

5 MR. CYMROT: Correct.

6 THE COURT: Now, are you saying that he could be

7 ordered to be deposed in London? Do I understand you? I'm not

8 sure I understand you.

9 MR. CYMROT: That's correct. If you look, there is

10 45(c) which says the subpoena can be served anywhere in the

11 United States. Once the subpoena is served you have

12 jurisdiction. Then there is 45(b)(2), a subpoena can be served

13 anywhere in the United States.

14 THE COURT: Just a minute. I want to be with you.

15 MR. CYMROT: (b)(2).

16 THE COURT: For some reason I don't see what you are

17 talking about.

18 MR. CYMROT: Can I hand up a copy of the rules that

19 has been marked, your Honor?

20 THE COURT: I have the rule in my hand.

21 MR. CYMROT: Okay. 2, service in the United States, a

22 subpoena may be served at any place in the United States.

23 THE COURT: I heard D, as in David. I'm sorry.

24 MR. CYMROT: Okay, (b)(2).

25 THE COURT: You are talking about B as in boy.

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1 MR. CYMROT: Yes.

2 THE COURT: All right. Let me look at that.

3 (pause)

4 Let me see if I understand you and you are going to

5 need to correct me but I will try.

6 What you are saying is under 45(b)(2) a subpoena may

7 be served at any place within the United States. Okay. Let's

8 assume that a subpoena was served.

9 MR. CYMROT: Correct.

10 THE COURT: Somewhere in the United States. Then we

11 go to 45(c).

12 MR. CYMROT: 45(c).

13 THE COURT: Place of compliance. Now, how have you

14 applied, in your argument before me, how have you applied

15 45(c)? Can you go over that again, please?

16 MR. CYMROT: Once the subpoena is served, the Court

17 has jurisdiction over the deponent and can order him to appear

18 within 100 miles of where he resides or transacts business.

19 So, it doesn't have to be you serve him in New York and it has

20 to be the deposition in New York. We say he transacts business

21 here but if you disagree with us, you would say I find there is

22 no dispute on the record that he resides and transacts business

23 in London, I am ordering him to a deposition in London under

24 the Federal Rules of Civil Procedure.

25 THE COURT: Let me go with that again, slowly, with

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1 you.

2 MR. CYMROT: Yes.

3 THE COURT: If he has been served then you are saying

4 that the place of the deposition does not have to be in the

5 United States. Is that what you are saying?

6 MR. CYMROT: Exactly.

7 THE COURT: Are you sure of that?

8 MR. CYMROT: There is no case law on this, your Honor,

9 either way. There is a case where you exercise your discretion

10 not to order a deposition in Switzerland but Swiss wouldn't

11 allow a U.S. deposition. So --

12 MR. MASTRO: It is your decision, your Honor.

13 MR. CYMROT: Excuse me.

14 MR. MASTRO: I'm sorry. I'm happy to hand it up to

15 your Honor.

16 MR. CYMROT: I didn't interrupt you.

17 MR. MASTRO: I'm just trying to be helpful.

18 MR. CYMROT: I just told him about it. You exercised

19 your discretion not to order a deposition in Switzerland but

20 Switzerland would find it illegal to have a U.S. deposition in

21 Switzerland. England does not find it illegal to have a U.S.

22 deposition in England. So, you could order a deposition in

23 England. There are no cases either way on this, your Honor.

24 THE COURT: Mr. Mastro, you stood up?

25 MR. MASTRO: Yes, your Honor.

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1 Actually, there is a case right on point, it is your

2 decision in NML Capital, and your Honor will recall there was

3 proper service on a Mr. Caruana in New York, and this very

4 argument was made to you. Rule 45, there was no ability to

5 have a valid subpoena. He was properly served but Rule 45 said

6 no valid subpoena and the argument was made that you could

7 order him to give a deposition in Switzerland. I am going to

8 give it to you, by written question and you ruled: Neither

9 Caruana nor anyone else at BIS would be required to travel more

10 than 100 miles, however, the Court does not believe that Rule

11 45 is a device for having the discovery rendered in a foreign

12 country as plaintiffs suggest.

13 You have ruled on it. Definitive on it. Rule 45

14 doesn't permit you to order the deposition in a foreign

15 country. And I am going to hand it up to your Honor. So, I

16 think that answers the question, your Honor has answered it.

17 And we have other cases that reach the same

18 conclusion, your Honor, including the Fortress case by Judge

19 Lynch, same conclusion. Rule 45 doesn't allow the subpoena to

20 be valid even though properly served, can't order the discovery

21 in a foreign country.

22 MR. CYMROT: Your Honor, once you have jurisdiction

23 over him under (c), 45(c), which you gain by the service of the

24 subpoena, there is nothing -- I'm sorry, (b) -- under 45(b)

25 there is nothing in 45(c) that limits it to the United States.

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1 There is nothing in the commentary, there is nothing

2 in the rule itself. You have jurisdiction over him.

3 Now I can go on to talk about residence and doing

4 business in New York.

5 THE COURT: Okay. Go ahead. You address that.

6 MR. CYMROT: All right.

7 THE COURT: You address that.

8 MR. CYMROT: So, as I said, we have talked about Aspen

9 and the DMV records. If you need more evidence on that, then

10 we have subpoenas to the agent, Ms. Tarantino, who would have

11 additional records about who is paying for that house and whose

12 residence it is.

13 THE COURT: You are talking about Aspen?

14 MR. CYMROT: That's Aspen. I will move to New York.

15 THE COURT: Let's move to New York.

16 MR. CYMROT: All right. Mr. Moscow reminds me that it

17 is Mr. Mastro who represents the agent and it is Mr. Mastro who

18 represents Mr. Browder. It is Mr. Mastro who represents all of

19 these companies suggesting that there is a single set of

20 ownership here but the --

21 MR. MASTRO: I represent only Mr. Browder, your Honor,

22 no one else.

23 MR. CYMROT: You represent Tarantino and you filed the

24 motion to quash the other subpoenas to the agents.

25 THE COURT: Please, let's not get off into that.

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1 MR. CYMROT: Okay.

2 THE COURT: Let's stick to the point.

3 MR. CYMROT: Now, in New York what Mr. Browder has

4 told you is he does investment business in New York. All

5 right. Well, that's business in New York. He has sold a book

6 this year in New York, he contracted with Simon & Schuster. He

7 has been advertising. He has been in New York 10 days in

8 February. He has only admitted to two days. We have not been

9 trailing him. He has a tweet and other internet-type

10 disclosures, it is advertised where he is. 10 days in February

11 for a book. He says, Well, I'm not keeping the money. That's

12 not the point. Publishing a book, getting the income out of

13 New York is business by any definition. How he spends his

14 money is his own business.

15 But, publishing a book in New York, which he has done,

16 and advertising that book and marketing that book in New York

17 which he has done at least on 10 days in February alone, is

18 doing business on top of his investment business.

19 THE COURT: What do you say are the 10 days again?

20 MR. CYMROT: Your Honor, we put a chart together.

21 Mr. Mastro would like to correct himself. He signed a

22 pleading for Sundance, Aspen, Michael --

23 THE COURT: I can't hear you.

24 MR. CYMROT: I'm sorry. Mr. Mastro would like to

25 correct himself that he actually represents all of these

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1 companies to which subpoenas were issued about the Aspen

2 property.

3 MR. MASTRO: Yes, your Honor. We have appeared on

4 behalf of them as well but I am not really sure why we

5 interrupted the proceedings for that. But anyway, go ahead.

6 MR. CYMROT: So, Mr. Browder admits to 33 days in New

7 York between 2010 and 2015. His math is a little off because

8 we have only begun 2015 but I won't get into that.

9 These additional times in New York come from the

10 public record and the cites are right there. They come from

11 websites of appearances in New York. He says he wasn't there

12 on the particular day of the broadcast. He hasn't said that he

13 wasn't there to do the interview. And all of this could be

14 solved, your Honor, if Mr. Browder would give you his passport

15 which would tell you --

16 THE COURT: His what?

17 MR. CYMROT: He should give up his passport to you.

18 It will show you exactly how many times he has been to New York

19 over the last five years conducting business. But he hasn't.

20 What he has done is he has narrowly defined business and then

21 he has told you only about his investment business. He hasn't

22 told you about his book business which is clearly business, the

23 sale of a book in New York, and he hasn't told you about his

24 non-profit business because he says that that is not doing

25 business when it, as you pointed out, non-profit business is

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1 business and he has admitted that as CEO of Hermitage, his

2 company, that Hermitage is engaged in this worldwide human

3 rights campaign that he describes that as business. He says

4 that is my principal occupation now. That is what his

5 affidavits say. He is now engaged in non-profit business and

6 he hasn't disclosed to you the times he has been in New York or

7 Aspen or other places for that business.

8 So, what he does is he defines a term very narrowly,

9 he discloses only as to that term, and he does not give you

10 full disclosure about transacting business in New York. And

11 from the public record we could show 10 days in February, while

12 we are trying to get his deposition, and Rule 45 was amended,

13 45(c) was created for the convenience of the witness. Any one

14 of those 10 days, a day before or a day after he could have sat

15 for a deposition. He chose not to, he chose to run away. He

16 is being irresponsible. We would have taken a deposition in

17 London and none of this would have been necessary as long as it

18 was under the federal rules.

19 Let me go to the issue of party discovery. We have

20 taken party discovery to the extent of a Rule 30(b)6 deposition

21 and what did we learn? We learned from that 30(b)6 deposition,

22 on at least three occasions, the government said they got the

23 documents from Mr. Browder and the government doesn't know

24 where he got them from. So, we have to go to Mr. Browder.

25 This is central to the case, your Honor -- central to the case.

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1 THE COURT: I am not clear what you are saying now.

2 MR. CYMROT: I am saying why take Mr. Browder's

3 deposition? The government and Mr. Browder says take party

4 deposition first, take party discovery first. We did that. We

5 took a Rule 30(b)6 deposition of the government and the

6 government, on three occasions, said we got the key documents

7 that link Mr. Katsyv to the alleged fraud. We got those

8 documents from Mr. Browder and we do not know where he got

9 them. Let me quote page 174, line 18, of the deposition:

10 "Q How did Browder get the records he gave you?

11 "A You have to ask Mr. Browder."

12 175, line 7:

13 "Q How did Browder obtain the bank records that he gave you?"

14 Then the witness consults with counsel, the Assistant

15 U.S. Attorney. Answer page 176, line 6:

16 "A You have to ask Hermitage. Bill Browder never told me

17 where he was getting some of the information."

18 And that is then repeated at the bottom of the page:

19 He didn't tell us where he was getting his records.

20 177, line 7:

21 "Q Did you ask about the source and the authenticity of the

22 records?

23 Let me start that again, line 5:

24 "Q In the course of your investigation before you froze the

25 property, did you ask about the source and authenticity of the

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1 records?

2 "A Yes, we did. And Mr. Browder, to the best of my knowledge,

3 wouldn't reveal the source of some of his records."

4 This is the key link. There is the first 100

5 paragraphs of the complaint that tell the story about Russia

6 and the government and the theft and then there is this thin

7 link of these bank records that is the reason that the

8 government says Prevezon got some of the money. And

9 Mr. Browder gave those records to the government and would not

10 tell the government where he got them or whether they were

11 authentic. And, you know, how they could have proceeded takes

12 my breath away but they proceeded and now we are entitled to

13 take discovery of Mr. Browder about where those records came

14 from and whether they are authentic. And no matter how many

15 witnesses the government comes up with, Mr. Browder is the

16 source of those documents.

17 I might say, your Honor, we filed an affidavit. The

18 government says it has new witnesses. We filed an affidavit

19 with our papers from a Mr. Lurie who is a reporter in Russia

20 who spoke with Mr. Magnitsky in prison, they were both in

21 prison and Mr. Lurie says that he was approached by people

22 representing themselves to be representatives of Browder and

23 offered a bribe to change his story.

24 MR. MASTRO: Your Honor --

25 MR. CYMROT: So the government is coming --

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1 MR. MASTRO: Your Honor, I object to this.

2 MR. CYMROT: Sit down. I listened to you.

3 MR. MASTRO: This is a Lurie ambush to smear our

4 client, your Honor. We object to this.

5 MR. MONTELEONI: Your Honor, if the Court wishes --

6 MR. CYMROT: Excuse me, Mr. Monteleoni. I did not

7 interrupt --

8 THE COURT: There is one lawyer at the podium and I

9 don't think we have to have a bunch of other lawyers standing

10 up and speaking. We will take one at a time.

11 MR. CYMROT: My point, your Honor, is no matter how

12 many witnesses the government comes up with, Browder's

13 deposition is still a legitimate and necessary deposition in

14 this case and we will take it if you will order it in London

15 pursuant to the Federal Rules of Civil Procedure but we are

16 entitled to take it in New York. And the advantage of New

17 York, your Honor, is you could assign a magistrate to oversee

18 that deposition, sit in, resolve any disputes that come up in

19 that deposition because the way this has been litigated, that

20 deposition is going to be very difficult without a court

21 ordered officer present. And we would ask that it be ordered

22 in New York because he regularly transacts business in New

23 York. He has not been candid with you about how many times he

24 comes to New York and it would be better to be taken in New

25 York in front of a court officer who could resolve any disputes

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1 that would arise in the deposition.

2 THE COURT: Thank you.

3 MR. CYMROT: Thank you, your Honor.

4 THE COURT: Government?

5 MR. MONTELEONI: Yes, your Honor.

6 The government doesn't believe that it is necessary to

7 get into some of the points that Mr. Cymrot was making about

8 the deposition or these documents to resolve the issues that

9 are before the Court now, but if the Court has any questions

10 about that, I would be happy to explain some things that I

11 believe Mr. Cymrot was describing and didn't provide the full

12 picture.

13 So, I can explain if you want, but I don't need to be

14 heard if the Court isn't interested.

15 THE COURT: Thank you very much.

16 MR. MASTRO: Your Honor, just very briefly, and again,

17 I said we are not here today to get into the merits but

18 Mr. Cymrot has previously told you and your Honor noted it in

19 your Honor's opinion quashing the subpoena issued to Hermitage

20 Global that, "defendants claimed that, quote, Browder was not

21 in Russia when the key events in the verified complaint are

22 alleged to have occurred, has limited competent evidence on

23 peripheral subjects with no competent evidence about key issues

24 affecting defendants."

25 So, we hear something different today, but the fact of

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1 the matter is even the government has told you in the letter

2 that they submitted on March 6th that "it is not clear what

3 role, if any, Browder will play at trial of this case and to

4 what extent, if at all, he possesses relevant information not

5 obtainable through party discovery" because the government's

6 theory of the case has changed and have put in an amended

7 pleading, as your Honor is well aware.

8 Now, your Honor, two things: Mr. Cymrot asked you to

9 go where no Court in this country has ever gone and he cites no

10 case that has ever gone there. And he ignores your own

11 decision in NML where your Honor was asked to do exactly this:

12 A subpoena properly served in the Southern District but in

13 violation of Rule 45 and it was argued to you, you should

14 nevertheless order that person to sit for a deposition by

15 written question in Switzerland and your Honor said not doing

16 that. Can't do that.

17 THE COURT: Whoever can answer this, answer it:

18 The New York subpoena, I know I have got it in papers

19 before me but save me a little time.

20 MR. MASTRO: Yes, your Honor.

21 THE COURT: The New York subpoena was served when?

22 MR. MASTRO: February 3rd, your Honor; as Mr. Browder

23 was leaving a television interview that he gave in connection

24 with the human rights campaign and the book in the evening --

25 early evening of that day.

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1 THE COURT: All right. Now look. It is obvious that

2 the issue about taking Mr. Browder's deposition has been under

3 review, discussion and so forth for at least since very early

4 February. Now, I think it was Mr. Cymrot who gave me this

5 sheet that says Browder's New York appearances. Is that what

6 you gave me?

7 MR. CYMROT: Yes, your Honor.

8 THE COURT: Now, what this shows is that Mr. Browder,

9 since February 2, has been in New York for a book signing, for

10 appearance on television shows, etc., etc., numerous times. I

11 am not making rulings at the moment but I want to discuss

12 something.

13 MR. MASTRO: Certainly, your Honor.

14 THE COURT: All the lawyers here knew that the taking

15 of his deposition was a very hotly, highly discussed topic.

16 Why wasn't his deposition taken? He was in New York.

17 MR. CYMROT: He wouldn't agree, your Honor, and we had

18 to serve him and he ran away. That's why.

19 MR. MASTRO: Your Honor, if I can please address that?

20 THE COURT: I simply do not understand why his

21 deposition was not taken when he was in New York. Maybe during

22 that whole time of the first half of February or maybe he was

23 in and out of New York, but he was in New York over at least,

24 if not continually, over and over and over during early

25 February.

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1 MR. CYMROT: Your Honor, he is --

2 THE COURT: Why? His deposition will ultimately be

3 taken if it has to be taken in England. It will be taken

4 unless the defendant gives up on it. And I don't see any sign

5 of the defendant giving up on it.

6 Now, why were things not simplified so that he was

7 deposed in February when he was in New York either continually

8 or in and out of New York all the time? What an unbelievable

9 waste to be going through all of this when he should have been

10 deposed during that time.

11 MR. MASTRO: May I address that, your Honor?

12 THE COURT: Yes. You must have known they wanted his

13 deposition, didn't you.

14 MR. MASTRO: Your Honor --

15 THE COURT: The answer is yes, isn't it?

16 MR. MASTRO: The answer is yes.

17 THE COURT: Of course, it is. Why wasn't he deposed?

18 Why didn't you produce him?

19 MR. MASTRO: Your Honor, whether they want his

20 deposition or not, my client, a non-party to these proceedings,

21 does not have to consent to being deposed and to having the

22 burden which he has already sworn to the Court would cost

23 hundreds of millions of dollars to collect his documents that

24 they've requested.

25 THE COURT: Oh please. Please. Please.

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1 MR. MASTRO: My client, your Honor.

2 THE COURT: Please.

3 MR. MASTRO: My client does not have to consent to a

4 deposition just because they want one. My client has not even

5 agreed to appear here as a witness in the trial. My client

6 lives and works in England and has not agreed to be a witness

7 in this case.

8 THE COURT: You are really, really getting off the

9 point that I am trying to address.

10 MR. MASTRO: Please, your Honor. I want to address

11 your point.

12 THE COURT: It is a very simple, direct point. I have

13 a calendar which shows that he was in New York during the time

14 when he and all the lawyers knew that there was a desire for

15 his deposition. Now, of course he didn't need to consent to

16 it. I know that. But, there are times when people consent to

17 things and lawyers work with their clients to simplify and

18 prevent extensive and useless litigation and that's what should

19 have been done here.

20 MR. MASTRO: Your Honor, and I say this with great

21 humility, Mr. Browder finds himself as a human rights activist

22 standing up to the Putin regime in Russia as someone who the

23 government informed him there are credible threats going to his

24 personal security. He has very concerned about those issues --

25 THE COURT: Well, apparently --

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1 MR. MASTRO: -- and not subjecting himself --

2 THE COURT: Apparently the credible threats did not

3 prevent him from going on The Daily Show on February 3, Fox and

4 Friends on February 3, appearing on Sirius on February 3, going

5 on CNBC Squawk Box on February 3, going on MSNBC on February 5,

6 going on Greg Greenberg's program on February 6th.

7 Apparently the threats didn't prevent him from doing

8 that. Now why could he not have been deposed?

9 MR. MASTRO: That is correct, your Honor, and if you

10 actually aggregate those instances it occurs over a five to

11 six-day period.

12 THE COURT: A very important five or six-day period.

13 MR. MASTRO: I understand, your Honor, but

14 Mr. Browder -- Mr. Browder has put himself at risk to promote

15 the human rights campaign that he cares so deeply about but he

16 is not required and has not agreed to be a witness in this case

17 or to consent to being questioned in this case and Rule 45.

18 THE COURT: I know that. I know that. I know that

19 very well but I think it is regrettable because ultimately he

20 will, undoubtedly, be deposed, and it would have been so much

21 simpler to get it over with and have it in New York. That's

22 all I'm saying.

23 MR. MASTRO: Well, your Honor, I understand what your

24 Honor is saying. I respect what your Honor is saying. The

25 calendar that is in front of you is not actually accurate as to

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1 what days Mr. Browder was actually here as opposed to some

2 things having been taped and then played on a subsequent date,

3 so we would ask to be able to correct the record in that regard

4 but more importantly, your Honor, Mr. Browder has in fact not

5 agreed to be a witness in this case.

6 If they had gone through the Hague Convention which

7 they can do and there is no restriction in England on a

8 deposition -- the Hague convection restrictions of England are

9 at 184 of this record -- he could do that. And the fact of the

10 matter is they never asked us, in reality, because other

11 counsel who has worked on this matter is here before us here,

12 in this courtroom, and says that they never asked us or

13 Hermitage Global's counsel for a London deposition consistent

14 with those procedures.

15 Your Honor, what the fact of the matter is that Rule

16 45 exists for a reason. It means that unless somebody actually

17 resides, is employed or regularly transacts business in a

18 jurisdiction, they can't be subject to a Rule 45 subpoena.

19 THE COURT: I know. I am pretty familiar with Rule

20 45.

21 MR. MASTRO: I understand.

22 Your Honor, I just wanted to say that these extra days

23 that they're talking about, even if you counted all of them and

24 they're wrong in the count and we would be happy to put in an

25 additional submission to explain to you why they're wrong in

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1 the count and that it wouldn't move the needle the times he has

2 been here in connection with non-commercial activity, the fact

3 of the matter is that even if you counted all of their days in

4 the count, it would be less than nine days a year and Judge

5 Chin ruled that that is not enough for transacting business

6 even if you considered his human rights activity to be part of

7 that.

