SEC known Kelly fraud trial results in hung jury

Canada StockWatch
by Mort Lucoff in Miami and Lee M. Webb

October 10, 2003


The securities fraud trial of James T. Kelly ended Wednesday in a mistrial when the jury reported on the second full day of deliberations that it was "hopelessly deadlocked." U.S. District Court Judge Cecilia Altonaga in the Southern District of Florida in Miami said she would set a new trial date later.


Mr. Kelly, the former president of Pennsylvania-based brokerage Shamrock Partners Ltd., was accused of conspiring with two former co-defendants, Bruce Cowen and Joseph Huard, in a kickback and stock manipulation scheme involving shares of Lighthouse Fast Ferry Inc. The Lighthouse Fast Ferry shares at the centre of the alleged scheme were owned by the purported $1-billion Lancer Group. (All amounts are in U.S. dollars.)


(In a separate civil action, the U.S. Securities and Exchange Commission (SEC) shut Lancer down on July 10, levelling allegations of massive fraud against the hedge fund operation and its disgraced leader, former star Wall Street analyst Michael Lauer.)


The charges against Mr. Kelly stemmed from a two-year joint FBI-RCMP undercover sting code-named Operation Bermuda Short that resulted in 23 indictments and charges against 58 individuals from the U.S. and Canada. The former Shamrock president was arrested in August of 2002 along with Mr. Cowen, a key Lancer figure, and Mr. Huard, a close Shamrock associate. Both Mr. Huard and Mr. Cowen reached plea deals with U.S. prosecutors and testified against Mr. Kelly.


Mr. Kelly's trial opened on Sept. 23 with a lengthy jury selection process that carried over to the following day. None of the jurors and alternates selected to hear the complex case had any special financial or securities background.


Attorneys Thomas McCann and Thomas Hanusik of the Fraud Section of the U.S. Department of Justice in Washington were in Miami to handle the prosecution. Mr. Kelly was represented by Miami lawyer Norman Moscowitz of Moscowitz Moscowitz & Magolnick.


The U.S. prosecutors laid out the government's case against Mr. Kelly over eight abbreviated trial days that ran from 11:30 a.m. until 5 p.m. Judge Altonaga instituted the shortened trial sessions because of Mr. Kelly's documented medical problems, including diabetes.


Mr. Moscowitz, who subjected the prosecution witnesses to close cross-examination over the eight days that it took the government to present its case, called his witnesses and wrapped up the defence testimony in less than three hours on Oct. 8.


The prosecution and defence delivered their closing arguments on Oct. 9. After hearing approximately 21 pages of instructions from Judge Altonaga, the case was handed over to the jury on Oct. 10.


Because of a scheduling conflict, jury deliberation ran for less than two hours on the first day. During that time, the jury returned to the court seeking clarification from Judge Altonaga regarding count seven of the indictment, the securities fraud charge.


The jury resumed deliberations on Tuesday, Oct. 14, sending several questions to the judge regarding her instructions on the law and the evidence and twice reporting to the court that it was unable to reach a decision. On both occasions, Judge Altonaga sent the jurors back to resume deliberations. But the third time, shortly before 2 p.m. Wednesday, the judge accepted the jury's announcement that it was hopelessly deadlocked.


After Judge Altonaga thanked the jurors for their service and presented them with certificates acknowledging their jury duty, she told them they were free to talk or not to talk with anyone about the case. A number of jurors seemed to eager to talk about the case and their deliberations and stayed behind for more than 30 minutes to speak with defence lawyer Mr. Moscowitz and prosecutors Mr. Hanusik and Mr. McCann.


The jurors, who divided into two or three groups as they spoke with the lawyers, said that at the beginning nine were in favour of conviction, but at the end they were evenly divided with six voting for conviction and six for acquittal.


One juror said the intellectual capacity of members to understand the case's complexities varied. All the jurors who spoke with the lawyers said they had trouble understanding the jury instructions, which totalled 21 pages, and thought they were "very vague" in many instances. The prosecutors replied that they were standard instructions used in all the U.S. courts in this judicial circuit, plus specific instructions shaped to this particular trial.


The complexities of the conspiracy count had also troubled the jurors and was the subject of several questions sent to the judge.


Some of the jurors offered their candid assessments of several of the witnesses. Some were evidently troubled by the testimony of prosecution witnesses Mr. Huard and Mr. Cowen, suggesting that their plea agreements raised concerns about their testimony. In particular, some jurors found Mr. Cowen's deal with the government, which included a separate non-prosecution agreement for his wife, somewhat disconcerting.


Co-operating witnesses David Jones and Robert Schlien, repeat securities violators involved in the undercover sting operation, were the subject of an even less complimentary assessment. Neither Mr. Jones nor Mr. Schlien testified during the trial, but Mr. Moscowitz hammered away at the fact that the government used what he termed "swindlers" to effect the undercover sting. One juror referred to them as "slime."


One defence witness, Fordham University Law Professor Stephen Thel, reportedly did impress several jurors. Prof. Thel, a former SEC lawyer, had testified that his reading of the indictment did not show legal evidence of stock manipulation.


While testifying, the professor acknowledged that during his time with the SEC the U.S. regulator had initiated enforcement actions similar to the fraud case brought against Mr. Kelly. Jurors said they had wondered during their deliberations why prosecutors had not pressed Prof. Thel more. In particular, some jurors wondered why the professor was not pressed about what they recalled as his lengthy testimony regarding whether a restaurant waiter was engaged in deceiving his employer when he agreed with a customer either to reduce the bill or not charge at all in return for a substantial tip.


Jurors had some questions regarding the prosecution's presentation of evidence and, in one instance, seeming lack of presented evidence.


During the trial, prosecutors played several tapes of telephone conversations recorded by an undercover FBI agent. However, because of a reported technical problem with the equipment, part of a key conversation in which the co-operating witnesses allegedly hammered out the details of the kickback scheme with Mr. Kelly, Mr. Huard and Mr. Cowen was not recorded.


Jurors wanted to know from the prosecutors why the FBI agent had not testified from his notes on the unrecorded portion of the telephone conversation. Prosecutor Mr. Hanusik replied that it was because of evidentiary rules.


Mr. Kelly refused to comment after the mistrial. He came to court dressed in casual slacks, a shirt and a sleeveless pullover sweater and brought some food packed into a plastic grocery bag. At one point the defendant pulled a peach out of the bag and ate it. Mr. Kelly showed no animation as the jury announced that it could not reach a decision.


Mr. Moscowitz said he expected prosecutors to seek to retry Mr. Kelly. The defence lawyer said that he would ask the judge to dismiss the seven-count indictment against his client. Judge Altonaga gave Mr. Moscowitz 30 days to file motions. Prosecutors will have 21 days to respond.


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