By Donald V. Watkins ©Copyrighted and Published on July 31, 2018
After I published an article Sunday titled “A ‘Pizza Man’ is Leading the Charge”, I received a flood of private and public feedback from readers across the nation who expressed genuine shock at the degree to which federal prosecutors have abused the grand jury and trial system. In reality, this abuse is rampant, growing, and has been going on for decades.
The prosecutorial misconduct described in Sunday’s article is not an aberration. As a former prosecutor myself who has handled major felony cases, I know that exposing prosecutorial misconduct while it is in progress is the best way to curb it.
Nobody is Holding “Rogue” Federal Prosecutors Accountable
In 2010, prosecutorial misconduct in the federal criminal justice system was the subject of an in-depth series of USA Today investigative articles. With help from legal experts and former prosecutors, USA Today spent six months examining the work of federal prosecutors and reviewing legal databases, department records and tens of thousands of pages of court filings.
The following are highlights from USA Today’s impressive body of investigative articles on this subject:
1. Judges have warned for decades that misconduct by prosecutors threatens the Constitution's promise of a fair trial. In response, Congress enacted a 1997 law aimed at curbing these abuses.
2. USA Today documented 201 criminal cases in the years that followed in which judges determined that Justice Department prosecutors -- the nation's most elite and powerful law enforcement officials -- themselves violated laws or ethics rules.
3. In 49 of the 201 cases documented by USA Today, the defendants were either exonerated or set free after the violations surfaced.
4. In case after case during that time, judges blasted prosecutors for "flagrant" or "outrageous" misconduct. They caught some prosecutors hiding evidence, found others lying to judges and juries, and said others had broken plea bargains.
5. The transgressions USA Today identified were so serious that, in each case, judges threw out charges, overturned convictions or rebuked prosecutors for misconduct.
6. USA Today found a pattern of "serious, glaring misconduct," said Pace University law professor Bennett Gershman, an expert on misconduct by prosecutors. "It's systemic now, and … the system is not able to control this type of behavior. There is no accountability."
7. As of September 2010, the Justice Department paid nearly $5.3 million to reimburse the legal bills of defendants who were wrongly accused. It has spent far more to repeat trials for people whose convictions were thrown out because of misconduct, a process that can take years, although the full price tag is impossible to tally.
8. The violations USA Today documented go beyond everyday missteps. In the worst cases, say judges, former prosecutors and others, they happen because prosecutors deliberately cut corners to win.
9. Judges have seen those abuses, too. "Sometimes, you get inexperienced and unscrupulous assistant U.S. attorneys who don't care about the rules," said U.W. Clemon, the former chief judge in northern Alabama's federal courts. [Editor’s Note: Clemon, himself, was the victim of prosecutorial abuse in 1996 while he was a sitting federal judge in Birmingham. U.S. Attorney General Janet Reno personally put an end to this abuse in Clemon's case]
The Problem Persists
I am not the only one who realizes that the Justice Department is infected with “rogue” prosecutors who are accountable to no one. In the USA Today articles, Richard Thornburgh, who was attorney general under Presidents Ronald Reagan and George H.W. Bush, candidly admits that "[t]here are rogue prosecutors, [who are] often motivated by personal ambition or partisan reasons.”
In my case, First Assistant U.S. Attorney Lloyd Peeples commenced a federal grand jury targeting me for investigation within weeks after taking office. This grand jury was empaneled to review claims in a lawsuit filed by the Securities and Exchange Commission allegedly that I “defrauded” professional athletes who invested in my international waste-to-energy businesses. Peeples started his own investigation after highly respected federal prosecutors in New Jersey, who are specially trained in economic crimes, reviewed the same allegations during a six-month grand jury investigation and closed their case in 2016 after finding that I had committed no wrongdoing.
The Constant Shifting of Focus in Search of a Crime
When the SEC announced earlier this month that it was dropping two-thirds of its baseless allegations of “securities fraud” (with the remaining one-third hanging on in court by a thread), Lloyd Peeples shifted the focus toward manufacturing a criminal case around certain Regulation O allegations in a FDIC investigation that resulted from a 2013 order former Alabama governor Robert Bentley gave to former Alabama Bank Superintendent John Harrison to run me out of the banking business. I wrote about this gubernatorial order in “Surviving Hatred in Alabama”.