8 So, on the record before your Honor --

9 THE COURT: Let me interrupt you. I'm sorry.

10 MR. MASTRO: Certainly, your Honor.

11 THE COURT: I want to rule now on some things that

12 have not been completely discussed but they are on the record

13 here but they are discussed in the papers at length and I want

14 to rule on certain things before we go forward.

15 I want to rule on whether Mr. Browder was served in

16 Aspen and whether he can be deposed in Aspen under Rule 45. I

17 want to rule on whether he was served in New York and can be

18 deposed in New York under Rule 45. I want to rule on that

19 because it has been discussed very thoroughly in the papers and

20 time is going on this afternoon. So, if you could sit down I

21 will make my rulings.

22 Thank you.

23 MR. MASTRO: Certainly, your Honor.

24 THE COURT: My ruling is, as far as Aspen, as follows:

25 Although he may have been served in Aspen, he cannot be

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1 required to attend a deposition pursuant to that service.

2 My ruling and finding is that he does not reside in

3 Aspen, nor does he regularly transact business in Aspen and he

4 cannot be deposed in Aspen. So, if there are subpoenas

5 requiring him to be deposed in Aspen, those subpoenas are

6 quashed.

7 Let's come to New York:

8 I have reviewed the affidavits and declarations on the

9 issue of whether Browder was served properly in New York. I

10 have also seen a video of the events attending what occurred in

11 New York and it is my ruling that Browder was properly served

12 with process in New York City.

13 I do not accept the argument that somehow that service

14 of process was ineffective because of some fear of harm from

15 Russian officials. My ruling is that he was served in New York

16 City and properly served.

17 The next question is whether he is subject to

18 deposition in New York under Rule 45 and we are talking about

19 Rule 45(c), and it provides that a subpoena may command a

20 person to attend a deposition within 100 miles of where the

21 person resides, is employed, or regularly transacts business in

22 person. He certainly does not reside in New York but it is my

23 finding and holding that he has regularly transacted business

24 in New York, in person. During the years 2010 through 2014 he

25 has been in New York on a reasonably regular basis to discuss

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1 the matters occurring in Russia about Magnitsky that was not

2 commercial business but it was obviously important to him in

3 his human rights activity which he has become more and more

4 involved in. In my view, if you become an activist in a cause

5 for human rights or some specific aspect of human rights

6 dealing with the Russian government, for instance, then that is

7 the doing of business within the meaning of the rule, not

8 commercial business but it was a business that he undertook and

9 was in.

10 When we came around to February which was obviously

11 very recent, the records show he was very active in his human

12 rights activity and, in my view, looking at the record, I

13 conclude and find that he has started to become regularly

14 involved in the transaction of his human rights activity and

15 that is within the meaning of Rule 45(c) and places him within

16 the realm of being deposed in New York.

17 Now, therefore, I think there is a motion to quash

18 subpoena or subpoenas -- plural -- served in New York and that

19 subpoena or those subpoenas will not be quashed.

20 Now, Mr. Browder resides in England. As far as the

21 Court knows he is not in New York now and of course there is no

22 process by which this Court can direct him to come from his

23 home in England to New York or anywhere else in the United

24 States. So, although there has been service and there would be

25 a proper occasion for a deposition under Rule 45, the Court

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1 cannot order any deposition because he simply is, as far as the

2 Court knows, he is in England and that's where that stands.

3 MR. CYMROT: Your Honor?

4 THE COURT: Yes.

5 MR. CYMROT: You have found that he was properly

6 served in New York. You have jurisdiction over him and you can

7 tell him to come to New York and produce documents and give a

8 deposition. That's the whole point of serving a subpoena in

9 New York.

10 I would point out, your Honor, that he has already

11 announced he is going to be in Washington, D.C. on April 30th,

12 and so it is not a real inconvenience for him to come to New

13 York and give the deposition before or after that appearance in

14 Washington, D.C. And I would ask that you order him to do that

15 because you have jurisdiction over him, you found that. He

16 regularly transacts business in New York and it is not an

17 inconvenience for him to be here. And certainly, your Honor,

18 you can order him, even from England, to produce documents here

19 pursuant to that subpoena.

20 THE COURT: Let's take a short recess, please.

21 (recess)

22 THE COURT: The subpoena of Mr. Browder was adjourned

23 from its original date until the time of the hearing which has

24 occurred today. Therefore, the subpoena needs to have a new

25 date and the subpoena will now be returnable Wednesday, April

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1 15.

2 Now, it is time to get going on other aspects of this

3 litigation. This litigation is not all about Mr. Browder or

4 his deposition so the parties need to move forward on the

5 litigation, on the aspects that are central to the litigation,

6 and I think we need to have a conference on that. You work

7 that date out with my deputy clerk sometime in the next few

8 days and work out a schedule for the litigation as a whole.

9 As far as Mr. Browder is concerned, I have given you a

10 new date for his deposition. If there are any application

11 relating to his deposition we want to reduce the legal work and

12 paperwork to, I hope, zero, or almost zero. Therefore, if

13 there is any application about his deposition, anything about

14 his deposition further, we will cover it in a telephone

15 conference call on the record and that will be that. And

16 please do not file letters and other documents. No paperwork.

17 We have had enough of it and we don't need any more about

18 Mr. Browder's deposition.

19 That concludes today. We will have a conference about

20 the litigation as a whole at a time which you will work out

21 with my deputy clerk.

22 Thank you.

23 MR. MONTELEONI: Your Honor, may I be heard briefly?

24 THE COURT: What?

25 MR. MONTELEONI: It is true that there has been a

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1 great deal of paperwork about aspects of Mr. Browder's

2 deposition but the government has not yet had an opportunity to

3 submit motions that both parties have long known that it

4 intended to submit raising issues about certain extremely

5 important areas of the scope of the deposition. There are some

6 questions that the answers to which could potentially, in the

7 government's view, put people at risk and the government does

8 intend to seek a modification of the deposition and has always

9 intended to file this motion. That's why the service issues

10 came first. But the government does need an opportunity to do

11 that and that is going to have to be done on paper.

12 I would propose, if we are already going to have a

13 conference with the deputy in a few days, that between now and

14 then the government can talk to defense counsel about working

15 out a schedule for that --

16 THE COURT: No.

17 MR. MONTELEONI: Well, your Honor.

18 THE COURT: I mean it. We are having a conference.

19 Anything you need to raise can be raised on the record on a

20 sealed record and under no circumstances are we going to start

21 having a lot of more voluminous motions.

22 We can do everything we need on the record orally and

23 those records can be sealed if there is confidentiality

24 involved. That's the way we are going to proceed. We are not

25 going to start another round of voluminous motions. We won't

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1 do it. You come to the conference next week and you will see.

2 Okay?

3 Thank you.

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1 UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x

3 UNITED STATES OF AMERICA,

4 Plaintiff,

5 v. 13 Civ. 6326 (TPG)

6 PREVEZON HOLDINGS, LTD, et
al.,
7
Defendants.
8
------------------------------x
9 New York, N.Y.
March 16, 2015
10 2:50 p.m.

11 Before:

12 HON. THOMAS P. GRIESA,

13 District Judge

14 APPEARANCES

15 PREET BHARARA
United States Attorney for the
16 Southern District of New York
PAUL MONTELEONI
17 MARGARET GRAHAM
Assistant United States Attorneys
18
BAKER & HOSTETLER
19 Attorneys for The Prevezon Defendants
BY: MARK CYMROT
20 JOHN W. MOSCOW
LOURA ALAVERDI
21 -and-
BAKER BOTTS
22 BY: SETH T. TAUBE
-and-
23 GABRIELLA VOLSHTEYN

24

25

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1 (Case called)

2 THE COURT: Let me just start by noting for the record

3 that I received a letter from Michael Kim, dated March 13, and

4 this letter is on behalf of the Kim firm's client, William

5 Browder, and says that arrangements are being made for him to

6 produce documents and appear for deposition on April 15. Now,

7 I must say that that is extremely helpful and eliminates

8 potential further dispute on that subject.

9 There is a motion to dismiss by the defense and then

10 there is an interlocutory appeal that has been filed. So what

11 are the suggestions as to how to proceed further?

12 MR. MONTELEONI: Good afternoon, your Honor, Paul

13 Monteleoni for the government. On behalf of the plaintiff may

14 I go to the lecturn and address you on that matter?

15 THE COURT: Please do.

16 MR. MONTELEONI: Your Honor, as the Court noted, there

17 is a pending interlocutory appeal and there are pending motions

18 to dismiss and there is some overlap between those.

19 But what we believe would be most productive to

20 address today would be to set a discovery schedule going

21 forward or, if the Court doesn't wish to resolve some disputes

22 over the discovery schedule today, the Court could refer that

23 matter to the assigned magistrate judge. Regardless of the

24 pendency of the motions, the government believes, and we

25 understand that defense believes, that discovery should begin,

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1 should go forward.

2 Now, just to step back and to understand how we got

3 here, this case was filed in the fall of 2013 and it progressed

4 for several months and then in the spring of last year, almost

5 a year ago today, the defendants put party discovery on hold

6 because they had filed a dispositive motion, motion to dismiss,

7 and they didn't want to do discovery while they awaited that.

8 So during that time, though party discovery was on hold, they

9 pursued subpoenas, the last of which the Court recently

10 sustained, and the government also continued its investigation,

11 which resulted in an amended complaint.

12 In any event, party discovery has been on hold because

13 of the action of the defendants to put it on hold for about a

14 year. And we believe it's time for party discovery to go

15 forward. We'd like to set a schedule to do that.

16 Now, this is a complicated case and, as the Court

17 recognized last spring, the issues raised by discovery will

18 take a little bit of time to work out. If you remember last

19 spring, the defendants requested a very immediate trial, a

20 trial in a few weeks, and the Court initially was receptive to

21 that, but then the Court adjourned the trial because the

22 government pointed out there is going to be intensive document

23 discovery, there will be documents in Russian. Those documents

24 need to be translated. Experts may need to analyze those

25 documents, make reports about it. There may need to be

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1 extensive depositions. There is just a lot to do.

2 So the Court found that the government's objections

3 that there needed to be some decent time for discovery were

4 well founded, and the Court adjourned the trial, then

5 defendants put discovery on hold. So as far as party

6 discovery, we have not really gotten much farther since then.

7 There has been some third-party discovery from defendants and

8 the government has done some other investigation. But there is

9 still a lot that needs to be done as far as party discovery.

10 We have a plan which provides for a period of

11 discovery of several months. I can go into it in detail. We

12 understand that defendants have a plan that would call for a

13 very truncated period of discovery. We believe that several

14 months are required for discovery in a case of this complexity.

15 We propose that four months be set for document

16 discovery, that then because there may need to be international

17 depositions, that there be two months for depositions with

18 depositions to start after document discovery, to avoid

19 duplication. Then two months for experts and then the Court

20 can set a postdiscovery conference to set a quick motion

21 schedule, if there are any motions, and a trial schedule. That

22 would have the case teed up for trial around the end of this

23 year, and we believe that that is a reasonable proposal that

24 moves this case expeditiously forward, but allows the complex

25 issues that are involved in this case to be worked out.

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1 THE COURT: Let me ask you this. I think you are

2 assuming that the case will not be terminated in the Court of

3 Appeals by that interlocutory appeal, right?

4 MR. MONTELEONI: Yes, that's correct. Of course, we

5 could just stop discovery if the Court of Appeals or this Court

6 terminates the case. But in case they don't, we are happy to

7 start discovery going forward.

8 THE COURT: What do you say about this. The substance

9 of what's being presented to the Court of Appeals is almost

10 word for word what is presented in this court in a motion to

11 dismiss. Am I right?

12 MR. MONTELEONI: That's correct, your Honor, with the

13 exception of a few other arguments, but, yes, almost word for

14 word.

15 THE COURT: This is an odd posture, to say the least.

16 MR. MONTELEONI: Absolutely, your Honor.

17 THE COURT: But I certainly can't dismiss the appeal.

18 Has a schedule been worked out about the appeal?

19 MR. MONTELEONI: It is set for expedited briefing.

20 The briefing will conclude at the end of this month. We have

21 not yet received a calendar notice for oral argument, but it is

22 on an expedited schedule.

23 THE COURT: I intend to hold off deciding the motion

24 to dismiss until the Court of Appeals is finished with the

25 appeal. Whatever the Court of Appeals does, things can move

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1 quickly after that as far as the issues raised.

2 What you are proposing is to go ahead with, you say,

3 party discovery, right?

4 MR. MONTELEONI: That's correct, your Honor.

5 THE COURT: What do you have in mind as far as party

6 discovery?

7 MR. MONTELEONI: Your Honor, I have a little proposed

8 chart I will hand up to you, if you'd like.

9 THE COURT: I would like it.

10 My question was a little more specific. What do you

11 have in mind as to who will provide discovery and what you call

12 party discovery?

13 MR. MONTELEONI: Yes, your Honor. The United States

14 has come into possession of a number of documents that support

15 the allegations in the complaint and the United States will be

16 providing those to the defendants. The United States has also

17 served document requests on the defendants and intends to serve

18 some additional follow-up requests for documents in the

19 possession of the defendants, corporate records, contractual

20 records, bank records of theirs, certain relevant

21 correspondence and other such documents that may shed light on

22 whether the transactions that are really undisputed took place,

23 whether they were money laundering transactions.

24 So we believe that documents will need to be exchanged

25 and we believe that representatives of the defendants and

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1 affiliates of the defendants who were involved in the

2 transactions will need to sit for deposition. The United

3 States will identify individuals it would intend to call as

4 witnesses and will work with defendants to make them available

5 for deposition as well. And then once fact discovery is done,

6 then there might be experts.

7 THE COURT: Let's come back to depositions. What are

8 you talking about? We have got one deposition which is going

9 to take place on April 15 of Mr. Browder. What other

10 depositions do you believe need to take place?

11 MR. MONTELEONI: Well, we believe that the United

12 States is going to need to take depositions of the people who

13 were the owners and the officers of these companies, the

14 Prevezon companies, the people with knowledge of the

15 transactions that are the basis for the complaint. And the

16 United States is going to call some witnesses, also, in its

17 case and we understand that defendants may want to take

18 depositions of them and those witnesses won't be just

19 Mr. Browder and may not even include Mr. Browder. There may be

20 other government witnesses, but we also do believe that it will

21 be important to take the deposition of the people who were at

22 the defendant companies conducting the transactions that this

23 case is about.

24 THE COURT: These are employees of defendants, you

25 say?

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1 MR. MONTELEONI: Yes. Employees, owners, beneficial

2 owners, and the like.

3 THE COURT: I'm sure I've got it here, but can you

4 just help me out. Do you have a list of the defendants?

5 MR. MONTELEONI: Yes, your Honor.

6 THE COURT: Obviously, it's in the pleading, but I

7 don't have it right here. Wait a minute. I've got the

8 complaint here. I would like to look at that a minute.

9 The amended verified complaint has a list of

10 properties being sued in rem I take it, right?

11 MR. MONTELEONI: That's correct, your Honor.

12 THE COURT: I have your proposed schedule.

13 Who wants to speak for the defense, please?

14 MR. CYMROT: I will, your Honor. Mark Cymrot.

15 Your Honor, I don't agree with the history

16 Mr. Monteleoni just set out. You have an injunction in place

17 over all the properties of the Prevezon defendants and last

18 year we asked for a quick trial. You gave us a date at the end

19 of March 2014. And then the government asked for an extension.

20 They have now had another year to investigate this case. They

21 have been using a grand jury to investigate this case and not

22 giving us any of the information that the grand jury has

23 collected. They are using criminal MLATs, criminal mutual

24 legal assistance treaty requests to foreign governments to get

25 information about this case and not giving us access to that

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1 information. They treat this case as a civil case when it

2 serves their purpose and a criminal case when it serves their

3 purpose. But when they get Brady material or Jencks Act

4 material, they don't give it to us either.

5 THE COURT: When they get Brady material?

6 MR. CYMROT: Or Jencks Act material, things that in a

7 criminal case they would have to turn over. So, in other

8 words, they have gone for another year. We have now had 18

9 months of investigation by the government and they want

10 basically the rest of this year. And you have tied up all of

11 the property in an injunction of the Prevezon defendants.

12 There are two other defendants, Kolevins and Ferencoi,

13 both companies that have moved to dismiss on the grounds that

14 they have never done any business in the United States and you

15 don't have jurisdiction over them. That issue is not in front

16 of the Court of Appeals. And we would ask that you set a

17 schedule for arguing that motion or without argument decide

18 that motion because those defendants shouldn't be here.

19 THE COURT: Wait a minute. Let's slow down a bit.

20 MR. CYMROT: Sure.

21 THE COURT: What motion or motions to dismiss have the

22 defendants filed?

23 MR. CYMROT: There are two, your Honor. The Kolevins

24 and Ferencoi defendants have moved to dismiss on grounds of

25 lack of personal jurisdiction. And the other defendants, what

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1 I'm calling the Prevezon defendants, they have moved to dismiss

2 for failure to state a claim. While the grounds are, as you

3 noted, the same in the Court of Appeals, the issue is not the

4 same.

5 THE COURT: Why isn't the issue the same?

6 MR. CYMROT: Because the issue in the Court of Appeals

7 is only the injunction and there is a totally different burden

8 we have in overturning an injunction than there is if you were

9 just to dismiss the case because we say there is no claim

10 stated in that complaint. So you could moot the appeal, you

11 could moot the need for discovery, and you could dismiss the

12 case because the complaint fails to state a claim. And I can

13 go into that in greater detail if you want. I don't think you

14 need to wait.

15 THE COURT: Again, there are two motions to dismiss,

16 correct?

17 MR. CYMROT: Right.

18 THE COURT: What are their names?

19 MR. CYMROT: Ferencoi and Kolevins, the last two on

20 the list, your Honor.

21 THE COURT: For lack of personal jurisdiction.

22 MR. CYMROT: Yes. They are foreign companies that

23 have never done any business in the United States.

24 THE COURT: Then the other motion is what?

25 MR. CYMROT: Failure to state a claim in the amended

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1 complaint. In other words, the claim in general terms requires

2 two things. It requires a crime that can be found in the

3 United States called a specified unlawful activity. And we say

4 there is no allegation of a crime that can be prosecuted in the

5 United States in that complaint. They originally said it was

6 wire fraud because there was one wire, intermediary wire

7 transfer that they identified in the United States, but then

8 the Supreme Court decided the Morrison case and the Second

9 Circuit agreed with another case saying that's a domestic

10 statute, not a foreign statute. So that claim that specified

11 unlawful activity is no longer actionable. They claim two

12 other crimes in the complaint. One, allegedly, is the bribery

13 of a foreign official. But they have no foreign official who

14 has received any bribes alleged in the complaint. And the

15 third is fraud against a foreign bank, and they have no fraud

16 against a foreign bank alleged in the complaint. So that's in

17 the first hundred paragraphs. That's how they justified the

18 first hundred paragraphs, which supposedly alleges a specified

19 unlawful activity, and we say there is none.

20 The second piece is tying the specified unlawful

21 activity to the defendants. And this we have complained about

22 from the very beginning. There are supposedly tracing of 98

23 transactions where there is $1.9 million they claim went into

24 the bank account in Switzerland of Prevezon Holdings, one of

25 the defendants. And we say on the face of that tracing it is

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1 inadequate. I'll give you one for instance. They claim that

2 there was 19 and a half million dollars that went through a

3 Russian bank by the name of Krainiy Sever. They say, out of

4 that, $1.9 million went to the defendants. But they can't

5 separate the 19.5 from the 1.9. There is no link. And there

6 are other grounds in the motion to dismiss, also, your Honor.

7 THE COURT: It is my impression and information that

8 you're raising the same points in the Court of Appeals on this,

9 whatever you want to call it, interlocutory appeal and on the

10 appeal. Aren't you raising the same points?

11 MR. CYMROT: We are saying that an injunction should

12 not have been entered because there is no claim. So, yes, we

13 are raising the same arguments in the Court of Appeals, but on

14 a different issue, whether there was a sufficient grounds to

15 enter an injunction as opposed to just dismissing the whole

16 complaint, which is a lesser burden than overturning the

17 injunction.

18 If the complaint is invalid, the injunction is

19 invalid, so the issues overlap. But you have a lesser burden

20 here to dismiss the complaint.

21 Judge, if we win the appeal, we still have a case. If

22 we win the appeal, that eliminates the injunction, but you

23 still have a case to try and we want to schedule it because we

24 have had an injunction in place for 18 months. The government

25 has been taking discovery through grand juries. It's time to

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1 set the case for trial.

2 They say we suspended party discovery. We never

3 suspended party discovery. We said we wouldn't give them

4 documents that they were going to give to a grand jury. They

5 shouldn't be using a civil case for a criminal investigation.

6 And they didn't move to compel. And they wouldn't give us

7 documents.

8 So the government has had 18 months since the case has

9 been filed. We want a trial. Last November you said we could

10 have a trial in the spring. We would like a trial by June. We

11 can do whatever party discovery there has to be. He wants four

12 months to exchange documents. Why does it take four months to

13 exchange documents? We ought to be able to do it in 30 days.

14 THE COURT: How long will the trial take?

15 MR. CYMROT: The government says three weeks.

16 THE COURT: What do you say?

17 MR. CYMROT: Probably less than that, but we can

18 schedule for three weeks.

