Statements protected by attorney-client privilege

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It violated the attorney-client privilege to admit statements of an attorney that his client had admitted guilt to the charge.

Nevertheless, the Seventh Circuit held on Jan. 18 that the error was harmless, where the evidence of guilt was overwhelming.

In the 1990s, Edward T. Jung managed a hedge fund called Strategic Income Fund, LLC (SIF), for Hollis Lamon, a securities broker and promoter. Fred Isaf acted as SIF’s special counsel.

In 2003, Jung was charged in Illinois federal court with eight counts of wire fraud and two counts of securities fraud.

During the trial, the government introduced several statements made by Jung’s former attorney, James Fox.

First, Isaf testified that Fox had told him that “[Jung] had, if I remember the words exactly, engaged in improper and illegal trading.”

Second, the government introduced a letter from Isaf to SIF’s investors stating that “[Jung’s] lawyer informed me that [Jung] had engaged in ‘improper and illegal trading activity’ which he had concealed from Lamon and Stern, all SIF Members, and SIF’s accountant.”

Third, Lamon testified that Fox had told him that “Mr. Jung, unbeknownst to us, had another account. And he had taken, I believe was the word, our money and used it for his own personal benefit and lost it all trading.”

Finally, Lamon also testified that “Mr. Fox gave us papers that he said were written by Mr. Jung at the time that was, for lack of a better word, Mr. Jung’s confession.”

The jury found Jung guilty on all ten counts, and he was sentenced to 109 months imprisonment, three years of supervised release, a special assessment of $1,000, and $21 million in restitution.

Jung appealed, but the Seventh Circuit affirmed in a decision by Judge William J. Bauer.

Privilege

The court concluded that the statements were distinguishable from those in two other cases in which it had held that statements of a defendant’s attorney were admissible pursuant to FRE 801(d)(2)(D), as statements of the defendant’s agent. U.S. v. Harris, 914 F.2d 927 (7th Cir. 1990); U.S. v. Sanders, 979 F.2d 87 (7th Cir. 1992).

In Harris, the defendant’s attorney visited with an eyewitness prior to trial and showed him pictures of Harris’ brother in an attempt to develop the theory was that Harris’ brother had committed the crime and that he was a victim of mistaken identity. However, after reviewing the pictures, the witness was confident that it was Harris that he saw, rather than his brother.

At trial, the witness testified about his conversation with Harris’ attorney, and the court admitted a statement attributed to Harris’ attorney acting in his investigative capacity.

The court held that when Harris’ lawyer met with the witness, he was “testing a theory on behalf of his client” and not “relating confidential information about his client.” Harris, 914 F.2d at 931.

In Sanders, the defendant’s former attorney visited two co-conspirators, who were in pretrial detention, and asked the co-conspirators whether they had given statements to the police. The visit occurred several months before Sanders was indicted.

At trial, the government elicited the statements by the attorney to show that Sanders must have been involved in the conspiracy. Sanders, 979 F.2d at 90.

The court concluded in the case at bar that Harris and Sanders were distinguishable.

The court reasoned, “Unlike the attorneys in Harris and Sanders, Fox did not meet with Lamon and Isaf in an investigative capacity. The statements attributed to Fox were uttered more than five years before Jung’s criminal trial. This is not a case where an attorney’s pre-trial tactical decisions backfired; Fox was not attempting to develop a defense strategy by meeting with Lamon and Isaf.”

The government acknowledged, and the court agreed, that Fox’s statements were made to notify victims about the situation on behalf of the defendant as part of a strategy to be cooperative.

By presenting the testimony, the court concluded that the government “achieved the equivalent of having Jung’s former attorney stand with the prosecutors and vouch for his indictment.”

The court added, “From a policy perspective, defendants will be chilled from sharing information with their attorneys, defense attorneys will be deterred from vigorous advocacy, and the attorney-client relationship will be impaired if statements like Fox’s regarding Jung’s criminal liability are admissible.”

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The court thus held that it was error to admit the out-of-court statements by Fox.

Harmless Error

However, the court held that admission of the error was harmless under FRCP 52(a).

In an affidavit Fox had signed, he acknowledged that he wrongfully permitted securities to be deposited in his accounts, exposing the investors to losses to satisfy his own trading losses and expenses.

In addition, in his bankruptcy proceeding, Jung agreed to the non-dischargeability of the investors’ $21 million losses, pursuant to a provision that debts owing to property obtained by fraud are non-dischargeable.

The court concluded, “These statements defeat Jung’s arguments that he did not intend to deceive the SIF’s investors and that he reasonably believed the investors were on notice of cross-collateralization.”

In addition, the government presented evidence that, although Jung’s trading was never profitable, every year, he reported to investors that the SIF fund had made profits.

Accordingly, the court held that the admission of the statements by Fox was harmless and, after briefly discussing the sentence and finding it reasonable, affirmed.

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David Ziemer can be reached by email.