As an accommodation to the Alabama Banking Department, the FDIC trumped-up baseless allegations that accused me of violating Regulation O with respect to a loan Birmingham-based America Bank made to one of my business partners and a loan that was made to one of my sons. Regulation O governs bank loans to executives and directors of the bank. I was chairman of the bank at the time these loans were made, but I had no role in the loan intake, underwriting, or approval process. Additionally, I complied with all known business affiliation disclosure reporting requirements, before, during, and after my bank charter was issued.
For the past five years, the FDIC has steadfastly refused to recognize that the loans in question fell squarely within the well-known, published exceptions to Regulation O. The FDIC has recognized the exceptions to Regulation O for similarly situated bank officers and directors at other regulated banking institutions. My request for equal treatment irritated bank regulators. After all, Alamerica Bank holds the only full-service bank charter ever issued to an African-American owned bank by the Alabama Banking Department.
Lloyd Peeples, who obtained a bank fraud conviction in 2009 on Helen Phillips (the former president of First National Bank of Shelby County), believes he can fabricate a similar bank fraud case against me. Not so.
Phillips took out a loan in the name of her housekeeper and attempted to hide it from bank auditors. In my case, the bank loans in question were made to qualified applicants on the basis of their individual creditworthiness and the proceeds were used for “goods”, “services”, and “property” within a pre-existing, bona fide business relationship, as authorized and permitted in the exceptions to Regulation O. None of these facts were hidden from bank examiners. To the contrary, I presented all of these facts and pertinent documents to bank examiners to support my entitlement to the codified exceptions in Regulation O.
The FDIC’s Disparate Treatment Finds a Welcoming Home in Peeples
The FDIC’s administrative proceeding against me has stalled. The administrative law judge originally assigned to my case has been removed and a new judge has been assigned.
Interestingly, the bank examiners assigned to my case never analyzed the documentation I offered in support of my entitlement to the exceptions in Regulation O. In their first interview with me about this matter in 2013, the FDIC and Banking Department examiners presented me a doctored version of Regulation O that completely removed the permitted exceptions to the regulation. They also spoke to me in an arrogant, nasty, and derogatory tone. My protest of this inappropriate treatment fell on deaf ears within the FDIC and Banking Department. At the time, I did not know that the FDIC’s internal emails described my request for equal treatment under Regulation O’s permitted exceptions as “buffoonery”.
For the reasons described in “A ‘Pizza Man’ is Leading the Charge”, the FDIC’s disparate treatment of me found a warm and welcoming home inside Lloyd Peeples’ U.S. Attorneys office. Peeples initially told my attorneys that he had no interest in the FDIC matter because Alamerica Bank suffered no loses from the loans in question.
One of the USA Today investigative articles reported on a Virginia case that was also referred by the FDIC to federal prosecutors. This case is strikingly similar to my situation. Richard Holland, Sr., and Richard Holland, Jr., were investigated and eventually prosecuted in federal court for allegedly hiding evidence that a small bank they ran in Windsor, Virginia had made improper loans to developers. This was not true.
In contrast to the long FDIC and DOJ investigation, the Hollands' trial ended abruptly. After the government rested its case and before any witnesses testified for the defense, U.S. District Judge Henry Coke Morgan stopped the trial and acquitted the Hollands. It was the first time the judge had ever pre-empted a jury. "There's no credible evidence … that either of these defendants are criminals," Morgan told jurors. In a written order, he called the case "all smoke and no gun."
After the acquittals, lawyers for the Hollands filed a claim under the Hyde Amendment (a 1997 law that requires the Justice Department to reimburse attorney’s fees and costs for wrongly prosecuted defendants) for repayment of their in legal fees. Morgan ordered the government to pay them $912,000, saying "the lack of evidence of criminal intent was so obvious" that the prosecution had been "vexatious" and amounted to harassment.
Peeples is repeating the same misconduct found in the Holland case. This conduct is vexatious and amounts to harassment, but Peeples does not care because he is playing the game with taxpayer's money.
At some point, President Donald Trump and/or U.S. Attorney General Jeff Sessions must take charge of the Justice Department and put an end to rampant prosecutorial misconduct. “Rogue” federal prosecutors are growing in numbers; they are out of control; no one is holding them accountable; and they are ruining the professional reputations of respectable federal prosecutors.
PHOTO: Former U.S. Attorney Richard Thornburgh was the 76th U.S. Attorney General. Thornburgh, a former Republican governor of Pennsylvania, served under Presidents Ronald Reagan and George H.W. Bush. He candidly admits that "[t]here are rogue prosecutors, [who are] often motivated by personal ambition or partisan reasons.”