19 THE COURT: Can I have the scheduling book.

20 I won't try to review how we got to where we are

21 today. But a lot of attention had to be given to Mr. Browder's

22 deposition and that matter has been settled now. We have

23 motions to dismiss. There is an interlocutory appeal. You

24 must know that this court inevitably is concerned about the

25 existence of something in the Court of Appeals. What do I do

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1 in light of that? And whether it was a good idea for you to

2 file an interlocutory appeal, that's not up to me to say. If

3 the Court of Appeals doesn't feel there is jurisdiction, they

4 will dismiss the appeal. If they feel that they are going to

5 get to the merits, they will get to the merits. I don't know

6 what they will do. But something is there. And it's difficult

7 for me to see how I can schedule a trial until I know what is

8 going to happen in the Court of Appeals. I've got certain

9 things on my schedule that are crowded, as so often happens,

10 towards the end of the spring and so forth.

11 I think the best thing we can do is to schedule a

12 trial. But for various reasons it is not possible to schedule

13 a spring trial.

14 I am looking at September. Labor Day is the 7th and

15 I'm informed that Jewish holidays are the 14th --

16 THE DEPUTY CLERK: The 14th, the 22nd and the 23rd,

17 your Honor.

18 THE COURT: We can do it in two ways. A lot of it

19 depends on what the lawyers suggest. Look at September. As

20 far as I am concerned, I could start a trial on the 8th and if

21 there is a requirement for a recess for a Jewish holiday, we

22 can do that, or we can completely clear of holidays and start

23 the trial on the 28th or Monday, the 5th of October.

24 Considering everything, people help assisting me feel

25 that it would be a good idea to start the trial the 5th of

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1 October and we are clear of holidays, we are clear of certain

2 other matters that the Court is concerned with. So we will set

3 a trial date for this case and it will be the 5th of October.

4 MR. CYMROT: Thank you, your Honor.

5 With respect to the motions to dismiss, you want to

6 wait on those? Especially Ferencoi and Kolevins. They

7 shouldn't be participating in discovery when they have a motion

8 to dismiss on personal jurisdiction.

9 THE COURT: They are moving on personal jurisdiction

10 grounds. That should be decided soon.

11 Now, on the motion to dismiss on other grounds, I

12 don't know what the Court of Appeals can do with that

13 interlocutory appeal, but that's not my business. It's their

14 business and it seems to me that since we now have a pretty

15 long time before trial I would want to wait until the Court of

16 Appeals acts before I do the motion to dismiss.

17 MR. CYMROT: I understand. And I think within that

18 schedule we can work out with the government documents and

19 things like that. I don't think we need to resolve that today

20 with deadlines.

21 THE COURT: We don't need to do that.

22 MR. CYMROT: We can work it out.

23 THE COURT: I think that's all we can do today.

24 Anything else?

25 MR. MONTELEONI: Your Honor, if I may be heard on one

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1 or two things that could.

2 THE COURT: Go back to the lecturn, if you would.

3 MR. MONTELEONI: Absolutely.

4 One or two things that may help us move forward.

5 First, it's certainly the government's view that until such a

6 time as a motion to dismiss is granted against Ferencoi or

7 Kolevins, they are in the case and are subject to discovery if

8 discovery isn't on hold, just like any other party in the case.

9 In any event, it may be moot because Ferencoi and

10 Kolevins may be under the control of people who are in the

11 case. But the other thing that would help today is if the

12 Court could enter a confidentiality order governing the

13 exchange of documents.

14 THE COURT: Are you ready to present such an order?

15 MR. MONTELEONI: Yes, your Honor. I presented such an

16 order to defense counsel on Friday and have not heard back from

17 them.

18 MR. CYMROT: We don't agree, your Honor. The

19 principal issue being that they want to be able to use

20 documents from this case in criminal proceedings.

21 THE COURT: I got to hear you.

22 MR. CYMROT: I'm sorry.

23 THE COURT: Go back over that.

24 MR. CYMROT: We have a disagreement with that order,

25 we have for the last year, over the fact that the government

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1 wants to be able to use civil discovery in this case from our

2 clients to give to a grand jury and to use in other unspecified

3 proceedings, and we think that's improper. And I think if you

4 are going to decide that, we ought to brief that because that's

5 a very serious issue.

6 MR. MONTELEONI: Your Honor, I certainly don't have

7 any objection with submitting briefing on it. But I think that

8 defense counsel is not really accurately stating what's in the

9 order. I have a copy here, if I could hand it up.

10 THE COURT: What is the problem about this order? Who

11 wants to raise a problem?

12 MR. CYMROT: Mr. Moscow is going to speak to this,

13 your Honor.

14 MR. MOSCOW: Your Honor, this is a very peculiar case

15 in the sense that the government is using grand jury subpoenas

16 to collect evidence and they now want to put on civil parties

17 the obligation to produce records from all around the globe so

18 that they can use them against the civil parties who produced

19 them. We negotiated for a while over a protective order and

20 the way to resolve it is a very simple very classic one, to say

21 that whatever is produced in this case will not be used by the

22 United States in any criminal proceeding, full stop. The

23 government has refused that. Their view is that it will not be

24 used absent the right of law, absent the legal claim. But, of

25 course, what that means is, that in a civil case the party

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1 producing the documents, a grand jury issues a subpoena, the

2 documents go to the grand jury, or the transcript goes to the

3 grand jury. And we are saying, agree not to use it in any

4 grand jury, full stop. They say no.

5 THE COURT: Wait a minute. I'm lost on what you are

6 saying. Go over this again.

7 MR. MOSCOW: This is a civil case in which the

8 government is improperly using a grand jury to gather evidence.

9 Although there is nothing wrong with a grand jury gathering

10 evidence, you don't have the same people doing the civil case

11 and the criminal case at the same time using grand jury process

12 to collect documents. That's what they are doing. That's what

13 they have been doing. And we are not in a position to stop

14 them.

15 THE COURT: Can I interrupt you. You are raising

16 issues now that I'm not familiar with. I don't know what the

17 rules and regulations, what the law is about what you are

18 talking about.

19 MR. MOSCOW: Then could we brief it. I think it would

20 be simpler. I know we have burdened you with too many briefs

21 on too many subjects, but this is a very important one because

22 it deals with the intersection or the abuse of the criminal law

23 as a means of gathering evidence or the abuse of the civil law

24 to gather evidence in a criminal case, and it can be barred. I

25 would like to brief it, if we may.

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1 THE COURT: What does the government say?

2 MR. MONTELEONI: Your Honor, the short answer is that

3 we are happy to brief this issue on a schedule that moves

4 promptly and doesn't interfere too much with discovery now that

5 we have a trial date. But I would just point out that a number

6 of the remarks that Mr. Moscow have made are just not correct.

7 He said that the same people can't get grand jury information

8 in a civil action.

9 Actually, as we will point out in our briefs, under

10 Title 18 of the United States Code Section 3322(a), it's

11 entirely proper for grand jury information to be used in these

12 proceedings. He said that the government has been conducting

13 an investigation into crimes and that is true. There has been

14 a grand jury investigation that is also, however, entirely

15 proper. And he also said that the confidentiality order that

16 we proposed just allows unrestricted disclosure of this to a

17 grand jury. That's not actually what the order does.

18 And usually, in the ordinary case, the protection that

19 someone in a civil case has from incriminating themselves

20 through discovery is invoking the Fifth Amendment. Now, that's

21 what most people have to do. As an extraordinary accommodation

22 to the defendants, we offered a mechanism where they would not

23 have to be put to that burden of invoking the Fifth Amendment

24 privilege, like everyone else would. They think that this

25 isn't enough of an accommodation, that's fine, we are happy to

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1 brief it. But we request that it be set on an expedited

2 schedule for briefing, because this could hold up all

3 discovery.

4 MR. MOSCOW: On March 4 of last year the government

5 issued a subpoena which said: Please don't disclose because

6 it's a grand jury subpoena request, calling for the bank

7 records --

8 THE COURT: They did what on March 4?

9 MR. MOSCOW: They issued a subpoena to William Browder

10 asking that he keep secret the subpoena because they were

11 calling for the production of bank records, and they even sent

12 a certified --

13 THE COURT: Who did they issue the subpoena to?

14 MR. MOSCOW: William Browder, calling for the

15 production of UBS bank records.

16 Now, that is improper, and there is no way to get

17 around it. I don't know to whom they have issued the other

18 subpoenas about which they talk. I do know about the issue of

19 MLATs in countries which are only criminal, and they are

20 gathering evidence with those. We have to be very careful in

21 reading documents to make sure that there are not loopholes

22 because they will be exploited.

23 I would like to brief this. I suggest that the

24 resolution is for the government to simply say they will not

25 use the evidence we produced to them in any criminal

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1 proceeding. That's not all that hard. But if they refuse to

2 do that, which raises problems in itself, I would ask that we

3 get a decision from the Court on this.

4 THE COURT: Usually, pretrial issues are briefed when

5 somebody makes a motion. Now, that is certainly not something

6 that's invariable. But a motion does mean that there is a

7 clearcut issue. And to simply say, we are going to have

8 briefing on issues, that is not satisfactory because I don't

9 know what the boundary is of the legal problem presented and it

10 seems to me that if there is to be briefing there needs to be

11 some motion. And there can be a motion to allow the government

12 to do something. There can be a motion to prevent the

13 government from doing something. But a motion at least frames

14 the issue in a way that is not vague and advisory. There is

15 something definite.

16 If anyone wishes to make a motion now or file a

17 motion, that can be done. Obviously, it is better to file a

18 motion than to simply have it on the floor here, but it can be

19 done on the floor.

20 Is there a motion?

21 MR. MONTELEONI: Yes, your Honor. We will file a

22 motion to have the Court enter this confidentiality order. May

23 I confer with my colleague on a schedule?

24 THE COURT: Of course.

25 Let me amend what I said. I think I was not entirely

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1 accurate in what I was saying. It is, of course, a perfectly

2 regular procedure for one or all parties to ask the Court to

3 enter a confidentiality order, and I've been handed a proposed

4 confidentiality order. So I am going to ask that it be marked

5 Court's Exhibit A for this hearing and it will be part of the

6 record.

7 Now, the government is proposing this, right?

8 MR. MONTELEONI: Yes, your Honor.

9 THE COURT: That's certainly an application. Does the

10 defense object to this?

11 MR. MOSCOW: We do and we will be submitting a counter

12 order for your consideration.

13 THE COURT: That's fair enough. When will you present

14 that?

15 MR. MOSCOW: Can we have a week from tomorrow?

16 THE COURT: Of course. By a week from tomorrow, which

17 is March 24, we will get these on the file in some orderly way.

18 We will have the government's proposed confidentiality order

19 and the defendant's proposed confidentiality order.

20 And then let's assume the government files the first

21 brief. When can you file your brief?

22 MR. MONTELEONI: The following Monday, your Honor.

23 THE COURT: What's the date? What's that date?

24 THE DEPUTY CLERK: March 30, your Honor.

25 THE COURT: The government's brief in support of its

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1 confidentiality order will be filed March 30.

2 And the defendant's brief will be filed when, please?

3 MR. MOSCOW: The end of that week, your Honor. If

4 March 30 is the Monday, we could file on Friday.

5 THE COURT: What date is that?

6 THE DEPUTY CLERK: April 3, your Honor.

7 THE COURT: April 3. We have a schedule for briefing.

8 I'll enter a short order so that that's a matter of record. If

9 somebody needs to reply, that can be done, we will say, in due

10 course.

11 Is there anything else we need to do this afternoon?

12 MR. MONTELEONI: Nothing from the government, your

13 Honor.

14 MR. CYMROT: No, your Honor. Nothing further.

15 THE COURT: Thank you very much.

16 o0o

17

18

19

20

21

22

23

24

25

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1 UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x

3 UNITED STATES OF AMERICA,

4 v. 13 CV 6326(TPG)

5 PREVEZON HOLDINGS, LTD., et
al.,
6
Defendants.
7
------------------------------x
8
New York, N.Y.
9 May 27, 2015
2:30 p.m.
10

11 Before:

12 HON. THOMAS P. GRIESA,

13 District Judge

14
APPEARANCES
15 PREET BHARARA
United States Attorney for the
16 Southern District of New York
PAUL M. MONTELEONI
17 MARGARET GRAHAM
Assistant United States Attorney
18
BAKER & HOSTETLER, LLP
19 Attorneys for Movant Prevezon
MARK CYMROT
20 JOHN W. MOSCOW
GABRIELLA VOLSHTYN
21 PAUL LEVINE

22 BAKER BOTTS, LLP
Attorneys for Movant Prevezon
23 SETH T. TAUBE

24

25

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1

2 Appearances (Cont'd)

3

4 KOBRE & KIM, LLP
Attorneys for Non-party Browder
5 MICHAEL S. KIM
LINDSEY WEISS HARRIS
6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

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1 (In open court; case called)

2 THE DEPUTY CLERK: All parties are presented, your

3 Honor.

4 THE COURT: Sit down, please. I take it we have a

5 motion. Who wants to speak for the motion?

6 MR. CYMROT: Mark Cymrot for the defendants, your

7 Honor.

8 THE COURT: Yes.

9 MR. CYMROT: Your Honor, you signed an order last time

10 we were here that set April 15th as the return date on the

11 subpoena to William Browder and he produced some documents; but

12 as to at least 10 categories of documents in the subpoena, he

13 produced nothing or it was incomplete. I have a chart I wanted

14 to hand up if I could along with another document to show the

15 relevance of all of this.

16 THE COURT: I have this. Go ahead.

17 MR. CYMROT: So I have handed up two documents. One

18 is a chart we prepared that shows the subpoenaed document

19 request and shows that we relied upon in making that request

20 specific paragraphs of the amended complaint and then it shows

21 what was produced and you will see that the production is

22 substantially incomplete. We are now six weeks past the return

23 date on the subpoena and they are in violation of your order to

24 produce documents pursuant to the subpoena.

25 Now, their response is: This case between the

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1 government and Prevezon, leave us alone, we've done what we can

2 do. But that is not a proper response and I particularly

3 wanted to direct you to the relevance of one series of

4 documents that came out as a result of the deposition, which is

5 the other document I handed you. If you look at the second

6 page of it, it appears to be some sort of spreadsheet. This

7 was the basis for the purported tracing of money from the

8 Russian treasury through six layers of Russian and Moldavian

9 banks into the Prevezon account. This is the basis for the

10 lawsuit. It is some sort of spreadsheet that Mr. Browder could

11 not explain. Three categories of document requests asks for

12 documents regarding that tracing. That tracing is central to

13 this lawsuit. If the money is not traced into the Prevezon

14 Holdings account from the Russian treasury, there is no case.

15 This is what it is based upon.

16 THE COURT: What is it based on?

17 MR. CYMROT: Yes, the tracing of money from the

18 Russian treasury.

19 THE COURT: This is completely unreadable to me.

20 MR. CYMROT: Exactly, your Honor. This is the way it

21 came. We've enlarged it to try to make exhibits out of it, but

22 what does it mean? Mr. Browder couldn't explain it yet there

23 are documents that this had to be based upon. There are

24 documents in his possession that led to this document, which is

25 largely unreadable and certainly ununderstandable. You cannot

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1 understand how they could trace anything with this document.

2 THE COURT: Was he asked about this?

3 MR. CYMROT: Yes, he was. He says he doesn't know,

4 talk to his team. His team supposedly knows about this. This

5 is the man who has been going around the world saying that our

6 clients took money, a theft from the Russian treasury and this

7 is what it is based upon. He can't explain it and he produces

8 no documents backing it up. This is the case right here. You

9 are right it is unreadable. What do the columns mean? I don't

10 know what the columns mean. What documents were these based

11 upon? I don't know. He hasn't produced whatever documents he

12 has to back these up, yet this is the heart of the case. So

13 we're asking that you compel him to produce the documents that

14 you ordered him to produce.

15 THE COURT: This case was brought by the United States

16 government; right?

17 MR. CYMROT: Based upon this.

18 THE COURT: It is brought by the United States

19 government?

20 MR. CYMROT: Correct.

21 THE COURT: Now, if there is some discovery needed,

22 further discovery, further specification of what the claims

23 are, the United States government should answer that.

24 MR. CYMROT: If they want to specify claims, that is

25 fine.

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1 THE COURT: They are the plaintiff. We spent an

2 enormous amount of time and energy on the question of

3 Mr. Browder's deposition and I will tell you right now I don't

4 think anymore time or effort right now should be spent on

5 Mr. Browder. It seems to me obviously that you may need

6 information and you may need specifics; but if we keep spending

7 time on Mr. Browder, we'll never get the case completed. So I

8 am saying put Mr. Browder aside temporarily.

9 There has been almost no discovery of other people.

10 There has been almost no depositions. It could be that the

11 government needs to respond to some interrogatories about the

12 basis for the claim. If you are concerned about the basis for

13 the claim against your client, which you should be, but that is

14 the direction to go in. If we spend more time -- I am

15 repeating myself -- on Mr. Browder, we're not going to get

16 anywhere.

17 MR. CYMROT: I hear you, your Honor, and we'll follow

18 that lead. Can we keep the subpoena in place so that you have

19 jurisdiction over him so that if we can't get it from the

20 government, we get it from Mr. Browder because the story in the

21 complaint is his story?

22 THE COURT: I think it is a good thought. Keep the

23 subpoena.

24 MR. CYMROT: Continue the return date.

25 THE COURT: I can do that. You want to have an order

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1 that the return date is adjourned on anything further, I will

2 be glad to sign that order. We now have a trial date of

3 October 5. I think probably it's not possible to keep that

4 because there is a lot of work to be done. Let's get going on

5 the other work, other discovery. If there is a need for

6 knowing what the basis of the government's claim is

7 interrogatories could be asked of the government.

8 MR. CYMROT: We have taken a 30(b)(6) deposition so we

9 have what they say.

10 THE COURT: Who was deposed?

11 MR. CYMROT: The government designated Agent Hyman,

12 their chief agent as the deponent and we took his deposition.

13 THE COURT: Was that productive?

14 MR. CYMROT: Well, it's not completed. Was it

15 productive, well, the way we got to Mr. Browder was Mr. Hyman

16 said this case is based upon information provided by

17 Mr. Browder and his staff and nothing else -- very little else.

18 I don't want to overstate it.

19 THE COURT: You are talking about the deposition you

20 took of who?

21 MR. CYMROT: Agent Todd Hyman who is the chief

22 Homeland Security agent in charge of the case.

23 THE COURT: How do you spell it.

24 MR. CYMROT: H-y-m-a-n.

25 THE COURT: Agent Hyman.

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1 MR. CYMROT: Yes.

2 THE COURT: You took his deposition?

3 MR. CYMROT: Yes.

4 THE COURT: Well, he should know what the basis for

5 the case is. Did he testify to that?

6 MR. CYMROT: He did. He said it was Mr. Browder and

7 his staff and his documents which is why we spent so much time

8 on Mr. Browder because Agent Hyman pointed to Mr. Browder as

9 the source of the information.

10 THE COURT: If Mr. Hyman answered the relevant

11 questions in that way, that was certainly an inadequate answer.

12 What did he learn from Mr. Browder that he used to bring to

13 this case, did you ask him that?

14 MR. CYMROT: Yes, your Honor.

15 THE COURT: What did he say?

16 MR. CYMROT: You have got some documents and this was

17 among it. The document I pointed you to was among the

18 documents that we didn't have at the time of Agent Hyman's

19 deposition. We've gotten it since, but this is what the

20 tracing was based upon. So Agent Hyman said that he would have

21 done a more comprehensive job. The tracing was done by

22 Mr. Browder and his staff. They would not disclose the source

23 of the information, but they filed a complaint on that basis

24 anyway. This is why we're going after Mr. Browder because

25 after that kind of testimony what choice do we have?

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1 THE COURT: The choice you have is to require the

2 government to say what it learned and what it made use of in

3 filing this case. The government filed the case. Mr. Browder

4 didn't file the case.

5 MR. CYMROT: We asked them for interrogatories. We

6 propounded interrogatories and got responses also.

7 THE COURT: What were the responses? What

8 interrogatories did you propound?

9 MR. CYMROT: I can hand them up. If you look at

10 Interrogatory No. 1, it is Mr. Browder who is going to testify

11 to many things in the complaint. Mr. Kleiner is one of

12 Mr. Browder's employees. We're talk about other agents of

13 Hermitage. These are who the witnesses are. They are claiming

14 privilege. So we didn't get a lot of substantive information

15 other than go to Mr. Browder because he is going to testify to

16 all these things and then he couldn't testify to all of these

17 things. That is why these documents become so important, but I

18 heard you on the documents.

19 THE COURT: Look, am I correct or incorrect that you

20 are seeking to find out the specifics of what government claims

21 and the basis for the claims; isn't that right?

22 MR. CYMROT: That's correct.

23 THE COURT: Your client is being sued for

24 participating in money laundering; right?

25 MR. CYMROT: Correct.

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1 THE COURT: And you want to find out what is the basis

2 for that claim and what the evidence is in support of the

3 claim; right?

4 MR. CYMROT: Correct.

5 THE COURT: Well, I am telling you and I am telling

6 the government you go to the government and if the government

7 says, We'll see Mr. Browder, you better come back to me and I

8 will say think again. Spent enough time and effort on

9 Mr. Browder. If there are some things about the case that

10 you're entitled to know in the way of specifics or the basis of

11 the claims, get it from the government. The government. If

12 the government gives you a problem, then obviously I will take

13 care of that hearing both sides. That is where to go now.

