Insider Trading Case Raises Concerns About Judicial Assignment
A recent, high-profile insider trading case raises an interesting question concerning how judges are assigned to criminal cases in the Southern District of New York.
Unlike most other criminal defendants in this district, former SAC Capital executive Michael Steinberg was not assigned to a judge through "the wheel"—the mechanism designed to assure that judicial assignments in new criminal cases are random.1 Instead, the U.S. Attorney's Office took steps to channel Steinberg's case to a judge who had already handled a similar case involving some of the same facts and issues. Rather than charging Steinberg in a new indictment, which would have triggered a random assignment, the Office chose instead to charge him under a "superseding" indictment, which meant that his case would automatically revert to the judge who handled the case in which an earlier indictment had issued.2
Two points are worth emphasizing at the outset. First, unlike other jurisdictions, the Southern District of New York has no rule that prescribes how related criminal cases should be treated for purposes of judicial assignment. Rule 13 of the local rules for judicial assignment applies mainly to civil cases and lists criteria that a judge should consider in determining whether two or more civil cases are related.3 Under this rule, the same judge may be assigned to a number of different cases, including cases involving different parties and cases arising at different times, as long as there is a common nexus of facts and issues. With respect to criminal cases, Rule 13 appears to assume that criminal cases are inherently individual in nature and therefore unrelated. It states, "[c]riminal cases are not treated as related to each other unless a motion is granted for a joint trial."4 In other words, relatedness is not recognized where there are overlapping facts and issues. Relatedness is recognized only where two cases are so inextricably linked as to be essentially one case, fit for a single trial.
Second, at the time Steinberg's case was assigned to a judge, there was never any possibility that he would be tried jointly with another defendant. All of the defendants charged under the earlier indictment, which involved some of the same facts and issues, were already out of the picture, having pleaded guilty or been convicted at trial.5 Notwithstanding the absence of any joint trial as contemplated by Rule 13, the U.S. Attorney's Office still had a choice. It had the option of charging Steinberg in his own indictment and thereby have him randomly assigned to a judge, or of charging him by "superseding indictment" and thereby assure that he would appear before the judge who handled the original case.6 In the absence of any rule governing assignment of related criminal cases in this district, the U.S. Attorney's Office often finds itself with this choice. Sometimes it chooses to proceed by superseding indictment, as it did with Steinberg, and sometimes it chooses to proceed by original indictment, as it has done in numerous other cases.7 Absent a rule, the U.S. Attorney's Office has complete discretion in determining whether to have a case stay with a particular judge or to have it randomly assigned through the wheel.
Objecting to the approach the U.S. Attorney's Office had taken, Steinberg litigated the issue. His counsel argued that a significant legal issue in the case had not been dispositively decided by the Second Circuit and had divided a number of district court judges.8 The issue concerned the government's burden of proof in certain insider-trading cases: namely, whether the government is required to prove that a remote recipient of inside information had knowledge that the information originally came from someone who had released the information in exchange for a personal benefit. Two Southern District judges had previously ruled that the defendant's knowledge of such a personal benefit was an element of the offense that the government was required to prove. One had ruled that it was not.9 He was the judge to whom the U.S. Attorney's Office arranged for Steinberg's case to be assigned, via the superseding indictment. Steinberg's attorney argued that such a practice smacked of forum shopping; in a case in which the original charges had already been resolved against all the other defendants, a "superseding" indictment was a formal or theoretical notion at best. Steinberg asked for his case to be randomly reassigned through the wheel.
In response, the U.S. Attorney's Office defended its exercise of discretion, arguing that Steinberg did not have standing to raise the issue. It noted that the local rules governing judicial assignment expressly state that they "shall not be deemed to vest any rights in litigants or their attorneys." The U.S. Attorney's Office argued that its choice of a superseding indictment in Steinberg's case was consistent with its practice in other prior cases, although it admitted that it does not always follow the same practice. It insisted that keeping the same judge made good sense in Steinberg's case: Steinberg was charged as a member of the same conspiracy charged in the original indictment, and sticking with the same judge would promote judicial efficiency.10 The U.S. Attorney's Office also maintained that a Second Circuit case could be read as already resolving the legal issue involving insider-trading liability that Steinberg's counsel had raised (a proposition that has become more difficult to maintain now that the Second Circuit has granted bail pending appeal to defendants convicted under that theory of liability, with the issue to be argued before the Circuit in the next few months).11
The New York Counsel of Defense Lawyers (NYCDL) weighed in on the dispute. It submitted a letter to the court as amicus curiae, opining that while the U.S. Attorney's Office might have "good reasons" for proceeding by superseding indictment in some cases and by original indictment in others, the fact that "the government alone…decides which option to pursue…creates at least an appearance of impropriety." "We are concerned," wrote the NYCDL, "that this practice of selectively proceeding by 'superseding' indictment…raises fundamental questions about the fairness and consistency of the case-assignment process to the detriment of all participants in the criminal justice system."12
After considering the issue, the judge to whom Steinberg's case had been assigned declined to have it reassigned. He noted that proceeding by superseding indictment is "not unusual." He also noted that the practice does not contravene any existing rule.13 Steinberg's trial is currently set to begin in November 2013.
To put the Steinberg matter in context, consider two other cases that present similar circumstances. In a series of criminal cases involving the collapse of Refco, which included allegations of conspiracy to commit financial fraud, different defendants were indicted at different times—all of them charged by the government as members of the same conspiracy. A first group of defendants—including the lead defendant, two cooperating witnesses, and another defendant who went to trial—had their indictments and information handled by the same Southern District judge, who had originally been assigned through the wheel. When some time later Refco's outside counsel was charged with the same conspiracy, the U.S. Attorney's Office decided to bring a new indictment—not a superseding indictment—and his case was wheeled out to a different judge.14
Similarly, in several insider trading cases involving Galleon, after defendant Raj Rajaratnam's case had been wheeled out to one Southern District judge, the U.S. Attorney's Office charged additional individuals in new indictments—not superseding indictments—and their cases were wheeled out to different judges.15