Government Dismisses All Charges In Benjamin Wey Securities Fraud Case After U.S. District Judge Suppresses All Evidence Obtained Pursuant To Search Warrant

by Shearman & Sterling LLP
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On August 8, 2017, the Government moved to dismiss all charges against Benjamin Wey, the CEO of New York Global Group charged with securities fraud, wire fraud, conspiracy, and money laundering.  United States District Court Judge Alison Nathan of the Southern District of New York accepted the government’s motion the same day, and all charges against Wey were accordingly dismissed.  United States v. Wey, No. 1:15-cr-00611 (S.D.N.Y. Aug. 8, 2017) (nolle prosequi).  The Government’s decision was expected after Judge Nathan suppressed all of the evidence obtained during the government’s execution of court-ordered search warrants, United States v. Wey, No. 1:15-cr-00611 (S.D.N.Y. June 13, 2017) (“Opinion”), which is discussed in detail below.  Judge Nathan’s suppression opinion is notable for its judicial findings – which could have broader ramifications in motion practice related to searches in white collar cases – and for the drastic remedy ordered by the court.  Further, the Government’s decision to accept the sweeping suppression, instead of challenging the landmark decision on appeal, is strong support for the belief that Judge Nathan’s opinion represents a critical shift in search warrant application requirements.

By way of background, Benjamin Wey was charged in an eight-count indictment in September 2015.  The counts included securities fraud, wire fraud, conspiracy, and money laundering.  Specifically, prosecutors alleged that Wey covertly accumulated substantial portions of certain publicly traded companies, manipulated the stock prices to sell the shares at artificially high levels, and subsequently laundered millions of dollars of ill-gotten gains.  As part of the investigation into Wey, the FBI obtained search warrants for both Wey’s office and his apartment, and executed both search warrants on January 25, 2012.  As noted by Judge Nathan, the warrants “imposed no substantive limitations, . . . did not specify the crimes under investigation, whether by statutory citation or otherwise, or discuss any particular conduct of interest.”  Although substantially more detail was laid out in the affidavit that was filed with the search warrant, that affidavit was not attached to the search warrants utilized on January 25.  In essence, the defense characterized these search warrants as “general warrants,” which constitutional principles have long prohibited, absent a showing that an entire enterprise is “pervaded” or “permeated” with fraud, in which case “seizure of all records of the business is appropriate.”  In addition to seizing thousands of pages of documents from the two locations, federal agents also seized computers, other electronic devices, and images of Wey’s employees’ cellphones, which in total constituted around eighteen terabytes of data.  Subsumed within the materials recovered pursuant to the warrants were a number of personal items that were wholly unrelated to the conduct at issue, including pharmaceutical prescriptions, X-rays of Wey family members, recreational sports schedules, divorce papers from Wey’s first marriage, and photographs of “rural landscapes.” 

Wey subsequently filed a motion to suppress the fruits of these searches, and Judge Nathan determined that a hearing was necessary to determine whether the federal agents acted in good faith in executing the search warrant.  After a two-day hearing and extensive briefing by the parties, Judge Nathan granted Wey’s motion to suppress on June 13, 2017.  In a 90-plus page opinion, Judge Nathan principally found that:  (1) the search warrant lacked the particularity required under constitutional principles; (2) the search warrant was overbroad under constitutional principles; and (3) the good-faith exception to the exclusionary rule does not save the fruits of the search from exclusion.

Judge Nathan first found that the warrants for the two locations were facially deficient because they failed to meet the Fourth Amendment’s particularity requirements for three reasons.  First, the reference in the warrant to “financial fraud” was insufficient to clearly identify the suspected crimes.  Second, the categories of documents subject to seizure in the warrant were so broad that, rather than being narrowly focused on securities fraud, they were “consistent with an investigation into almost any form of financial crime (or even concealment of the fruits of some nonfinancial crime).”  The effect of such broad categories is that the warrant fails to provide any meaningful restraints on the officers executing the warrant, who here could have in theory seized any document located at the premises based on the scope of the warrant.  Indeed, testimony offered at the evidentiary hearing, for example, revealed that pharmaceutical prescriptions were deemed potentially responsive, as they could relate to the targets’ personal expenses and therefore offer insight into whether they were living beyond their means.  Third, the evidence seized did not have “any linkage to the suspected criminal activity, or indeed any meaningful content-based parameter or other limiting principle.”  In addition to these particularity deficiencies, Judge Nathan also found that the warrants were overbroad to the extent that they were “in essence, all-records warrants unsupported by probable cause to seize all records.” 

Even assuming that the warrants were constitutionally deficient, the Government argued that the “good faith” exception should preclude exclusion of any improperly seized evidence.  In an extensive analysis, Judge Nathan rejected this argument.  Judge Nathan wrote that the first step of this inquiry requires independently testing whether the officers who executed the search warrant acted in an objectively reasonable manner.  Id. at 67.  After conducting a two-day hearing, Judge Nathan found that the Government had not satisfied this showing.  Because the warrants were so facially deficient – in failing to identify the crimes under investigation and providing any linkage between the records sought and suspected criminal conduct – Judge Nathan concluded that the officers’ reliance on the warrant could not be deemed objectively reasonable.  The second step of the good-faith inquiry, according to Judge Nathan, at its core focuses on the deterrent value that would be provided by excluding the seized evidence.  Here, Judge Nathan distinguished prior cases involving exigent circumstances that limited the deterrent value of suppression, noting that although the officers did not act with malice, “their conduct cannot be credibly explained by exigent circumstance, by simple mistake, or by mere negligence.”  Instead, the officers’ course of conduct reflected, in Judge Nathan’s opinion, “gross negligence or recklessness,” which weigh strongly in favor of deterrence and the suppression of the recovered evidence.  For these reasons, Judge Nathan rejected the Government’s good faith argument and suppressed the recovered evidence, while offering a reminder to the Government at the end of her opinion that “[g]ood faith is not a magic lamp for police officers to rub whenever they find themselves in trouble.” 

Judge Nathan’s opinion is a detailed, in-depth analysis of the Fourth Amendment’s particularity and overbreadth requirements, and the good-faith exceptions to the exclusionary rule in the enforcement context.  Though a district court opinion, the opinion has the potential to affect how U.S. Magistrate Judges analyze search warrant applications and tailor the scope of any warrants they may issue.  Equally importantly, the opinion will affect the practices of U.S. Attorney’s Offices in seeking search warrants for businesses or individuals in enforcement cases, and in ensuring that agents executing such warrants pay careful attention to the materials they seize.  And lastly, the opinion provides a strong precedent for the defense bar to seek suppression of evidence in cases in which broad categories of materials have been seized, which bear little relation to the actual crimes under investigation.  Though wholesale suppression has always been viewed as a rare remedy in such cases, this opinion and the Government’s subsequent failure to appeal it could represent a shifting tide in this aspect of criminal practice.

In short, Judge Nathan’s opinion not only ordered full-scale suppression of evidence seized in a high-profile securities fraud case, it also caused the Government to dismiss its pending case.  It appears that this opinion – and the ultimate result – will cause the Government to adjust its practices in both seeking and executing search warrants.   

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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