14 MR. CYMROT: Can I ask you, your Honor, I understand

15 you are going away for some time so how should we handle it

16 while you're gone? Should we submit it to you in normal cause?

17 THE COURT: Submit it to my office. I am sure there

18 is not going to be something constant.

19 MR. CYMROT: We'll do that then, your Honor.

20 THE COURT: What other discovery? Mr. Browder is

21 being put aside. What other discovery are you going to seek?

22 MR. CYMROT: You signed the protective order and

23 resolved that issue so the parties can now exchange documents.

24 We'll probably finish Mr. Hyman's deposition. I don't know who

25 else from the government they are going to call as witnesses.

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1 These witnesses are outside the United States, the ones that

2 are listed in the interrogatory answers.

3 MR. KIM: Judge, Michael Kim for Mr. Browder. Since

4 we're not a party here, may we be excused?

5 THE COURT: Of course you may.

6 MR. KIM: Thank you.

7 MR. CYMROT: Your Honor, there are a couple of issues

8 that maybe we can discuss how they get resolved.

9 THE COURT: Okay.

10 MR. CYMROT: The government noticed a deposition of

11 Dennis Katsyv who is the owner of Prevezon Holdings and these

12 others companies, but they won't give him a visa to come into

13 the United States to defend this case. So we couldn't appear

14 for his deposition. I don't know how we resolve that. The

15 other thing is the government has sent Mutual Legal Assistance

16 Treaties requests to at least three countries I believe and two

17 that I know of for sure and they will not give us copies of

18 those. That's evidence they have that we ought to be entitled

19 to in a civil case. So we would like to tee those up to be

20 resolved because the government is saying we cannot have them.

21 THE COURT: What does the government say?

22 MR. MONTELEONI: Thank you, your Honor. The

23 government has told Mr. Cymrot in writing in an e-mail that was

24 submitted to the Court the last time Mr. Cymrot claimed that we

25 were preventing Dennis Katsyv from entering the United States,

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1 that when a deposition date for Mr. Katsyv was set, we would

2 parole him into the United States and give him letters of safe

3 passage. That issue is not a dispute. I don't know why

4 Mr. Cymrot claims that it is.

5 With respect to the MLAT requests, we've made various

6 requests.

7 THE COURT: What kind of requests are you talking

8 about?

9 MR. MONTELEONI: Well, we have treaties and

10 relationships with various governments that under which they

11 provide information both for criminal and for civil

12 investigations. We have received some information from various

13 governments and we will produce it to the defendants in

14 discovery.

15 THE COURT: Will what?

16 MR. MONTELEONI: We will produce the information that

17 we received from the governments, that is the evidence, we'll

18 produce that to defendants in discovery. Our correspondence

19 with the governments is not evidence of anything. Those are

20 confidential communications from one government to another.

21 The evidence that we've gotten, we will produce in discovery,

22 which we will undertake.

23 THE COURT: Good.

24 MR. CYMROT: Can I speak to that, your Honor?

25 The government of the United States used a criminal

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1 treaty to go to the Netherlands to enjoin property of Prevezon

2 Holdings. They will not give us that.

3 THE COURT: Say that again.

4 MR. CYMROT: Yes. They went to the Netherlands and

5 they asked the Netherlands government to go to a Dutch court

6 and get an injunction that duplicates the injunction that you

7 entered, the protective order that you entered. So there is

8 property that is enjoined in Holland that duplicates property

9 that is enjoyed here. Duplicates in value. We asked them to

10 give us a copy of that request because that treaty is strictly

11 criminal and they will not give it to us. That we ought to

12 have because we ought to know what they are saying to the Dutch

13 that duplicates. The property cannot be in Holland and also in

14 the United States. We filed motions on this. The property is

15 in Holland. It shouldn't be enjoined in the United States.

16 There is no case here. We ought to see what the government is

17 saying about that because they cannot have a case there and

18 have a case here. It is inconsistent.

19 We have been saying all along that the money went from

20 Switzerland, the alleged tainted money went from Switzerland

21 into shares of stock in Holland. The government after they got

22 an order from you enjoining property here went over there and

23 enjoined the same value of property over there. So there is €3

24 million that is frozen over there and you have frozen something

25 in the nature of $10 million over here. It duplicates. There

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1 is only $1.9 million of allegedly tainted money. So either

2 there is jurisdiction over there or jurisdiction over here. We

3 should be entitled to see what they are saying to the Holland

4 and what Holland has responded.

5 THE COURT: Really I don't understand what you are

6 saying.

7 MR. CYMROT: All right.

8 MR. MOSCOW: Your Honor, John Moscow.

9 THE COURT: The microphone will not pick you up. Keep

10 seated.

11 THE DEPUTY CLERK: Remain seated and bend the

12 microphone towards you.

13 MR. MOSCOW: Your Honor, the problem in Holland as

14 opposed to other countries is that the treaty is exclusively

15 criminal and the application for use of evidence in a civil

16 case. We're sort of very much interested in knowing what the

17 government said to the government of Holland about that and how

18 they say that there is money due in Holland given your order

19 here. The question of the use of the treaty and the reason why

20 we want more than the evidence, we want to know what was said,

21 is precisely because it is a criminal treaty.

22 There is a treaty with Russia that does permit for an

23 application of evidence in connection with forfeiture, though

24 it may be criminal forfeiture that was in mind rather than

25 civil. There are treaties with other countries. They each

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1 have different language and I have not seen any nation's treaty

2 that the government said has gone to that nation that permits

3 the transmission of evidence in a civil forfeiture case. I

4 have read the treaties, I have studied them, I have worked with

5 them in the past and I just don't see it.

6 So we have evidence being gathered by one apparent

7 misuse of the treaty process in the name of the United States

8 to gather evidence in a civil case by telling the foreign

9 country that it is criminal. That is disturbing to the extent

10 that we wanted to know what was gathered and the government

11 says we will not tell you. There are answers that are given to

12 questions that are asked which may not themselves be evidence.

13 The answers hypothetically dealing with the validity of the

14 government's claim are themselves evidence and yet are not

15 being produced because the government says we don't have to

16 produce our correspondence with foreign countries. I think

17 they are using it both as a shield and a sword. They are

18 allowed to misstate what they are doing and keep it secret

19 because it is diplomatic. That is a problem I have with these

20 multiple MLAT requests.

21 THE COURT: With the what?

22 MR. MOSCOW: Multiple Mutual Legal Assistance Treaty

23 requests. We're told at least of requests in Holland, in

24 Russia, and in Abu Dhabi, United Arab Emirates.

25 THE COURT: What is the last country?

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1 MR. MOSCOW: United Arab Emirates. There are

2 supposedly records of relevance from the complaint in Dubai,

3 which is one of those emirates.

4 If the government, for example, asks the Dutch to

5 freeze property but does not ask them to gather evidence and

6 then comes and misstates the purpose of the flow of funds,

7 which they could have gathered had they sought evidence, that

8 is an aspect of the case.

9 THE COURT: I am going to interrupt you.

10 MR. MOSCOW: Yes.

11 THE COURT: We started this hearing at least as far as

12 any statement of mine is concerned with the idea that we would

13 at least for the time being spend no more time or effort and

14 have no more direction from the Court as to Mr. Browder. The

15 idea was that the Court assumes there is other discovery that

16 needs to go on before the case is tried. I am told that a

17 government employee by the name of Hyman -- do I have it right?

18 MR. MOSCOW: Yes.

19 THE COURT: -- was deposed and now I want to go back

20 to Mr. Cymrot.

21 MR. CYMROT: Yes, your Honor.

22 THE COURT: Is there other discovery that you believe

23 you should have either something further with Mr. Hyman or

24 other forms of discovery?

25 MR. CYMROT: Yes, your Honor. We need to finish

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1 Mr. Hyman's deposition because he had childcare

2 responsibilities so we didn't finish. We have to do that. We

3 need documents from the government.

4 THE COURT: You need?

5 MR. CYMROT: First we need documents.

6 THE COURT: Has there been a request for production of

7 documents addressed to the government?

8 MR. CYMROT: Yes, your Honor.

9 THE COURT: Has the government responded?

10 MR. CYMROT: Yes, your Honor. Then we had the issue

11 of confidentiality which you've now resolved.

12 THE COURT: I want to back up a bit.

13 MR. CYMROT: Yes.

14 THE COURT: You've addressed a document request to the

15 government; right?

16 MR. CYMROT: Yes.

17 THE COURT: And I am going to ask you again, though

18 you probably answered, has the government responded to that

19 document request?

20 MR. CYMROT: Well, they responded in a pleading that

21 set forth objections. They have not yet given us documents.

22 THE COURT: They haven't produced documents. What

23 have they done?

24 MR. CYMROT: Well, we had this dispute about the

25 confidentiality agreement, which you recently resolved so we're

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1 now at the stage where we can exchange documents.

2 THE COURT: Very good. Document requests you believe

3 can now go forward but it has not been accomplished yet; right?

4 MR. CYMROT: That correct.

5 THE COURT: So there will be documents produced you

6 assume?

7 MR. CYMROT: Yes.

8 THE COURT: Now, are you contemplating any other

9 discovery before the trial of this case besides what we have

10 mentioned?

11 MR. CYMROT: Yes, your Honor. We have to finish

12 Mr. Hyman's deposition.

13 THE COURT: You've already talked about that.

14 MR. CYMROT: Unfortunately the witnesses they list in

15 response to interrogatories are not within the jurisdiction so

16 we're going to have to try to resolve whose actually showing up

17 at trial and how we get those depositions.

18 THE COURT: Wait a minute. You mentioned

19 interrogatories. Have you addressed interrogatories to the

20 government?

21 MR. CYMROT: Yes. That's what I handed up and this is

22 the response.

23 THE COURT: Just a minute, please.

24 Let's talk about interrogatories. The complaint has

25 been amended and I don't have in my memory the date of that,

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1 but I assume that you are considering whether it is necessary

2 to serve further interrogatories in view of the amendment of

3 the complaint. I don't know whether that is necessary or not.

4 I want to mention it so if it needs to get done, it will get

5 done and we won't wake up four months later with something that

6 needs to be done that should have been done now. I want to

7 just say on the subject of interrogatories if it is necessary

8 to review the interrogatories, review the answers to

9 interrogatories and determine whether there is any need for

10 further interrogatories or further answers in view of any

11 circumstances such as the amendment of the complaint. Please

12 do it promptly.

13 Do you understand me?

14 MR. CYMROT: Yes, your Honor.

15 THE COURT: Now, that is interrogatories. As far as

16 document requests, the same thing. I don't know what has

17 happened about document requests and I don't want to go over

18 the details of that at all, but again make sure you consider

19 whether the document requests that you have made are sufficient

20 and consider whether there is a need for any further document

21 requests in view of amended pleadings or for any other reason

22 and let's do that promptly so we don't wake up the day before

23 trial and realize something hasn't been done. So that covers

24 interrogatories and document requests.

25 Apparently this deposition of Mr. Hyman was not

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1 completed. You'll of course want to complete that; right?

2 MR. CYMROT: Yes, your Honor.

3 THE COURT: Now, are there any other depositions that

4 the defendant wishes to take?

5 MR. CYMROT: Well, your Honor, I think we're now close

6 enough to trial that the government ought to be able to tell us

7 who their witnesses are because at this point what we have is a

8 list here of foreign persons who may or may not be witnesses

9 and we have no idea how they are going to get bank records into

10 evidence. That is the critical issue in the case.

11 THE COURT: What list is that?

12 MR. CYMROT: This answer to interrogatory basically

13 we're look for witnesses and the first response is William

14 Browder. The second one is Vadim Kleiner, who is an associate

15 of Mr. Browder. There are some other people listed here

16 without addresses and appear to be foreign persons and there

17 are no other specifics. I think at this point the government

18 ought to able to tell us who their witnesses are and the

19 critical witness is who is going to put in records to trace the

20 money from the Russian treasury allegedly into the Prevezon

21 holding account. We need to know what witness or witnesses is

22 going to do that. If you look at No. 4 in their answer, there

23 is a list of people. It says, Current addresses unknown.

24 Well, how are we supposed to take those depositions?

25 THE COURT: Are you talking about the answers?

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1 MR. CYMROT: Yes. On page 5 there is a No. 4. This

2 is a list of four people. It says, We want to know where they

3 are. We don't even know who they are. It says, Current

4 addresses unknown. How can we take those depositions?

5 THE COURT: Just a minute.

6 MR. CYMROT: Yes.

7 THE COURT: As everyone in this room knows this is not

8 a routine case, but it is a case that the government has

9 brought and it makes what is on the face of it a very serious

10 claim that the defendant participated in money laundering.

11 That is to say the least something that would present any

12 defendant with some difficulty.

13 My view at this point is as follows: The government

14 needs to disclose to the defense everything it knows about its

15 case. Everything. In other words, the evidence at trial, the

16 evidence which the government will introduce at trial is to

17 disclose now or very promptly. There is no other way for the

18 defense to defend in my view. So witnesses that the government

19 intends to call, even people that the government doesn't intend

20 to call who the government believes has information relevant to

21 the case must be disclosed. The substance of what the

22 government intends to prove must be disclosed. Obviously we're

23 not going to have a trial conducted on paper and that is not

24 what I am talking about. I am talking about the substance of

25 what the government intends to prove must be disclosed. Not

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1 every detail, not every word of the potential testimony but the

2 substance. What is that the government is going to claim at

3 the trial, that has to be disclosed and disclosed promptly.

4 As far as further discovery, if the government

5 discloses what I have said had to be disclosed promptly, then

6 obviously the defense will have to decide what depositions,

7 what further discovery it needs, including depositions. Now,

8 it may be that there are people who might be potential

9 witnesses but whose depositions cannot be obtained because they

10 are in foreign countries or there may be circumstances. So the

11 government can't do the impossible and there may be some gaps

12 in what the defense is able to do if they would like to do.

13 Maybe there is nothing that can be done about that.

14 I want to leave everybody this afternoon with those

15 directions and what the essence is to get the defense fully

16 informed of what the government intends to prove at the trial

17 by whom.

18 MR. CYMROT: Your Honor, can we submit a written order

19 for your signature to that effect?

20 THE COURT: Sure. Let's adjourn this. Thank you.

21 MR. CYMROT: Thank you, your Honor.

22 MS. GRAHAM: Thank you, your Honor.

23 o0o

24

25

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1 UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x

3 UNITED STATES OF AMERICA,

4 Plaintiff,

5 v. 13 CV 6326 (TPG)

6 PREVEZON HOLDINGS, LTD., ET
AL.,
7
Defendants.
8
------------------------------x
9 New York, N.Y.
August 13, 2015
10 2:34 p.m.

11 Before:

12 HON. THOMAS P. GRIESA,

13 District Judge

14 APPEARANCES

15 U.S. ATTORNEY'S OFFICE
Attorneys for Plaintiff
16 BY: MARGARET GRAHAM
ANDREW ADAMS
17 JAIME NAWADAY

18 BAKER & HOSTETLER LLP
Attorneys for Prevezon Defendants
19 BY: MARK CYMROT
LOURA ALAVERDI
20 JOHN W. MOSCOW

21 BAKER BOTTS, LLP
Attorney for Prevezon Defendants
22 BY: SETH T. TAUBE

23

24

25

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1 (In open court)

2 (Case called)

3 THE COURT: Sit down, please. Sit down. There has

4 been correspondence of substance, and I wanted to start with

5 some comments on that correspondence. Of course, I want to

6 hear from the lawyers, but let me start because I have received

7 these written materials.

8 The government set or recommended a schedule. This

9 was attached to their letter of July 27, and it is a somewhat

10 detailed schedule. You've all seen it. It has, among other

11 things, after a number of other items, it has expert

12 depositions to be completed by January 29, 2016, and then it

13 contemplates that there will be motions for summary judgement,

14 or partial summary judgement, that would be filed and briefed

15 by February 29, and then trial would be scheduled after the

16 motions for summary judgement are decided, which means that the

17 trial would go into the spring of next year.

18 Now, the defense, in a letter dated July 29, requests

19 a more expedited schedule and the details are not listed, and

20 they don't need to be, but the request is that all document

21 discovery should be completed by August 7. Well, August 7 has

22 passed, but basically the request is a much more expeditious

23 handling than what the government proposes. The request in the

24 defense letter is to have depositions in August, and then

25 there's a recommendation that there be a discovery cutoff of

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1 September 15th.

2 Now, the crucial thing on the timing is the trial

3 date. Although motions for summary judgement are discussed,

4 and there may be motions and I don't know how they will be

5 ruled on, but I've got to contemplate, at this point, a trial.

6 Now, currently, there's a trial date set for October 5. It

7 seems to me, subject to comments from any of you here, that

8 that is now unreasonable, but I do not think it is fair to the

9 defense to talk about a trial date going on into next spring.

10 Consequently, I would like to set a trial date, subject to your

11 comments, but the trial date I propose is December 7.

12 Now, some other dates that I would propose, subject to

13 your comment, are the following: document discovery to be

14 completed by September 15; all discovery, including expert

15 discovery, fact discovery, completed by October 15. That would

16 allow any motions that people have a right to make to be made

17 and completed before the trial date I set.

18 So that is the schedule that I am setting, and, of

19 course, I would welcome any comments that any of you have. I

20 should note that I have a motion to modify or vacate the

21 protective order, but that's not been fully briefed, and I'm

22 not going to try to hear argument on that or make any ruling on

23 that today. So I'd be glad to hear any comments and have you

24 bring up anything else that you wish to bring up.

25 MS. GRAHAM: Yes, your Honor. Thank you. Margaret

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1 Graham on behalf of the government. I should note first that

2 Mr. Monteleoni very much wished to be here. He is, of course,

3 the attorney who is normally speaking at these conferences, but

4 he is currently in the hospital with his wife, who just gave

5 birth to their first child.

6 THE COURT: Well, convey our congratulations.

7 MS. GRAHAM: Thank you, your Honor. So he does send

8 his regrets.

9 THE COURT: I think that's a good reason to have you

10 here. All right.

11 MS. GRAHAM: Thank you, your Honor. I will convey

12 those to Mr. Monteleoni.

13 Your Honor, we agree that a trial cannot happen on

14 October 5th, and are entirely in agreement with that. Just to

15 briefly detail what has already happened with discovery, in the

16 hope that that will be helpful to your Honor. Joint discovery

17 in this case began on June 15th for various reasons, which I'm

18 happy to get into.

19 Since then, the government has produced 179,836 pages

20 of discovery, along with a 12-page summary of its anticipated

21 proof at trial at that time, in an effort to be helpful, which

22 was, of course, not required by the Federal Rules of Civil

23 Procedure. By contrast, the Prevezon defendants have produced

24 only 18,927 pages of discovery, 9,000 of which were produced

25 only last night at 5:00 p.m.

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1 Defendants Ferencoi and Kolevins, of course, have not

2 produced any discovery because there was a stay pending the

3 decision of the motion to dismiss. Of course, now we expect

4 them to promptly begin producing discovery.

5 There are numerous important deficiencies in the

6 defendants' document productions, which I'm happy to get into,

7 but I think that the key is where we stand today. Where we

8 stand today is the defendants have not yet answered the

9 complaint or asserted any affirmative defenses. After which

10 there, of course, may be need for further discovery and further

11 requests by the government, depending on their answer and the

12 affirmative defenses that they assert.

13 Of course, as your Honor knows, we need to conclude

14 document discovery, including any motions to compel, that might

15 be necessary. After that's over, we need to take at least 19

16 depositions, possibly more, depending on their answers and

17 affirmative defenses that they assert. And then, of course,

18 the experts will need the complete document discovery to

19 finalize their reports and the experts will also need to be

20 deposed.

21 And then, as your Honor noted, once discovery is

22 complete, we need time to brief the summary judgement motions.

23 We certainly intend to move for partial summary judgement,

24 potentially full depending on how the --

25 THE COURT: Let me interrupt you.

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1 MS. GRAHAM: Yes, your Honor.

2 THE COURT: I don't know who the 19 people to be

3 deposed are, but that's a lot of depositions, and what is a

4 good idea is to start with the most important and it may end up

5 that you only need two or three. But to sit here today and say

6 a schedule will involve 19 depositions taken by the government,

7 no.

8 MS. GRAHAM: I apologize, your Honor, that's by both

9 sides.

10 THE COURT: Well, all right. But that's still a lot

11 of depositions, and it will shake out. Depositions are

12 expensive, and if the parties take the most important ones, it

13 may be they don't have to go all the way with all those others.

14 That can shake out.

15 What I'm getting at is that -- and I'm interrupting

16 you, and I want to go back to you, but it is very important, in

17 fairness to the defense, to have as prompt a trial as possible,

18 and that's what we're going to do. You go ahead.

19 MS. GRAHAM: Absolutely, your Honor, and I welcome

20 your interruptions, of course. Your Honor, we are interested

21 in as prompt a trial as is possible. The defense, on the one

22 hand, has been claiming that they want an immediate trial, but

23 on the other hand, they are the ones who are not producing

24 document discovery, who are not telling us when they will be

25 able to conclude producing document discovery, who are not

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1 setting forth meaningful schedules that allow for both parties.

2 Essentially, they've been demanding discovery from the

3 government. They've been trying to notice all of the

4 government's witnesses for deposition, or at least nine of

5 them, without producing their own document discovery. And so I

6 think the fairness point that the defendants are pressing is

7 perhaps a bit unfair, given their actions, which have, in fact,

8 delayed discovery beginning until June 15th.

9 We only began discovery two months ago, and of course,

10 the government's only interest is in having sufficient time to

11 take adequate discovery because, of course, both parties in a

12 civil trial have the right to sufficient discovery from the

13 other side. And so really our only concern is to have adequate

14 time, and to proceed, as your Honor said, as quickly as is

15 possible to trial.

16 So given that, we think that a bit more of an

17 extended -- we're fine with document discovery by

18 September 15th. That would, of course, be joint document

19 discovery. However, we do think that there will be more time

20 needed for the depositions, and then I wasn't sure what timing

21 your Honor had in mind for motions for summary judgement. That

22 will, of course, require several weeks to brief, two weeks to

23 respond, a week to reply, and then time to decide it.

24 So given all that, we are concerned that the

25 December 7th trial deadline is tight. We're also concerned

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1 because we believe that we may need motions to compel certain

2 discovery productions from the defendants, and so we wanted to

3 make sure that there was time for all of that in the schedule

4 because we would hate to move the trial date yet again. Our

5 focus is really on a realistic trial date moving forward, your

6 Honor.

7 THE COURT: All right. Let's hear from the defense.

8 MR. CYMROT: I'm going to move to the podium, your

9 Honor.

10 THE COURT: Of course.

11 MR. CYMROT: Your Honor, the case is about to be two

12 years old. We were prepared to go to trial on October 5, and

13 we were taking discovery to do that. We noticed the

14 government's depositions, their witnesses, and they just

15 defaulted on the notice and said they would be available in a

16 couple of months. In 40 years I've never had somebody just

17 default on a notice and not come to the Court and ask for a

18 protective order. It was extraordinary.

19 THE COURT: Well, let me say this to you. If

20 depositions were dually noticed and the government was supposed

21 to attend those depositions and didn't -- is that what you say

22 happened?

23 MR. CYMROT: Exactly.

24 THE COURT: All right. It was open to you to

25 immediately come to court and get an order because no one has a

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1 right to simply, without agreement or without a court order, no

2 one has a right to fail to attend the deposition that has been

3 dually noticed. If that occurred, you had a right to come to

4 court, and I would have given you a remedy.

5 Now, are there still depositions that are noticed, and

6 is there still reason to believe that the government won't

7 attend, or has there been agreement on the schedule?

8 MR. CYMROT: There has not been an agreement on the

9 schedule, and the government has not been willing to produce

10 their witnesses. So we will re-notice them. We wrote you a

11 letter under the local rule, but I suppose we could have come

12 in with an order to show cause. I think you were away at the

13 time, but we did write you a letter about this.

14 THE COURT: Okay. Well --

15 MR. CYMROT: I would --

16 THE COURT: I've been away from court. Anyway, let's

17 just focus on the present.

18 MR. CYMROT: Yes, exactly. So the government says

19 that we haven't produced documents. Actually, we've produced

20 most of our documents. They say 18,000 documents. Seems like

21 a small number for them, but we're talking about a holding

22 company that held eight properties. How many documents can

23 there be?

24 We have another production to make next week, and

25 there may be some odd documents here and there. We're trying

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1 to get documents from third parties, but there are not huge

2 numbers of additional documents for the defense to produce.

3 We want to go ahead with the government's depositions.

4 They have been taking discovery through criminal process for a

5 year to a year and a half with grand jury subpoenas and MLAT

6 treaty requests. So to say that discovery started on June 15th

7 is really disingenuous. We haven't had discovery because we

8 can't use criminal process or MLAT requests, but they've been

9 doing it for 18 months, at least a year.

10 We, as you say, want an early trial date. There's

11 been an injunction in place for two years now, and we're

12 entitled to an early trial date. As you said, we agree with

13 that. You know, given where we are, your schedule is perfectly

14 fine with us.

15 We don't think the government should be permitted --

16 and this is one thing I would ask you to say -- to tell us what

17 order we have to take discovery in. That's what they said.

18 They said that we hadn't produced documents; therefore, they

19 weren't producing their witnesses. Well, that's largely behind

20 us, but we may not be entirely completed, but we're entitled to

21 take their witness depositions, and we would like to do that at

22 a fairly early time so that we know if there's anything else

23 that we need to do to prove the case.

24 Their case keeps changing. They keep changing

25 theories. You ordered them on May 29th to tell us what their

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1 theories are. They wrote us a letter, but even since then, on

2 the motion to vacate, now they have new theories. We want to

3 tie them down with depositions and with interrogatories so that

4 we know what case we're defending. We'd like to do that early

5 on so we would just ask that they not be permitted to set

6 preconditions to us noticing depositions of their witnesses.

7 Beyond that, I would ask --

8 THE COURT: I don't understand.

9 MR. CYMROT: They said we're not producing witnesses

10 because you haven't given us your documents yet, and then they

11 defaulted on the notice. We wrote you a letter. So they

12 shouldn't be able to tell us what order we can take discovery.

13 THE COURT: Let's start with the present.

14 MR. CYMROT: Yes.

15 THE COURT: Have you noticed depositions?

16 MR. CYMROT: Yes.

17 THE COURT: Then all parties must attend, unless they

18 get excused by an agreement or by order of the Court. That

19 will be the format from now on.

20 MR. CYMROT: Thank you.

21 THE COURT: Summer is over. Vacations are over.

22 We're back.

23 MR. CYMROT: Okay.

24 THE COURT: At least my vacation is over.

25 MR. CYMROT: Mine's about to begin, but that's not

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1 going to interfere with this.

2 THE COURT: It will not. But we will not talk about

3 vacations.

4 MR. CYMROT: It's too painful a subject.

5 THE COURT: But the point is that I will not put up --

6 if this happened, I will not put up with further failure to

7 attend depositions that have been properly noticed, and if I

8 received a letter from you and didn't respond with a remedy, I

9 apologize, but let's start with the present.

10 MR. CYMROT: Okay. So we have an answer due and

11 interrogatory answers due, and we would ask that you set the

12 time for that next Friday, a week from tomorrow, for our

13 answer. You just ruled on the motions to dismiss.

14 THE COURT: I know. That's fine.

15 MR. CYMROT: So next Friday for interrogatories also.

16 THE COURT: Now, next Friday for what again?

17 MR. CYMROT: The answer to the complaint and answers

18 to the government's interrogatories.

19 THE COURT: All right. Next Friday being? What's the

20 date?

21 THE DEPUTY CLERK: 21st, your Honor.

22 MR. CYMROT: 21st.

23 THE COURT: 21st, that's the due date for that. Very

24 good.

25 MR. CYMROT: All right. I think that takes care of

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1 the present. Let me just --

2 (Pause)

3 Sorry, your Honor. There is one issue that you might

4 be able to resolve. The government has said they're only

5 producing documents from the U.S. Attorney's Office in

6 Manhattan and from Homeland Security. Well, clearly, with this

7 scheme, there are documents in other locations in the

8 government, even the Justice Department. Mr. Browder has

9 visited the White House and the Treasury Department. There are

10 other departments, the FBI and Treasury and State and the

11 executive office, all should have relevant documents to the

12 scheme because they either investigated or Mr. Browder visited

13 them and made representations about this scheme.

14 So we would like you to broaden their discovery beyond

15 the Manhattan U.S. Attorney's Office and Homeland Security,

16 which is the one agency that investigated with Manhattan U.S.

17 Attorney.

18 THE COURT: Has Browder's deposition been taken?

19 MR. CYMROT: Yes, your Honor. It hasn't been

20 completed. If you recall, you retained jurisdiction over him,

21 and you told us that we had to wait for the government to

22 produce first. We may come back to you about that at a later

23 point in time because we're not getting from the government

24 everything that Mr. Browder should have, but we haven't

25 presented that to you yet.

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1 The situation now is you have jurisdiction over him,

2 and you've told us to finish our -- to go to the government

3 first, which we are doing.

4 THE COURT: I'd like to get an idea of what you feel

5 are relevant documents in this case. Obviously, it's not a

6 lawsuit on a registration statement.

7 MR. CYMROT: Yes.

8 THE COURT: It's not a lawsuit about an investment in

9 the ordinary sense. What do you believe are the kind of

10 documents that exist and that you should be getting?

11 MR. CYMROT: Yes. Yes, your Honor. There is, as

12 we've said, the big fraud scheme allegedly from the Russian

13 treasury, and the complaint tells a version of that story that

14 supposedly, according to the government, comes directly from

15 Mr. Browder. So in his deposition, I think there were parts of

16 that story that didn't hold up. The government I don't think

17 will have those documents and Mr. Browder does.

18 There should be documents that contradict his story,

19 and I could be more specific in a letter, but it's difficult

20 right now. But there is a couple of things that really go to

21 the heart of the case. The government says their specified

22 unlawful activity is fraud on a foreign bank, which in this

23 case is HSBC, as trustee for certain Hermitage companies.

24 Hermitage is Browder's companies, and we've gotten nothing on

25 that.

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1 There doesn't appear to have been any fraud on HSBC as

2 a trustee. They were only a trustee for a trust, but the whole

3 structure -- we've asked them for the structure, documents

4 relating to the structure of what HSBC was doing in this trust

5 and how Hermitage organized itself. We haven't gotten anything

6 on that. How could we defend against fraud on a foreign bank

7 if we don't have those documents? That's one category I know

8 we haven't gotten things.

9 There are other parts of this. For instance, the big

10 tracing from the Russian treasury --

11 THE COURT: Can I interrupt you?

12 MR. CYMROT: Yes.

13 THE COURT: Has there been anything between you and

14 the government which really defines the issues? Obviously, if

15 you start at the very outset what is claimed and what is really

16 in the complaint, you get into this problem with the Russian

17 government and funds of the Russian government and so forth and

18 so on.

19 I have serious questions of whether all of that is

20 relevant to Prevezon, and it seems to me that this is not a

21 case in which the Russian government is a defendant, or it's

22 not a case in which various other people who may have been

23 involved in the Russian government entities and so forth.

24 That's not this case. This case is about Prevezon, and it's

25 not going to do the government any good, the Court any good, or

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1 Prevezon any good, unless the issues are reasonably defined and

2 don't get into history, which is of interest, but not relevant

3 to Prevezon.

4 MR. CYMROT: I'll tell you --

5 THE COURT: What are the issues here about Prevezon?

6 MR. CYMROT: All right. There is issue -- principal

7 issue is, did it receive any money allegedly stolen from the

8 Russian treasury. The government claims $1.96 million. So

9 they have to trace that through more than a hundred different

10 transactions, according to them. That's one thing.

11 THE COURT: Wait a minute. Wait a minute. You're

12 going a little fast for me.

13 MR. CYMROT: Yes. If Prevezon didn't received the

14 proceeds of the theft, then the case ends right there. Right?

15 And the theft alleged is from the Russian treasury; so --

16 THE COURT: Well, what's the evidence pro and con what

17 you're talking about?

18 MR. CYMROT: All right. The government traces,

19 allegedly, through Russian banks and Moldovan banks, into a

20 Swiss bank, through more than a hundred transactions. They say

21 they can use accounting assumptions and show that $1.96 million

22 ended up in Prevezon's account in Zurich. A very complex

23 analysis.

24 We don't think they have admissible evidence, and we

25 don't think you can use accounting assumptions, and we don't

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1 think any accounting assumption will result in any proceeds of

2 a theft ending up in Prevezon's account in Zurich. That's

3 No. 1.

4 THE COURT: Now, wait a minute. Wait a minute.

5 MR. CYMROT: Sure.

6 THE COURT: Just give me a minute.

7 MR. CYMROT: Okay.

8 THE COURT: Where is my decision? I guess I've got it

9 here. I've got it here. Just a minute, please.

10 MR. CYMROT: Sure.

11 (Pause)

12 THE COURT: Look, I'm going to interrupt what we're

13 all talking about and say, of course, we're not trying the case

14 today, and we certainly won't go any farther in that direction,

15 if we even started. It seems to me that in the pretrial, which

16 will occur before the trial date we've set, it seems to me

17 legitimate to have a reasonable approach to the issues.

18 Prevezon is not being charged, as I understand it,

19 with taking the money from the Russian government. Although,

20 everybody seems to concede that money was taken. Prevezon is

21 charged with laundering. All right. It's a reasonably

22 specific allegation of what was involved, how much money and so

23 forth, with Prevezon claiming -- I'm talking about claimed by

24 the government.

25 Now, what I'm getting at is that in this pretrial

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1 period there should be an effort by the parties and also by the

2 Court to define the issues in this, what is undoubtedly an

3 unusual case.

4 MR. CYMROT: Your Honor, can I say something?

5 THE COURT: Please.

6 MR. CYMROT: Our case is very simple. Prevezon got

7 $1.9 million.

8 THE COURT: Say it a little louder.

9 MR. CYMROT: Yes. Prevezon got the $1.9 million --

10 the government claims it was from the Russian treasury -- from

11 an investor by the name of Leonid Petrov, invested it in

12 Holland, and then with its own --

13 THE COURT: Where did Prevezon get the money?

14 MR. CYMROT: From an investor, a retired Russian

15 businessman by the name of Leonid Petrov.

16 THE COURT: Petrov, okay.

17 MR. CYMROT: Petrov. Okay. Our case is simple. It

18 came from Mr. Petrov, and we invested his money, along with

19 some of Prevezon's own money, in real estate holding companies

20 in Holland. And then Prevezon, separately, invested its own

21 money and some of its -- other money of its owners, Mr. Katsyv,

22 in U.S. real estate, unrelated to this money, the $1.9 million,

23 except $540,000 in income from the Dutch investments, came to

24 the United States, that's it.

25 Our case is very simple. Their case is very

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1 complicated because they have to say this $1.9 million were the

2 proceeds of a fraud. They don't even have any witnesses to

3 talk about Prevezon. They have no witnesses that know anything

4 about Prevezon. So we have great sympathy for the idea it

5 ought to be simple. It's simple from our side. Their side is

6 this very complicated story that there was fraud on the Russian

7 treasury, bribery of Russian officials and fraud on a foreign

8 bank.

9 All of that is very complicated, and we say has

10 absolutely no basis, but our case is very simple. The money

11 they say came from the Russian treasury, we can identify the

12 man who gave it to us, and we gave them receipts

13 contemporaneous at the time, and that's it. So, you know, in

14 terms of our case, it's simple.

15 THE COURT: I have a memory that in the record thus

16 far there are references to certain east European countries.

17 MR. CYMROT: Yes. The government claims --

18 THE COURT: And I can't remember the names right now,

19 but you know what I'm talking about.

20 MR. CYMROT: Yes, Moldova, Latvia, Lithuania. They

21 claim this money that came from the Russian treasury came

22 through all of those countries and eventually found its way to

23 Prevezon. That's their case. It's very complicated, and we

24 say has absolutely no basis. They don't have admissible

25 evidence. They don't have a proper tracing. They can't

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1 possibly trace through all of those countries and, all of a

2 sudden, $1.9 million ends up in our accounts in Switzerland,

3 Prevezon's accounts in Switzerland. That's their case.

4 THE COURT: All right. They have their case, and

5 we're not going to try the case today, but the government

6 lawyer is standing up. What would you like to say?

7 MS. GRAHAM: Yes, your Honor. I stand up not to

8 address that.

9 THE COURT: What?

10 MS. GRAHAM: I stand up on a discovery point because I

11 know your Honor has said that we are not trying the case today,

12 and we will respect that. In our comments we believe that your

13 Honor certainly had plenty of time to consider these issues in

14 the motion to dismiss and will, of course, have time to

15 consider them in any motions for summary judgement.

16 But going to discovery today, we did want to ask your

17 Honor for one thing. We had initially planned on filing a

18 motion to compel because we had sent defense counsel a letter

19 on July 25th setting forth certain deficiencies, things that

20 they hadn't produced, and asking them to respond whether they

21 were going to produce those documents and, if so, by what date.

22 And those include things like Prevezon Holdings' own bank

23 records.

24 THE COURT: Prevezon's what?

25 MS. GRAHAM: Prevezon Holdings' own bank records.

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1 MR. CYMROT: We've produced them, your Honor.

2 MS. GRAHAM: Your Honor, they have not produced --

3 THE COURT: One at a time. One at a time.

4 MS. GRAHAM: Thank you. They have not produced their

5 accounts at Marfin Bank in Cyprus or a Swiss bank account that

6 they have. They have not produced their own tax filings, as

7 opposed to these subsidiaries, their own financial statements,

8 or really much as to the source of the money. And this is

9 based on our review thus far.

10 So we had asked them on July 25th to respond to that

11 letter, to let us know if they would be producing them. They

12 said they would, but they didn't. So rather than filing a

13 motion to compel and bothering your Honor with unnecessary

14 briefing, we would simply ask that they respond to our

15 July 25th letter within one week from today so that we can know

16 if we will need to file a motion to compel or not.

17 MR. CYMROT: Your Honor, we're producing everything

18 within our possession, custody and control. We're going to

19 third parties. For instance, there was an accountant --

20 THE COURT: A little louder.

21 MR. CYMROT: Yes. We are producing everything within

22 our possession, custody and control that's not privileged. We

23 are going to third parties. For instance, there was an

24 accountant that used to do work, who quit when you entered the

25 worldwide protective order. We're trying to get him to give us

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1 documents. I don't know whether he will or he won't, but

2 everything that our clients have that is called for and not

3 privileged will be produced. Most of it already has.

4 There will be another production next week, and there

5 may be some odds and ends after that, certainly within the

6 deadline that you've set. So that's where we stand.

7 MS. GRAHAM: Your Honor, all that we would ask is that

8 they respond to our letter within a week saying whether they're

9 going to produce them or not. That's all that I we would ask.

10 We set forth very specific documents, their own tax filings and

11 their own bank accounts. And we just want a "yes" or "no" on

12 whether they're going to produce them, and we think that that

13 would help avoid the need for unnecessary motions to compel.

14 Although, there may still be the need for them in the future.

15 MR. CYMROT: Your Honor --

16 THE COURT: Wait. I don't have the July 25th letter

17 on the bench. Can I --

18 MS. GRAHAM: Your Honor, I'm happy to pass that up.

19 That was between the parties.

20 THE COURT: Why don't you pass it up. I probably have

21 it, but it doesn't hurt to --

22 MS. GRAHAM: Your Honor, it was not filed. It was

23 simply between parties.

24 (Pause)

25 THE COURT: Well, the government raised the July 25

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1 letter, which was not filed with the Court and didn't need to

2 be, but as long as the government raised it, if there's an

3 issue about that, we may as well deal with that issue while

4 we're together this afternoon. Is there an issue, Mr. --

5 MR. CYMROT: Your Honor, I'm saying if there's

6 something on this list that we have, we'll produce it, but --

7 THE COURT: You mean the July 25 letter?

8 MR. CYMROT: Yes. For instance, they want to know

9 whether there are tax returns for Prevezon, which is a Cyprus

10 company, and I just told your Honor that the accountant quit

11 when you entered the worldwide protective order. We are

12 communicating with him. I don't know if there are any

13 obligations to file a tax return in Cyprus. If there are and

14 we can get them from him, we will do it. But that's No. 1. We

15 have produced all the tax returns of the New York entities.

16 All right? They've already been produced.

17 There are certain accounting records, No. 2, that were

18 in the hands of this accountant who quit. To the extent we

19 have any, they're either in the production or will be in the

20 production next week, but they're very limited.

21 The Marfin account we will produce, if we have any.

22 MS. GRAHAM: Your Honor?

23 MR. CYMROT: We want to produce it. It's helpful to

24 us.

25 MS. GRAHAM: Your Honor, we would simply ask that they

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1 respond to the letter. That's all we're asking, and that you

2 order --

3 MR. CYMROT: Well, we've told them the same thing over

4 and over again, but it's up to your Honor whether we have to

5 write letters or not.

6 THE COURT: You say respond to the letter. The letter

7 is a very detailed letter, and it seems to me, Mr. -- What is

8 his name?

9 MS. GRAHAM: Mr. Cymrot, your Honor.

10 MR. CYMROT: Cymrot, your Honor.

11 THE COURT: It seems to me what he is saying is they

12 will respond. They haven't completely responded. As to any

13 discovery issue, if it turns out that there is a legitimate

14 request for discovery by one party and the other party

15 allegedly hasn't responded, well, you apply to the Court, but

16 it seems to me it's -- I don't know that you're making any

17 application now. It seems to me it's premature because I think

18 what Mr. Cymrot is saying is that they intend to respond.

19 Right?

20 MR. CYMROT: Yes, your Honor.

21 THE COURT: All right. Let's leave it this way this

22 afternoon. We've set a schedule, and that's the more important

23 thing. There is, obviously, discovery that's going to take

24 place. If there are objections to how any party is responding

25 to the discovery, well, there's a court here you can apply to.

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1 What I ask is, to cut the paperwork to a minimum, is

2 to either have problems raised on a telephone conference or in

3 a conference here. I would like to avoid paperwork as much as

4 possible. And let's leave it at that for the day. All right.

5 Thank you.

6 MR. CYMROT: Thank you, your Honor.

7 THE DEPUTY CLERK: Thank you, all.

8 MR. CYMROT: Thank you, your Honor.

9 MS. GRAHAM: Thank you, Judge.

10 (Adjourned)

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25

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F927PREC

1 UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x

3 UNITED STATES OF AMERICA,

4 Plaintiff,

5 v. 13 Civ. 6326 (TPG)

6 PREVEZON HOLDINGS, LTD, et al.,

7 Defendants.

8 ------------------------------x
New York, N.Y.
9 September 2, 2015
2:00 p.m.
10
Before:
11
HON. THOMAS P. GRIESA
12
District Judge
13
APPEARANCES (via telephone)
14
PREET BHARARA
15 United States Attorney for the
Southern District of New York
16 BY: PAUL MONTELEONI
JAIMIE NAWADAY
17 Assistant United States Attorneys

18 BAKER & HOSTETLER LLP
Attorney for Defendants
19 BY: JOHN MOSCOW
MARK CYMROT
20

21

22

23

24

25

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1 (In chambers)

2 DEPUTY COURT CLERK: Counsel, please identify

3 yourselves for the record, beginning with plaintiff's counsel

4 for the government.

5 MR. MONTELEONI: Good afternoon, your Honor. Paul

6 Monteleoni and Jamie Nawaday for the government.

7 MR. MOSCOW: John Moscow and Mark Cymrot for the

8 defendants, your Honor.

9 THE COURT: All right. I think you all wanted a

10 conference. What do you want to accomplish at the conference?

11 MR. MONTELEONI: Well, your Honor, consistent with the

12 instructions that your law clerk conveyed to us on Friday, we

13 have been conferring with defense counsel. We have both been

14 conferring in good faith to try and narrow and streamline the

15 issues to present the case for trial. We have been proposing

16 some stipulations for them; we are engaging on that. So, for a

17 lot of matters there aren't issues that are ripe for your

18 resolution.

19 The government has one or two issues that it believes

20 are ripe now concerning the depositions of sort of the

21 principals of the defendant companies, a deposition of one

22 witness who has unusual safety issues, and the providing of

23 additional information related to some of the defendants'

24 discovery production so far. So, that's what the government

25 thinks is ready for the court's consideration now, and we can

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1 obviously take those issues in any order you want.

2 MR. MOSCOW: Your Honor, we had written to ask for a

3 conference because we were asking the government to let us know

4 from among the 167,000 pages of documents which they say they

5 produced the range in which their witnesses will be testifying.

6 And we disagree on that. They say that since we know the name

7 of the witness and it's only 167,000 pages, they have no

8 obligation to tell us anymore. And we are trying to get this

9 done. We have noticed the depositions, but it's a whole lot

10 easier if we know generally what they are talking about.

11 THE COURT: Well, listen, what is it that you want a

12 ruling from the court on? I take it you really want some kind

13 of rulings.

14 MR. MOSCOW: Yes. I'm sorry to disturb you under

15 these circumstances, but I would ask you to direct them to give

16 us the base ranges about which they say their witnesses are

17 going to testify. They say it's be about certain websites, and

18 we're asking which ones. And we may be able it work that out,

19 but I would ask for direction that we be told which websites,

20 what pages they are talking about in foreign language websites.

21 THE COURT: Wait a minute.

22 MR. MONTELEONI: May I be heard from the government on

23 that?

24 THE COURT: Just a minute, please.

25 DEPUTY COURT CLERK: Counsel, please identify

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1 yourselves before you speak so his Honor knows who is speaking.

2 MR. MOSCOW: Yes, I apologize. That was John Moscow.

3 THE COURT: Now, look, can you just go over that

4 again? I'm trying to make notes. Of course we have a court

5 reporter here, but I'm trying to make notes.

6 Mr. Moscow, what are you asking for a ruling on?

7 MR. MOSCOW: I'm asking you to direct the government

8 to let us know the base ranges of the documents. When they say

9 a witness is going to be testifying about certain documents, we

10 would like to know generally which ones so that we can look at

11 them and be prepared to depose them. We've noticed the

12 depositions; we are trying to go forward, but that would

13 greatly simplify life.

14 THE COURT: OK. Let me see if I understand. Give me

15 just a second.

16 Mr. Moscow, let me ask you this. I take it you're

17 talking about depositions that you will be taking; is that

18 right?

19 MR. MOSCOW: Depositions of government witnesses who

20 they have told us are --

21 THE COURT: I asked a very simple question.

22 MR. MOSCOW: Yes. The answer is yes.

23 THE COURT: All right. Let me make a note.

24 Now, on depositions that you will be taking, you want

25 in advance for the government to identify what?

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1 MR. MOSCOW: The documents which they will be asking

2 the witness to put into evidence.

3 THE COURT: Well, you are the one who is taking the

4 deposition.

5 MR. MOSCOW: Yes. Let me clarify that. The

6 government has told us the names of witnesses whom they intend

7 to call at the trial; and as to some of those witnesses we have

8 agreed they will be off the witness list. As to those who will

9 be testifying on the government list, we would like to depose,

10 for example, the agents, and ask them -- rather than

11 guessing -- we would like to know which documents it is that

12 they will be putting into evidence.

13 THE COURT: In other words, you want to know what

14 documents the government intends to put into evidence through

15 that witness; is that right?

16 MR. MOSCOW: Correct.

17 THE COURT: Let me make a note. Give me just a

18 minute.

19 It seems to me that this is a reasonable request on

20 the part of the defense. In other words, they are taking the

21 deposition of, say, a particular witness. Now, the reason

22 they're taking the deposition of that particular witness is to

23 find out in discovery in advance of trial what the witness is

24 going to testify at the trial. They have a right to do that.

25 Now, apparently there is a large body of documents

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1 potentially usable at the trial, and what the defense is

2 saying, as I understand it, is this: They can't sensibly ask

3 the witness to describe the documents the government intends to

4 use through that witness; it's up to the government to provide

5 that information, and then the defense can sensibly interrogate

6 the witness about that document or those documents.

7 Now, it seems to me, if I'm understanding the defense

8 request on that particular subject, that that is a sensible

9 request. I ask Mr. Moscow, am I stating it correctly?

10 MR. MOSCOW: You have correctly understood the

11 request.

12 THE COURT: All right. Now, it seems to me that is a

13 sensible request. Is there any objection by the government?

14 MR. MONTELEONI: Paul Monteleoni for the government.

15 Yes, to an extent.

16 We think that we can accommodate the defense to an

17 extent by selecting particular documents that we think are the

18 most likely to be used. In fact, we had talked about proposing

19 stipulations to the defendants last night, that we were going

20 to send over the numbers of these documents where there might

21 not even be questions about them at all. So, I was a little

22 surprised that this had to be a litigated issue right now.

23 The thing that we do object to though is, you know,

24 the idea that it would have to be exclusive, that we would have

25 to sort of come up with a list at the beginning before

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1 discovery is completed of essentially everything that would be

2 happening at trial through a witness document-wise. That would

3 be, we believe, like a trial on paper, which is what this court

4 has said that obviously we're not going to do.

5 So, we are very willing to provide -- we have already

6 provided substantial detail about what a number of these

7 witnesses will be testifying about. We will provide additional

8 detail about the documents. We just can't necessarily make

9 binding, exclusive identifications of every single document and

10 no others, until discovery is done and we have had the

11 opportunity through the summary judgment and pretrial order

12 process to really narrow the issues.

13 So, on the understanding that it's not going to be

14 exclusive, it's not going to be for all time, we will

15 definitely in good faith be happy to provide them with what we

16 think is salient.

17 THE COURT: What you say is how I believe it should be

18 done.

19 MR. MONTELEONI: Understood. Then no objection.

20 THE COURT: Let me just flesh what I said out. In my

21 wording this is a best efforts situation. In other words,

22 there should be best efforts to identify documents which the

23 particular witness will be asked about at the trial -- or

24 witnesses plural, because there will be depositions plural --

25 but it could very well be that despite best efforts, the

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1 government comes to trial and seeks to introduce into evidence

2 something that has not been previously identified. Well, if

3 there has been best efforts, then I would tend to admit what

4 I'm talking about into evidence, subject to what almost never

5 happens -- but it can happen -- maybe a short adjournment to

6 avoid prejudice, something like that. But I'm really basically

7 saying I think what you both have been saying, and really

8 that's my view of things.

9 MR. MONTELEONI: Thank you, your Honor. And can we

10 just ask to confirm that that applies to defense witnesses too?

11 THE COURT: Of course. Now, look, is there anything

12 else you want to cover in this conference?

13 MR. MONTELEONI: Yes, your Honor. The government has

14 one issue which it wishes a ruling on right now.

15 As the court may understand, there are some safety

16 concerns with several different witnesses in the case, but the

17 government has an issue with one particular witness who has

18 especially significant safety concerns. And to avoid needing

19 to redacting the transcript, I just won't mention the witness'

20 name, but the defense counsel know who this witness is.

21 MR. MOSCOW: We disagree with the characterization.

22 It's your wording, not ours.

23 MR. MONTELEONI: Sure. But you know who I'm talking

24 about.

25 MR. MOSCOW: Yes, absolutely. Paul, can I cut you

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1 short? If we schedule a deposition for October 1 --

2 THE COURT: Can I interrupt? Both were taking a bit

3 at the same time. Whoever is going to address this, can you

4 start over. And obviously no names will be mentioned. I

5 assume you know the names of the people you are talking about,

6 and they don't have to be named on the record before me. But

7 just without mentioning specific names, can you start over on

8 this issue, please.

9 MR. MOSCOW: John Moscow here. I and the government

10 have been discussing the scheduling of a particular deposition,

11 and I am proposing October 1.

12 MR. MONTELEONI: OK.

13 MR. MOSCOW: Does that resolve the question the

14 government was looking for?

15 MR. MONTELEONI: I think that that should. Certainly

16 if there are further issues, we can talk about it between the

17 two of us. And if there are more issues that the court would

18 need to resolve, then we will raise it then; but we think

19 that's fine, and we don't need a further ruling on that.

20 THE COURT: Now, is there anything else we need to

21 cover in this conference call?

22 MR. MOSCOW: Briefly. The schedule for experts calls

23 for the names of experts to be turned over -- I'm sorry, John

24 Moscow again -- before the conclusion of document turn-over,

25 and that's not appropriate; and government complained, and

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1 they're right. So, I am suggesting that we go for September 22

2 for the expert reports, and we go for October 20 for the reply.

3 But if that is too tight for the government, another week is

4 not going to kill anybody.

5 MR. MONTELEONI: Yes, we would request just another

6 week. We think one more week besides what you are saying would

7 be great.

8 THE COURT: One more week.

9 MR. MOSCOW: So September 27 and --

10 MR. MONTELEONI: Yes. Sorry. September 29, October

11 27.

12 MR. MOSCOW: OK.

13 MR. MONTELEONI: So, that's resolved.

14 THE COURT: All right, very good. Anything else for

15 this conference call?

16 MR. MONTELEONI: Nothing from the government, your

17 Honor.

18 THE COURT: Mr. Moscow, anything from you?

19 MR. MOSCOW: Oh, yes, there is a problem coming along

20 in regard to getting witnesses into the country, and I have

21 been speaking with Mr. Monteleoni about that.

22 I would ask that the court agree that it will order

23 that witnesses who come in pursuant to such an agreement not be

24 arrested, so we don't have to worry about which district we're

25 dealing with.

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1 MR. MONTELEONI: This is Paul Monteleoni for the

2 government. I think that with respect this may be a little

3 premature. We think that an order of that sort raises a number

4 of issues, like constitutional issues, that don't necessarily

5 need to be reached, and certainly shouldn't be reached by the

6 court in a call like this.

7 We have sent over a proposed safe passage letter, and

8 we're happy to discuss the wording further with defense

9 counsel. But, you know, I think that courts don't order

10 criminal prosecutions to happen or not happen, so we think that

11 there is a way that we can avoid the need for the court to

12 resolve whether to issue an unprecedented order of that sort.

13 MR. MOSCOW: We're not certainly seeking an order

14 regarding whether there is a criminal prosecution; we're merely

15 seeking an order barring any agency of the United States from

16 arresting somebody coming here to give evidence in a case

17 brought by the United States.

18 It's very hard to persuade people to come here under

19 circumstances where there is a criminal investigation going on

20 and their names are on the papers, and then they're told they

21 have to show up in the United States. It's very difficult.

22 The reason I raise it now is because, subject to the

23 government's agreement, if they aren't going to agree that

24 these people should come, then that's fine. No one is asking

25 the court to order them to. But if they do agree, we would

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1 like a court ordered stipulation, that's all, because then at

2 least we could negotiate. Otherwise, I don't know what the

3 clients will do.

4 THE COURT: Mr. Moscow, is there anything you want to

5 have a ruling on, order from me today?

6 MR. MONTELEONI: No, your Honor.

7 THE COURT: Because I would not be prepared. I would

8 have to have some preparation, and I don't have any preparation

9 now.

10 MR. MOSCOW: OK.

11 THE COURT: Anything else for this conference call?

12 MR. MONTELEONI: No. Thank you, your Honor.

13 THE COURT: Thank you both very much. All right, that

14 concludes this call. Thank you.

15 - - -

16

17

18

19

20

21

22

23

24

25

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1 UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x

3 UNITED STATES OF AMERICA, New York, N.Y.

4 v. 13 CV 6326(TPG)

5 PREVEZON, LTD, et al.,

6 Defendants.

7 ------------------------------x

8
October 1, 2015
9 3:19 p.m.

10
Before:
11
HON. THOMAS P. GRIESA,
12
District Judge
13

14 APPEARANCES (via telephone)

15 PREET BHARARA
United States Attorney for the
16 Southern District of New York
BY: PAUL MONTELEONI
17 MARGARET GRAHAM
CRISTINE PHILLIPS
18 Assistant United States Attorneys

19 JOHN MOSCOW
LOURA ALAVERDI
20 VERNON CASSIN
Attorneys for Defendant
21

22

23

24

25

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1 (Via telephone)

2 THE COURT: Hello?

3 MR. MOSCOW: Good afternoon, your Honor. John Moscow

4 here.

5 MS. PHILLIPS: Good afternoon, your Honor. Cristine

6 Phillips, Margaret Graham and Paul Monteleoni appearing on

7 behalf of the United States government.

8 THE COURT: And who is speaking now? Who is speaking

9 now?

10 MR. MOSCOW: I was just going to say, your Honor, John

11 Moscow here. And I'm with Vern Cassin for Baker Botts and

12 Loura Alaverdi for my firm.

13 THE COURT: For the government again, please?

14 MS. GRAHAM: Yes, your Honor. For the government,

15 Margaret Graham speaking currently, Cristine Philips and Paul

16 Monteleoni.

17 THE COURT: Now, who was going to speak mainly for the

18 government?

19 MR. MONTELEONI: Paul Monteleoni. That's me.

20 THE COURT: All right. Mr. Monteleoni. Here's what I

21 asked to have the call about, and to clear up any issues which

22 are presented by the letters of September 30, the first of

23 which, I believe, is the Baker Hostetler letter, and the second

24 I believe in sequence is the government's letter of the same

25 date.

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1 But I believe that the Baker Hostetler letter comes

2 first and the government's letter comes second. If I'm wrong,

3 correct me.

4 MR. MONTELEONI: That's right, your Honor.

5 THE DEPUTY CLERK: Mr. Monteleoni, please just state

6 your name before speaking. Thank you.

7 MR. MONTELEONI: Yes. My apologies.

8 THE COURT: Now, look, in the Baker Hostetler letter,

9 there is reference to the depositions that were noticed by the

10 government, depositions of Mr. Katsyv, C-A-T-S-Y-V, Mr. Litvak,

11 L-I-T-V-A-K, Mr. Krit, and what's referred to as the 30(b)(6)

12 deposition, and that will be a deposition also of Mr. Katsyv.

13 Now, the government noticed those depositions for

14 October 8th, and the Prevezon people -- just a minute. The

15 Prevezon people want to have an adjournment until October 12.

16 I don't see any reason not to have the adjournment. So unless

17 there are strenuous objections, I would grant the adjournment.

18 And the depositions will be adjourned in accordance with the

19 letter of Baker Hostetler.

20 MR. MONTELEONI: This is Paul Monteleoni on behalf of

21 the government. May I be heard briefly?

22 THE COURT: Of course you may.

23 MR. MONTELEONI: Thank you, your Honor.

24 Of course we will respect the Court's ruling, but we

25 want to explain that it's not every day that we object to an

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1 adjournment. And we really do have strong objections to an

2 adjournment in this case. As everyone knows, we have a trial

3 date on a very compressed schedule. We've been trying to fit

4 in a number of different things that have to happen after the

5 depositions are concluded; expert discovery, requests to admit,

6 summary judgment motions and ultimately trial preparation.

7 Now, these particular depositions, which we noticed to

8 start on October 5th -- so Monday, next week -- we intended to

9 take the week, which would be a very busy week, taking the

10 depositions of the principal defendant witnesses, the people

11 who are running the defendant companies. These are the most

12 important people to depose. They are the first people that the

13 government will depose. And pushing them back further to the

14 very end of the fact discovery period, which is what this

15 adjournment will do, is going to severely compress the

16 government's ability to intelligently prepare for trial.

17 And that's even leaving aside what else is scheduled

18 on the week of the 12th. On the 12th itself there are already

19 two depositions scheduled. On the 13th itself there are two

20 more depositions scheduled. On the 14th and the 15th, there is

21 one deposition on the 14th and potentially two more video

22 depositions the defendants just informed us about yesterday or

23 the day before. So that's without moving the four defense

24 depositions that they're seeking to adjourn into that week.

25 We're already double booking.

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1 But there's just a limit to how thin we can spread

2 ourselves. And our view is that these were depositions that

3 were noticed a month ago. The logistical issues are being

4 raised very much at the 11th hour. And they're not logistical

5 issues that couldn't be overcome. If the defendants had the

6 will to overcome them, they could. The defendants are very

7 capable of buying plane tickets within the space of a few days.

8 The defendants have now tried to add their own

9 favorite interpreter to the list, a name that they just

10 mentioned two days ago. That can't be done, but the US is

11 arranging for interpretation. And we really think that we have

12 given voluminous discovery. And we need our own discovery now.

13 And so we think that we would be severely prejudiced by further

14 pushing back the depositions of the defendants.

15 MR. MOSCOW: Your Honor, John Moscow here.

16 THE COURT: Right.

17 MR. MOSCOW: I am in the middle of deposing a witness

18 who has a great deal of trouble reading the documents with

19 which we were provided. They are in Russian. They are bad

20 copies. You've got 67,000 pages of that, and we are having

21 severe problems getting through it.

22 We are doing our very best. We are also double

23 booking depositions. We are moving this as fast as we can. We

24 made an application for a protective order in regard to our

25 clients being arrested by someone other than the Southern

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1 District. You ruled on that. I would ask now for assurances

2 that if something happens, that we will be able to come to you

3 for immediate relief, because I'd like to be able to tell them

4 something. They're people. They're human beings.

5 I understand that they have worries, and we are doing

6 our best to get this thing moving expeditiously. We're talking

7 about a relatively short adjournment. Rather than asking them

8 to travel when there's a hurricane coming to New York, I would

9 ask that we go forward. We can try with counsel professionally

10 to reschedule some of the depositions which are beginning to

11 appear less and less relevant as we get into the testimony of

12 other witnesses. And I think that we should be able to unblock

13 a couple of depositions, maybe a day or two of the ones that

14 Mr. Monteleoni referred to.

15 So I think that if we could go with that schedule, and

16 we would ask for the assurance that we can come to you if there

17 is a problem, we will be going forward. We will -- well, the

18 government says they would provide an interpreter for us to

19 talk to our clients. I read that as a statement that they are

20 not following what's going on. We need to be able to talk to

21 our clients. They aren't here. They have to travel into a

22 foreign country, in a foreign language. And we are really not

23 trying to create logistical problems. We are trying to get the

24 people whose interests are involved here to come here and give

25 truthful testimony so that we can, in fact, go forward with

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1 this case. But --

2 THE COURT: Now, look --

3 MR. MOSCOW: -- we're asking as a matter of human

4 courtesy to put this off. I appreciate the strain on opposing

5 counsel. We are all constrained. But if you would go forward

6 with this, we will do our very best to keep this thing going

7 forward, with this as a start, but going forward.

8 THE COURT: Let me interrupt and ask the question:

9 Right now what is the trial date?

10 MR. MOSCOW: December 7th, Pearl Harbor Day.

11 THE COURT: All right. Now, look, let me say this:

12 Is there any date set before that for the conclusion of

13 discovery? I don't have the calendar before me. Is there a

14 date set for the conclusion of discovery or something like

15 that?

16 MR. MONTELEONI: Paul Monteleoni. Yes. October 15th,

17 next Thursday, a week from today -- sorry, two weeks from

18 today, rather, is the conclusion of all discovery except for

19 expert discovery.

20 THE COURT: Now, say it again. Conclusion of --

21 MR. MONTELEONI: October 15.

22 THE COURT: Conclusion of fact discovery, October 15.

23 Now, is there a date for the conclusion of expert

24 discovery?

25 MR. MONTELEONI: There is a date for the submission of

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1 rebuttal expert reports. That's October 27th. We haven't

2 scheduled when the last expert deposition could be taken, but

3 we expect it would be promptly thereafter.

4 MR. MOSCOW: Mr. Monteleoni will correct me -- John

5 Moscow speaking -- he will correct me, but I think both sides

6 are working on this perhaps more hours a day than is good for

7 their comments and judgment.

8 THE COURT: Let me inject here. With a trial date of

9 December 7 -- just bear with me. I've got to look at this just

10 a little more. Just bear with me, please. I want to get back

11 to you, Mr. Monteleoni.

12 MR. MONTELEONI: Yes, your Honor.

13 THE COURT: Things went a little fast for me in the

14 conversation this afternoon. But what I do have in the Baker

15 Hostetler letter of September 30 is a request for an

16 adjournment of the noticed depositions from the week of -- I

17 guess it's October 7 to -- the week of October 5, I'm sorry.

18 The week of October 5 to the week of October 12.

19 Now, Mr. Monteleoni, is there any reason why there

20 cannot be that much of an adjournment that I've just spoken of?

21 You've probably answered the question, but it went a little

22 fast for me.

23 MR. MONTELEONI: Absolutely, your Honor. The problem

24 is the discovery deadline ends October 15th. And the week of

25 October 12th there are already two depositions on Monday, two

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1 depositions on Tuesday, one deposition and apparently a new

2 video deposition on Wednesday, one new video deposition on

3 Thursday. And that day, Thursday, is the end of fact

4 discovery.

5 Next week there are no other depositions scheduled

6 besides the ones that the defendants want to put off. So -- on

7 the 6th, 7th, 8th and 9th, sorry, on those particular dates.

8 So they would be taking those days off of the calendar and

9 making it very hard to do the depositions on the week of the

10 12th. It's very hard for me to see how this could possibly

11 happen without blowing the fact discovery deadline and pushing

12 more depositions further past the fact discovery deadline. And

13 the fact discovery deadline, as it is right now, is not that

14 long before trial.

15 So we believe that it is going to add extreme stress

16 to an already extremely compressed trial preparation period,

17 which we are working around the clock to comply with.

18 THE COURT: Let me just --

19 MR. MOSCOW: John Moscow speaking.

20 We can attempt with counsel to restructure the two

21 telephone depositions to get them earlier than they are

22 currently scheduled. And I believe that we can attempt to

23 reschedule a couple of the government witnesses as well. There

24 are at least three, and their depositions should be relatively

25 brief and relatively low pressure. So I believe we should be

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1 able to move those into the days that counsel is talking about,

2 7, 8 and 9.

3 MR. MONTELEONI: I think that that's unlikely, because

4 a number of these witnesses are coming from abroad. And we

5 can't change their travel plans on the drop of a hat to make

6 them come in sooner.

7 THE COURT: Who just spoke?

8 MR. MONTELEONI: Sorry. That was Paul Monteleoni.

9 We're happy to continue to discuss with defense

10 counsel at all times, but we -- on this issue, there really

11 isn't flexibility. It's going to be -- I don't see any way of

12 making it work without blowing the fact discovery deadline,

13 which would further compress an already very compressed trial

14 preparation period. And these are --

15 MR. MOSCOW: Paul, if I may.

16 MR. MONTELEONI: I just wanted to finish.

17 These were noticed over a month ago. And we think

18 that it's not going to be constructive to try to move them at

19 the 11th hour.

20 THE COURT: Who just spoke?

21 MR. MONTELEONI: Sorry. That was Paul Monteleoni. I

22 was just finishing up.

23 THE COURT: What are you speaking of when you say

24 "them"?

25 MR. MONTELEONI: The depositions that the defendants

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1 want to adjourn; the depositions for the week of October 5th;

2 the depositions for Litvak, Katsyv and Krit. Those depositions

3 were noticed over a month ago. Those depositions would cause

4 extreme disruption into our already compressed discovery and

5 trial period to move further.

6 THE COURT: All right. Let me just make a ruling.

7 The government noticed the depositions of Katsyv,

8 etc., for the week of October 5, Katsyv, Litvak and Krit. And

9 those notices were given a month or so ago, is that right?

10 MR. MONTELEONI: Yes, your Honor.

11 THE COURT: All right. The application to delay those

12 depositions is denied.

13 MR. MOSCOW: Your Honor, if I might.

14 THE COURT: Yes.

15 MR. MOSCOW: Two things. I would propose that the

16 deadline be extended to the 19th, because, look, we are talking

17 about people where the same passage letter was sent yesterday.

18 And Judge Griesa -- that is you -- said that you wouldn't have

19 your client come in on the basis of it. So we are trying to

20 persuade them to come in. We are doing our best. And we are

21 asking that we do this one step at a time, and that we be

22 permitted to get them in here and get them to testify, not on

23 Monday, but a week thereafter, so we have them here -- they're

24 going to be coming in without their interpreter. We're going

25 to try to be dealing with them. This is complicated stuff.

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1 When the government says that they will provide an interpreter,

2 that doesn't do it. We have to have one. It would be nice to

3 have one who knows the case. I understand that the government

4 is not willing to assist us in that.

5 But if this were extended until the 19th, which is

6 four days, we can get those depositions in within the schedule.

7 And we will not have the problems. I'm not talking about the

8 hurricane that's coming, in terms of a problem with air travel.

9 I'm simply mentioning that we are dealing with people far away.

10 And we would ask under all these circumstances that we be given

11 a week, and that we extend the deadline until the 19th. And we

12 will do our best to get everything done quickly.

13 THE COURT: Okay. Mr. Moscow --

14 MR. MOSCOW: We're doing that now.

15 THE COURT: Mr. Moscow, let me address you. You just

16 spoke, right?

17 MR. MOSCOW: Yep.

18 THE COURT: Now, the extension you're talking about is

19 the conclusion of discovery to be extended from October 15;

20 isn't that what you're talking about?

21 MR. MOSCOW: From the 15th to the 19th, the following

22 Monday, correct.

23 THE COURT: And then is there any objection to

24 extending that from the 15th to the 19th?

25 MR. MONTELEONI: Yes, your Honor. We would ask you to

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1 stick by your original ruling. We need to get fact discovery

2 done. And we certainly can't extend it to the extent of

3 pushing these extremely important depositions that close to

4 trial.

5 THE COURT: Well, look, the trial is -- we're talking

6 about a trial date of December 7. And can I just say, you all

7 know your problems. You know what you're dealing with with the

8 witnesses. You all know it in detail far more than I know it.

9 And I suppose that I have to make some decisions and some

10 rulings. But I don't have nearly as much information as you

11 do.

12 Now, we've got complications. Very important

13 witnesses need to come from abroad. And there has to be

14 depositions. There have to be depositions, and then there will

15 be a trial. And so it is a complicated picture.

16 At the same time, everything that has been voiced here

17 today indicates that Mr. Monteleoni is very reasonable and

18 Mr. Moscow is very reasonable. You're dealing with problems,

19 but I don't have lawyers here who are obstructive or presenting

20 unnecessary problems at all. And I think we have to establish

21 a schedule here on the phone. And I wish that you could agree

22 on a schedule.

23 Is there a possibility in this discussion that you

24 could, by talking back and forth? Could we agree on a

25 schedule?

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1 MR. MOSCOW: Your Honor, if we might call you back,

2 Mr. Monteleoni and AUSA Graham are here at Baker Hostetler in

3 the middle of a deposition. We can sit down and try to work

4 out a schedule involving reshuffling of, for example, the

5 telephone depositions from abroad and the like to maximize the

6 convenience and minimize the inconvenience to counsel and to

7 get this job done. I think we should be able to do that.

8 We'll try.

9 THE COURT: Who is speaking now?

10 MR. MOSCOW: That was John Moscow, your Honor.

11 THE COURT: Well, listen, I really think that you two

12 who are eminently reasonable, although you've got problems, I

13 think you can do a better job than I can do, to be perfectly

14 frank with you. And if in the course of the afternoon, or even

15 tomorrow, being Friday, if you can agree to something, it will

16 be a lot more informed than if I try to set down rulings, and

17 the next thing after I make a ruling, somebody comes back and

18 says, well, it won't work. And I don't blame you for saying it

19 won't work.

20 So I would very much welcome the idea that you try

21 today and tomorrow to work out an agreement for these items

22 that we're talking about. And I think I've had a proposal to

23 adjourn the matter with the Court and to try to work out an

24 agreement.

25 Is that agreeable to both of you?

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1 MR. MONTELEONI: Yes, your Honor. We will engage with

2 defense counsel, and we will submit you our positions, which we

3 hope to include in agreement. But we will submit our positions

4 one way or another by tomorrow.

5 THE COURT: Was that feasible, Mr. Moscow?

6 MR. MOSCOW: We will make it so, your Honor.

7 THE COURT: All right. Listen, this is the best way

8 to do it. And I think you can work together better than if I

9 try to supervise without too much knowledge. So let's adjourn

10 this but have a report by the end of the day tomorrow.

11 Thank you very much.

12 MR. MOSCOW: Thank you, your Honor.

13 MR. MONTELEONI: Thank you, your Honor.

14 (Adjourned)

15

16

17

18

19

20

21

22

23

24

25

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1 UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
2 --------------------------------x

3 UNITED STATES OF AMERICA,

4 Plaintiff,

5 v. 13-cv-6326 (TPG)

6 PREVEZON HOLDINGS, LTD., et al.,

7 Defendants.

8 --------------------------------x

9 New York, N.Y.
October 13, 2015
10 3:30 p.m.

11
Before:
12
HON. THOMAS P. GRIESA
13
District Judge
14

15 APPEARANCES
(via speakerphone)
16
PREET BHARARA
17 United States Attorney for the
Southern District of New York
18 BY: MARGARET S. GRAHAM, ESQ.
Assistant United States Attorney
19
BAKER & HOSTETLER, LLP
20 Attorneys for the Prevezon Defendants
BY: MARK A. CYMROT, ESQ.
21

22

23

24

25

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1 (In chambers)

2 THE COURT: Hello?

3 MS. GRAHAM: Hello, Judge.

4 MR. CYMROT: Hello, Judge. Mark Cymrot for the

5 defense.

6 MS. GRAHAM: Good afternoon, your Honor. Margaret

7 Graham on behalf of the government.

8 THE COURT: Now, look, I got a letter from Mr. Cymrot

9 dated October 12 and a letter from the government dated, I

10 guess it's today, the 13th.

11 Now, what I wanted to say is that I don't really agree

12 with the government that there has to be some -- I'm not sure

13 what you're arguing, but apparently you're arguing that

14 Mr. Cymrot should comply with some formality under Section

15 983(f). There's really no reason for that. Mr. Cymrot has

16 complied with 983(f) by making a request. And it seems to me

17 that it is inevitably some considerable burden to have to come

18 to New York for depositions from, I guess it's the United

19 Kingdom.

20 MR. CYMROT: It's Russia and Israel, Judge.

21 THE COURT: OK. Well, I stand corrected. In other

22 words, they would have to come from Russia and Israel. Is that

23 right?

24 MR. CYMROT: Yes. They're here. They're being

25 deposed this week, Judge, and they're here. But they came from

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1 Russia and from Israel.

2 THE COURT: I know they're here. But that doesn't

3 eliminate the issue of expense, right?

4 MR. CYMROT: Correct. I mean, it's been very

5 expensive.

6 THE COURT: I'm sure it has been. In any event,

7 things moved quickly, as they should have, and that is good.

8 But the expense of coming from Russia and Israel is obviously a

9 burden. And so I believe that there really is no need for a

10 lot of formality. It seems to me that Mr. Cymrot's letter is

11 quite an adequate request that, out of the $15 million which is

12 restrained, the expense of travel and so forth to New York to

13 take these depositions pursuant to the court order should be

14 taken out of the 15 million. I just believe that that's the

15 right way to do it.

16 MS. GRAHAM: Yes, your Honor. If I may be heard.

17 THE COURT: Yes.

18 MS. GRAHAM: Your Honor, we would strongly object to

19 the money being taken out of the 15 million based on what

20 Mr. Cymrot has stated. He has not stated that they cannot pay

21 the money. He has not set forth any basis for the hardship

22 that they are incurring in paying the money or demonstrated

23 that they do not have the resources to pay the money.

24 And releasing the funds without any explanation of the

25 actual travel costs that have been spent or any explanation of

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1 the need for such funds, in other words, their current

2 financial state, would be unprecedented. Once funds have been

3 seized, as they were here pursuant to the order that your Honor

4 issued, there is a process for having those funds be released

5 that the parties must follow, and they must show that -- they

6 must request the property from the appropriate official and

7 they must -- and I'm quoting from the statute that Congress has

8 passed to deal with this, 983(f) -- they must set forth the

9 basis for why continued possession by the government of the

10 funds will cause them substantial hardship, among other things.

11 And so we are not asking for a simple formality and we

12 are not trying to be difficult. We are simply reasonably

13 asking that the defendants follow the mandated procedure, which

14 makes a lot of sense in this case, which is, among other

15 things, to show why exactly they need the money. Without such

16 a showing, just releasing the funds upon a request would be

17 really unprecedented and we think would set a very bad

18 precedent.

19 THE COURT: I'm going to ask you --

20 MR. CYMROT: Your Honor, may I respond?

21 THE COURT: No. Just a minute.

22 $15 million is restrained, right?

23 MS. GRAHAM: Correct, your Honor.

24 THE COURT: OK. Now, what is the amount that the

25 government believes will be recovered pursuant to money

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1 laundering? It's not going to be $15 million. You know that.

2 How much do you expect to recover?

3 MS. GRAHAM: Yes, your Honor, we do expect to recover

4 the $15 million. That is the theory on which the money was

5 restrained.

6 THE COURT: What's the basis for saying $15 million?

7 How much money laundering -- how much laundered money came into

8 this country?

9 MS. GRAHAM: Your Honor --

10 THE COURT: I think it's a few hundred thousand

11 dollars.

12 MS. GRAHAM: Your Honor, it is approximately $2

13 million that we have traced to date in criminal proceeds, and

14 then of course the remainder, as set forth under the money

15 laundering statute, is seized on a money laundering theory

16 because the statute sets forth the basis to seize money that

17 was used to launder criminal proceeds.

18 MR. CYMROT: Your Honor, you're correct. It was $2

19 million that went to Holland and $540 million approximately

20 that came to the United States.

21 MS. GRAHAM: Your Honor, certainly this is not the

22 time to decide -- you know, there is a pending motion --

23 THE COURT: Is the time to --

24 MS. GRAHAM: -- pardon me -- protective order, and

25 that has been fully briefed. The issue put forth is really the

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1 facts that the defendants have to set forth the reason that

2 they need this money and the basis for their request. And they

3 have not done so. And that is all that the government is

4 asking.

5 THE COURT: I'd like you to answer my questions. And

6 I want to go back. What is the amount of the allegedly

7 laundered money that has come into the United States?

8 MS. GRAHAM: Yes, your Honor. I would have to look

9 back at the complaint for that. I can also have

10 Mr. Monteleoni, who is currently in a deposition and is more

11 familiar with that, leave the deposition and join us on the

12 conference call. However, approximately $2 million in criminal

13 proceeds have been traced to the defendants. I hope that that

14 answers your question, your Honor.

15 THE COURT: It does. And the point is that $15

16 million is restrained in order to cover a possible actual

17 recovery of laundered money of about $2 million. That is a

18 very important part of the picture. And therefore, to take a

19 small amount of $15 million to cover the burden of coming to

20 New York for depositions is a matter in my view of simple

21 justice. It is inevitably a burden to come from a foreign

22 country to be deposed in the United States. And unless

23 somebody has so much money that they don't care about it, well,

24 for most people, most human beings, coming from Russia and

25 Israel to the United States to be deposed is a burden, and it's

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1 in my view a matter of simple fairness and justice to relieve

2 that burden.

3 MS. GRAHAM: But --

4 THE COURT: And --

5 MS. GRAHAM: Yes, your Honor. I apologize.

6 THE COURT: May I finish?

7 MS. GRAHAM: Yes, your Honor. Please do.

8 THE COURT: And if an amount of money has been

9 restrained, namely $15 million, which is far in excess of what

10 the government will actually end up obtaining by forfeiture, it

11 is in my view fair and right to use some of that money to

12 relieve the burden of those people coming from Russia and

13 Israel to the United States to be deposed. And that is the way

14 we're going to do it. And I'll be glad to sign an order

15 effectuating what I have said.

16 MR. CYMROT: We'll submit an order tomorrow, your

17 Honor.

18 MS. GRAHAM: Your Honor, if I may be heard on one more

19 point, I just wanted to be clear that the government does

20 intend to obtain the full $15 million by forfeiture. As it is

21 entitled under the money laundering statute and as set forth in

22 the complaint and the protective order, we would again ask two

23 things: that the defendants set forth their actual need for

24 this money; and, second, we would ask that the defendants at

25 least present receipts for what they have spent, rather than

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1 this estimate of $100,000. But, your Honor, we would still ask

2 that the defendants set forth their actual financial need for

3 this money and their current financial situation.

4 THE COURT: I tell you what.

5 MR. CYMROT: Your Honor, we'll submit invoices.

6 THE COURT: What did you say?

7 MR. CYMROT: I said, we'll submit invoices for the

8 costs that we're claiming.

9 MS. GRAHAM: Yes, your Honor.

10 And then my remaining request is that the defendants

11 demonstrate their actual financial need for this money and set

12 forth their financial situation, as they are required to do.

13 THE COURT: When you say "as they are required to do,"

14 I know the statute you are speaking of, but the Court has some

15 discretion. And that is if certain people have been required

16 to travel from Russia and Israel to be deposed, then it is in

17 my view within the discretion of the Court to recognize that as

18 a burden, and I believe it is within the discretion of the

19 Court to relieve that burden. And that is what I intend to do.

20 And I'll be glad to sign an order effectuating what I have

21 ruled upon in this telephone call.

22 Thank you very much.

23 MS. GRAHAM: Yes, your Honor.

24 MR. CYMROT: Thank you, your Honor.

25 o0o

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1 UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x

3 UNITED STATES OF AMERICA, New York, N.Y.

4 v. 13 Civ. 6326(TPG)

5 PREVEZON HOLDINGS, Ltd., et
al.,
6
Defendants.
7
------------------------------x
8

9 November 6, 2015
2:51 p.m.
10

11 Before:

12 HON. THOMAS P. GRIESA,

13 District Judge

14
APPEARANCES
15
PREET BHARARA
16 United States Attorney for the
Southern District of New York
17 BY: PAUL M. MONTELEONI
KRISTY PHILLIPS
18 MARGARET GRAHAM
Assistant United States Attorneys
19
BAKER & HOSTETLER, LLP
20 Attorneys for Defendants
BY: MARK CYMROT
21 JOHN MOSCOW

22 - also present -

23 Laura Pacifici, government intern

24

25

SOUTHERN DISTRICT REPORTERS, P.C.
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1 THE CLERK: Conference in the matter of the United

2 States of America versus Prevezon Holdings, Limited, et al.

3 All parties present, your Honor.

4 THE COURT: Sit down, everybody.

5 What do we need to cover today?

6 MR. CYMROT: Your Honor, we have several issues.

7 Do you mind if I stand here?

8 THE COURT: Of course. You are Mr.?

9 MR. CYMROT: Cymrot.

10 THE COURT: All right.

11 MR. CYMROT: There is the issue of the summary

12 judgment motion. The government has filed a supplemental

13 disclosure -- initial disclosure on October 22nd, and now they

14 rely upon that witness and a new theory of special crime, U.S.

15 crime, in their summary judgment motion, and we have not had

16 discovery. And we have a notice of deposition that I can hand

17 up and a disclosure I can hand up. They actually rely upon

18 principally two witnesses, both who were disclosed on

19 October 22nd and September 15th.

20 Now, there is a witness from HSB Swiss that was

21 disclosed on October 22nd in a supplemental initial disclosure

22 that changes the specified unlawful activity, and they now, ten

23 days later, file a summary judgment that relies upon that

24 specified unlawful activity --

25 THE COURT: Let me just interrupt you, please.

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1 MR. CYMROT: Yes.

2 THE COURT: Is there now a motion before the Court for

3 summary judgment?

4 MR. CYMROT: Partial summary judgment, correct. It

5 was filed on Tuesday.

6 THE COURT: Filed?

7 MR. CYMROT: By the government.

8 THE COURT: All right.

9 MR. CYMROT: And you had told them not to file but

10 then you endorsed an order with a schedule after they filed.

11 So there is a schedule for briefing. There is their

12 motion. You told them that it would be disputed. It is

13 disputed and most everything in their motion is disputed, but

14 the point of the matter is --

15 THE COURT: This is a case we're trying -- having a

16 trial on December 7, right?

17 MR. CYMROT: That's correct. And they've changed the

18 specified unlawful activity as a result of this disclosure. So

19 they had one theory of specified unlawful activity that was

20 fraud on the bank based upon the fact that certain corporations

21 were unlawfully reregistered. Now they have a theory, that's

22 included in their summary judgment motion, that says HSBC

23 Swiss, which is not mentioned anywhere in the amended

24 complaint, was defrauded because it invested in Mr. Browder's

25 funds. So that's all new and we haven't had discovery on that.

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1 So the government names this witness from HSBC Swiss

2 they are going to take his deposition. The deposition hasn't

3 happened yet. We are talking about a time for it to happen.

4 We delivered to the government a notice of deposition

5 with a request for documents that are relevant to this new

6 specified unlawful activity. They tell us that's not the

7 appropriate way to do it.

8 THE COURT: Wait a minute. Wait a minute. Wait a

9 minute.

10 MR. CYMROT: Sure.

11 THE COURT: Has the government noticed a deposition?

12 MR. CYMROT: Yes.

13 THE COURT: And in that notice, do they request

14 documents?

15 MR. CYMROT: They don't. We do. We cross noticed and

16 I have that. I can hand it up.

17 THE COURT: I don't need to have it handed up.

18 MR. CYMROT: OK. In our cross notice we request

19 documents.

20 THE COURT: So the government has noticed a

21 deposition.

22 MR. CYMROT: Yes.

23 THE COURT: You have cross noticed that deposition and

24 asked for documents.

25 MR. CYMROT: Correct.

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1 THE COURT: Now, whose deposition is being requested?

2 MR. CYMROT: It's a 30(b)(6) deposition of HSBC Swiss.

3 THE COURT: HSB?

4 MR. CYMROT: C Switzerland, basically. HSBC

5 Switzerland.

6 THE COURT: Is HSBC a party to the action?

7 MR. CYMROT: No. This witness is appearing

8 voluntarily for the government.

9 THE COURT: Look, you say it is a 30(b) deposition. I

10 thought that was for parties.

11 MR. CYMROT: No. 30(b)(6) is for a representative of

12 an entity. It is not 30(b)(1), it is 30(b)(6), which is for a

13 representative of an entity.

14 THE COURT: OK, a representative of an entity.

15 And is the entity's deposition noticed?

16 MR. CYMROT: It is, although we don't have an agreed

17 date yet. It's noticed.

18 THE COURT: But it is noticed --

19 MR. CYMROT: Correct.

20 THE COURT: -- the entity?

21 And the entity is not a party?

22 MR. CYMROT: Correct.

23 THE COURT: And the entity is?

24 MR. CYMROT: HSBC Switzerland.

25 THE COURT: And do you object to the taking of that

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1 deposition?

2 MR. CYMROT: Yes, your Honor. It is out of time and

3 it's after a summary judgment motion and --

4 THE COURT: What do you mean, after a summary judgment

5 motion?

6 MR. CYMROT: Well, it's a couple of weeks before trial

7 and after they filed the summary judgment motion relying upon

8 the testimony that is yet to be taken.

9 THE COURT: So, in other words, you are objecting to

10 the taking of the deposition of HSBC, is that right?

11 MR. CYMROT: Yes.

12 THE COURT: Is that one of the issues to be dealt with

13 this afternoon?

14 MR. CYMROT: Yes.

15 THE COURT: What does the government say about that?

16 MR. MONTELEONI: Paul Monteleoni for the government.

17 The government disagrees with defense counsel's

18 characterization of this. The Switzerland HSBC representative

19 is someone who the government expects to explain some

20 calculations that are readily apparent from certified HSBC

21 business records about the amount of legal fees that HSBC

22 incurred. That amount is very cut and dried. It is set forth

23 in the summary judgment papers. Those records have been

24 disclosed and --

25 THE COURT: Who is moving for summary judgment?

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1 MR. MONTELEONI: The government is just on the very

2 limited background issue that --

3 THE COURT: When did you file this motion?

4 MR. MONTELEONI: Tuesday, in accordance with the

5 schedule that the Court approved this week.

6 The point of the summary judgment motion is this Court

7 has said several times this case isn't principally about what

8 happened in Russia, it's principally about what the defendants

9 did. And in order to avoid having the trial sidetracked with a

10 lot of disputes over details of what happened in Russia that

11 can be avoided by simply clearing away some of the background

12 facts, the government filed a limited motion just on the issue

13 that a fraud occurred in Russia and that that fraud is a money

14 laundering predicate.

15 THE COURT: Wait a minute.

16 You want a summary judgment ruling to what effect?

17 MR. MONTELEONI: Just that a fraud occurred in Russia

18 and that that fraud is a money laundering predicate.

19 We have issued -- we have proposed an order, a

20 proposed order that has a few fact findings, and it just says

21 that (a) that the Court, if you agree, would grant partial

22 summary judgment just on the limited issue that a money

23 laundering predicate offense occurred in Russia and then a few

24 fact findings to show what offense we are talking about. That

25 is just background. That is stuff that happened before the

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1 money got to the defendants. It is just intended to clear the

2 way so that the trial will be about what happened with the

3 defendants.

4 Now, one aspect of showing that this is a summary

5 judgment -- sorry, showing this is a money laundering predicate

6 is just very straightforwardly looking at some HSBC bank

7 records about what were HSBC's legal fees, because those legal

8 fees were out-of-pocket harm to HSBC and that makes the offense

9 a money laundering predicate under the fraud on a foreign bank

10 theory that the Court sustained at the pleading stage. Now we

11 just want to introduce HSBC's bank records to prove it.

12 Now, the whole theory is totally apparent from the

13 bank records, but we have been able to get HSBC to agree to

14 make someone available as a representative to just sort of walk

15 through the calculations of the bank records.

16 THE COURT: What was the last thing you said?

17 MR. MONTELEONI: Sorry. So the actual proof that this

18 fraud harmed HSBC is totally apparent from the bank records.

19 But we, the government, have asked HSBC to voluntarily provide

20 a representative of its Swiss entity just to walk through what

21 the bank records say, to go through the calculations of how the

22 bank's records show that HSBC in Switzerland incurred a loss.

23 THE COURT: And that is the deposition which has been

24 noticed, is that right?

25 MR. MONTELEONI: That's right.

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1 The thing is the Swiss HSBC entity is providing

2 someone voluntarily. We can't subpoena them and we don't

3 control them. So they've agreed to the deposition and we have

4 given them notice about that.

5 THE COURT: And when is that deposition going to take

6 place?

7 MR. MONTELEONI: Well, we've noticed it for next week

8 on Tuesday, which would have given the defendants plenty of

9 time to --

10 THE COURT: What is next Tuesday, what is the date?

11 MR. MONTELEONI: Next Tuesday would be the 10th.

12 Now, the defendant said that didn't work for them.

13 They said they wanted to go to the backup dates which are much

14 later in the month, and that would have been fine except that

15 now they're saying that the whole summary judgment motion needs

16 to be held up because they need to talk to him before the

17 summary judgment motion gets fully briefed. So since we found

18 that out last night, we have been on the phone with HSBC trying

19 to see if they are available some other time next week so that

20 we can have this representative walk through the bank records

21 next week --

22 THE COURT: At a deposition?

23 MR. MONTELEONI: At a deposition and be done with it.

24 MR. CYMROT: Your Honor, that's totally disingenuous,

25 I'm sorry. It is just disingenuous.

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1 THE COURT: In what way is it disingenuous?

2 MR. CYMROT: Their motion replies upon a fraud upon

3 HSBC Switzerland trading in the Hermitage Fund, which is

4 Browder's fund, as the fraud, and that -- to say we're just

5 clearing out some minor stuff, they're trying to get a major

6 weakness in their case covered by this summary judgment motion

7 that there is no specified unlawful activity, there is no

8 predicate to money laundering. And they have now come up with

9 their seventh theory, and it is based upon an initial

10 disclosure that was made on October 22nd and a motion that was

11 filed on November 4th, and we have had no discovery on that.

12 And it is a new theory and it is not just walking

13 somebody through a few bank records. It is much more serious

14 than that. It is fundamental to their case that they have to

15 prove there was a U.S. crime, a predicate to money laundering,

16 and they are now on their seventh theory of predicate to crime,

17 money laundering, and this witness is central to the new theory

18 that is in their summary judgment motion.

19 THE COURT: Look, look, I'm not trying the case this

20 afternoon.

21 MR. CYMROT: I'm just saying this is all --

22 THE COURT: I'm not trying the case. I'm dealing with

23 pretrial matters. And what I'm told is that there has been

24 filed a motion for partial summary judgment. OK. If there's a

25 motion for partial summary judgment filed, it will be answered

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1 and decided. I'm also told that there is a deposition that has

2 been noticed. If there is a deposition that has been noticed,

3 unless there is an objection to that deposition, that

4 deposition will be taken.

5 MR. CYMROT: We objected. We've objected to that

6 deposition.

7 THE COURT: And on what grounds?

8 MR. CYMROT: On the grounds that this is much too late

9 to have a new theory with a witness who refuses to produce

10 documents, where the government won't even deliver the notice

11 to him requesting documents. This is a foreign witness who has

12 central documents to this new theory, and it's all too late.

13 You told them back in May -- you ordered them in May to

14 disclose their case. None of this was disclosed in May.

15 THE COURT: What is the new thing now?

16 MR. CYMROT: They have a theory, fraud on a foreign

17 bank, that this bank, HSBC Switzerland, was trading in the

18 Hermitage Fund, which is owned by Mr. Browder, and that when

19 that fund allegedly was defrauded, which is all in dispute,

20 that that bank lost money as a trader -- not as the bank

21 itself. All right? The fund is defrauded.

22 We can argue whether that constitutes an SUA, a

23 specified unlawful activity. I understand you don't want to

24 argue that today. But it's all new, that's the point. The

25 point is it's all new and we've had no discovery. And it's too

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1 late --

2 THE COURT: Again, you've said this but let me ask

3 you, what is it that is all new?

4 MR. CYMROT: OK. The theory that HSBC Switzerland is

5 the foreign bank that was defrauded is mentioned nowhere in the

6 second amended complaint --

7 THE COURT: What is the significance of the Swiss bank

8 being defrauded? What is the significance of that?

9 MR. CYMROT: You have to have a predicate -- what

10 Mr. Monteleoni calls a predicate to money laundering. You have

11 to have a U.S. crime. The fact that there was a --

12 THE COURT: In other words, a predicate act.

13 MR. CYMROT: You have to have a predicate to money

14 laundering. It is called a specified unlawful activity. One

15 of the specified unlawful ac --

16 THE COURT: A specified unlawful activity.

17 MR. CYMROT: One of the specified --

18 THE COURT: Just a minute.

19 MR. CYMROT: Yes. I'm sorry.

20 (Pause)

21 THE COURT: All right. So there has to be -- in other

22 words, to have a cause of action for money laundering, there

23 has to be a specified unlawful activity --

24 MR. CYMROT: Yes.

25 THE COURT: -- alleged, right?

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1 MR. CYMROT: Correct.

2 THE COURT: And have they alleged that?

3 MR. CYMROT: Not in the second amended complaint.

4 Not -- not this theory of specified unlawful activity. HSBC

5 Switzerland --

6 THE COURT: Have they alleged "a" specified unlawful

7 activity?

8 MR. CYMROT: Yes. HSBC Guernsey, a different bank, an

9 affiliate of this bank but not this bank, and it's a different

10 fraud.

11 MR. MONTELEONI: Your Honor, we disagree with that.

12 Ever since the original complaint in this case, the first

13 docket entry in this case, we've alleged fraud on a foreign

14 bank based on the harm to the fund, based on the harm to HSBC

15 Guernsey, which is a trustee of the fund, based on the fact

16 that HSBC and Hermitage lawyers showed up in court to contest

17 the fraud. This Court upheld in the summary -- in the motion

18 to dismiss opinion upheld the fraud on a foreign bank specified

19 unlawful activity, and it specifically noted -- pages 23 and 24

20 of docket item 310 -- the fact that HSBC and Hermitage lawyers

21 showed up to contest the fraud.

22 And the Court says, "Look, at a motion to dismiss

23 stage, I would sustain this. It's going to be up to the

24 government to prove that this amounted to fraud on a foreign

25 bank." And we've provided the bank records that prove that,

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1 which is that HSBC, yes, through a Swiss HSBC entity but still

2 HSBC, the group, on behalf of the Fund, incurred millions of

3 dollars of losses in legal fees.

4 So we are providing details -- new details as soon as

5 we are able to get those details from HSBC, but they're just

6 filling in the picture that this case has involved from the

7 very beginning. And we have in fact passed along the

8 defendants' request for documents. We have been trying to get

9 documents from HSBC. We've gotten documents which completely

10 show our theory, and we're trying to give them more documents

11 to accommodate the defense requests. As soon as we get them,

12 we'll turn them over. But this is filling in the details on

13 the tight schedule that we are all working under in order to

14 litigate this case in an expedited manner of a specified

15 unlawful activity that's been in the very first filing.

16 MR. CYMROT: Judge, it is just not true. I have the

17 second amended complaint. Can I hand it up, please?

18 THE COURT: All right.

19 (Pause)

20 I have it opened to paragraph 15.

21 15 refers to HSBC Guernsey, a different bank. And the

22 theory in the summary judgment motion is not that HSBC Guernsey

23 was defrauded. That's the second theory. The first theory is

24 HSBC Switzerland was defrauded by investing in the Hermitage

25 Fund. That is a different theory --

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1 THE COURT: Is that in the complaint?

2 MR. CYMROT: No. Nowhere in that complaint will you

3 find HSBC Switzerland or any allegation that HSBC --

4 THE COURT: How does HSBC Switzerland come into the

5 picture this afternoon?

6 MR. CYMROT: Because it is in the summary judgment

7 motion and was in the initial disclosures filed --

8 THE COURT: Who filed the summary judgment motion?

9 MR. CYMROT: The government.

10 MR. MONTELEONI: Can I explain?

11 HSBC Switzerland comes in the picture because it's an

12 investor in the Hermitage Fund. The complaint has always

13 alleged that the Hermitage Fund was defrauded. That is

14 absolutely an allegation in the complaint.

15 We now have records showing that the investor -- that

16 an investor in the fund suffered a pecuniary loss, making it a

17 money laundering predicate. In their previous motion papers,

18 defendants essentially conceded that the Fund was defrauded,

19 that the complaint alleged the Fund was defrauded --

20 THE COURT: What fund?

21 MR. MONTELEONI: The Hermitage Fund. This is the

22 investment fund that owned the companies that were taken over

23 by fraudsters who committed this fraud. This fund is a central

24 victim of this fraud scheme. That has always been alleged by

25 the complaint.

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1 We're filling in the details about one of the

2 investors in the fund that very straightforwardly makes this a

3 money laundering predicate, and there are many other ways in

4 which it is a money laundering predicate but this is just the

5 most straightforward one because it is right there in the bank

6 records.

7 MR. CYMROT: I challenge Mr. Monteleoni to take that

8 complaint and show me where HSB Switzerland had invested in the

9 Hermitage Fund and was defrauded. I challenge him to do it.

10 Go pick it up and find it. It's not in there.

11 MR. MONTELEONI: Well, since this conference was not

12 scheduled on this issue, I don't have a copy of the complaint

13 with me. Do you have a copy for me?

14 MR. CYMROT: I'm sure the Judge will pass it to you.

15 It is not in there anywhere.

16 (Pause)

17 THE COURT: Now, look, what has gone on this afternoon

18 is largely unintelligible to me. I'm sorry to say that but it

19 is. You are talking about things all of a sudden that I don't

20 in my own mind have the background. So it is not going to do

21 anybody a lot of good to continue in this vein -- not at all.

22 If there is a motion for partial summary judgment,

23 that can be briefed and I will have the briefs, the papers, and

24 decide that motion.

25 MR. CYMROT: Well, then we'll ask --

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1 THE COURT: Just a minute.

2 MR. CYMROT: Yes. Sorry.

3 THE COURT: If there is a notice of a deposition and

4 there is an objection to that deposition, which I gather there

5 is, I need to rule on that objection, but I am not getting any

6 clarity on that at all. And, therefore, I know time is short

7 but I'll have to have some papers on that. I do not understand

8 what is being discussed. And if you want me to understand it

9 and if there is a motion against the deposition, you will have

10 to file some papers so I can read them. And that's it.

11 But let's not continue this afternoon having lawyers

12 talk in a way that the Court doesn't comprehend. I'm perfectly

13 capable of comprehending when things are presented to me in a

14 form that can be comprehended. That is not going on this

15 afternoon and I'm not going to continue this.

16 So I recommend that you -- if there are other issues

17 to be discussed, you can pose them. But as far as what has

18 gone on thus far, you'll need to file some papers. That's it.

19 MR. CYMROT: All right. Understood. Very sorry that

20 we are not being clear.

21 There are other issues, your Honor.

22 THE COURT: What are the other issues?

23 MR. CYMROT: There are letters, motions in the form of

24 letters to compel certain categories of documents. The

25 government, as you know, has --

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1 THE COURT: Well, there are letters that constitute

2 document demands under the Federal Rules of Civil Procedure, is

3 that right?

4 MR. CYMROT: No. We had document demands. We sent

5 you letters over the last week or so raising a number of issues

6 under your local rule that we should file letters before filing

7 motions. So let me tell you the categories of documents that

8 we have the government has claimed privilege to.

9 THE COURT: So do we now have before the Court an

10 issue about privilege?

11 MR. CYMROT: Yes. We have several issues about

12 privilege in several letters, different categories of

13 documents.

14 THE COURT: Well, let's pose -- who is raising a

15 privilege?

16 MR. CYMROT: The government is raising the privilege

17 and we are objecting.

18 THE COURT: All right.

19 MR. CYMROT: So can I lay out the first category?

20 THE COURT: Please do.

21 MR. CYMROT: All right. The government has taken

22 discovery, as we've discussed many times here, through MLATs,

23 treaties with foreign governments. They are claiming privilege

24 as to the requests they made to the foreign governments and as

25 to the foreign governments' response. So, for instance, the

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1 tracing of money allegedly into the defendant's account, one of

2 the central documents -- series of documents comes from

3 Moldova. It is not an MLAT. It is just a request from the

4 United States government. It is not a treaty request. It is

5 just a request to the Moldova government.

6 THE COURT: From the Department of Justice?

7 MR. CYMROT: Yes.

8 THE COURT: All right.

9 MR. CYMROT: All right. And it requests -- and what

10 came back was something like a spreadsheet. It wasn't bank

11 documents. It was a spreadsheet. We don't know what was

12 requested. We don't know what the Moldovan government said in

13 response. So we had this spreadsheet that is relied upon as

14 the central document in this case --

15 THE COURT: Well, where is it relied on?

16 MR. CYMROT: By the government's expert saying that

17 the money went through Moldova -- the money from the Russian

18 treasury went through Moldova --

19 THE COURT: The government's expert testifying when

20 and where?

21 MR. CYMROT: He will be testifying at trial. His

22 deposition is next Friday. We want --

23 THE COURT: Take the deposition.

24 MR. CYMROT: No. But we need know what the government

25 asked for from the Moldova government to see what they got

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1 back. It's not -- these are not bank records. There is a

2 certificate from a prosecutor who says this is an official

3 document. That is not. We need to know what was said.

4 For instance, there's another example, your Honor.

5 THE COURT: I don't need another example. Let's talk

6 about the first one.

7 MR. CYMROT: OK.

8 THE COURT: Mr. Monteleoni, what about that?

9 MR. MONTELEONI: Yes, your Honor.

10 The documents that we have received in response to our

11 requests, we have turned over. Those are documents --

12 THE COURT: Say what the request was.

13 MR. MONTELEONI: Well, the request certainly was for

14 bank records. Those were bank records.

15 THE COURT: What form did the request take? A written

16 request or what?

17 MR. MONTELEONI: Yes. It was a confidential written

18 government-to-government --

19 THE COURT: Why was it confidential?

20 MR. MONTELEONI: This is -- the uniform practice of

21 the Office of International Affairs is that

22 government-to-government correspondence in conducting

23 investigations of this type are treated as confidential, and

24 these requests involve the attorneys explaining the

25 significance of documents to their case. They are not evidence

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1 themselves, they are work product.

2 If the question is did the U.S. government request the

3 bank records, yes, the U.S. government requested bank records.

4 The officials who were handing us these bank records said that

5 they were bank records. The defendants could have asked the

6 agent who physically received the bank records if he had any

7 questions about what was said, but as far as the documents that

8 we got back, they have those documents. So there is really

9 nothing at issue here.

10 THE COURT: Are they bank records?

11 MR. MONTELEONI: They are. They are kept in a

12 somewhat unusual form, I guess, because it is Moldova. That is

13 how they keep their bank records. But there are charts of the

14 inflows and outflows into accounts and then there are a bunch

15 of payment orders, and those have all been turned over. They

16 are the bank records. They are certified by the investigators

17 as the content of the investigative file. And those are the

18 physical documents that we got back. And knowing that we asked

19 for bank records, it's pretty trivial but I can certainly say

20 we asked for bank records. They don't need to go into the

21 details of what we said in these government-to-government

22 communications.

23 THE COURT: All right. What the government is saying,

24 they requested bank records and the bank records were produced.

25 MR. CYMROT: No, your Honor. They said -- they made a

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1 lot of representations about this case. We know that they have

2 misrepresented to foreign governments things. We know they

3 have said things that would be exculpatory to our case because

4 their case has changed, and we do not know what scope they

5 asked for and we do not know what the Moldova government sent

6 back and said what it was; we don't know that. He has been

7 making representations --

8 THE COURT: Haven't you got what the Moldovan

9 government sent?

10 MR. CYMROT: No. What they sent. But what is it? It

11 is a big spreadsheet that is illegible. All right? It is a

12 big spreadsheet. It does not look like bank records. We all

13 know what bank records look like. This does not look like bank

14 records.

15 MR. MONTELEONI: Bank records take many forms. It

16 actually looks like a number of other bank records that have

17 been produced at other points in the case. But in any case,

18 that has nothing to do with the content of the government's

19 requests to the Moldovans. The government absolutely requested

20 the records for the accounts that these are the records of.

21 They just look funny to a US eye.

22 MR. CYMROT: We don't know that. What accounts did

23 they leave out? And what accounts did they ask for that they

24 didn't get records for that may be relevant to the case? We

25 don't know any of that. And this does not look like bank

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1 records and it's not -- so he's saying things we don't know.

2 We're entitled to that correspondence.

3 MR. MONTELEONI: This is, I really think, a total

4 tangent from the case. The actual evidence --

5 MR. CYMROT: It is central to the evidence.

6 MR. MONTELEONI: The actual evidence is what we have

7 produced. That is what we got. We might like the Moldovans to

8 format it in a way that is more conventional for New York

9 standards but they don't because they are a different country

10 and they keep their bank records the way they keep them.

11 This whole question of the back and forth about the

12 letters that we're sending to other governments is just really

13 not productive when we're trying to get ready for trial.

14 MR. CYMROT: Your Honor, to be clear, we're talking

15 about if this record is inadmissible or if this record is not

16 accurate, then there is no case. This is the ce