Pop Quiz
Fifth Amendment and Erroneous 106 Rulings

FRE 404(b) and FRE 106

Recently the Seventh Circuit handed down a decision of interest to evidence wonks.  United States v. Paladino, et al., No. 03-2296 (7th Cir. Feb. 25, 2005) (Posner, J.).

Paladino was a multi-defendant fraud prosecution involving several defendants and several evidentiary issues.

The 404(b) Issues
FRE 404(b) prevents the government from introducing prior bad acts. 

In a fraud prosecution, the trial court to admit evidence that the Iles and her Wardell (a co-conspirator who died before being indicted) that:

  • Iles plead guilty to federal fraud charges in 1988 and in 1989 that the SEC permanently banned Iles "from ever associating with members of the securities industry" and
  • Wardell "had been convicted in a state court of theft by fraud in 1975, and in 1972 had consented to an SEC order forbidding him to violate federal securities laws in the offer and sale of stock in a corporation in which he had been involved" and
  • [To allow the government] to argue that the Iles knew about Wardell's "conviction and SEC bar order, though all Wardell had told her, when she informed him of her own SEC bar order, was that he, too, had had problems with the SEC.

Was this a proper 404 ruling?  Yes, and no.  It was permissible to admit Iles' prior bad acts but only because "[s]he had represented to [investors] that she was both reputable and experienced, and by doing so had implied that she had a clean record, and certainly that she had not been barred from the securities business for life almost a decade earlier, after being convicted of criminal fraud."  Id. at *5.  These lies did not go to impeachment, but instead to as direct evidence that "the representations she made to potential investors really were misleading."  Id.

It was improper, however, to admit Wardell's prior bad acts to show Iles misconduct.  But the panel here suggests that Wardell's prior bad acts would have been admissible had the government laid a firmer foundation:

The judge should not, however, have permitted the evidence of Wardell’s legal troubles to come in without evidence that Iles actually knew about them. All Wardell told her was that he had had problems with the SEC. Many members of the securities business have had problems with the SEC that did not result in their being barred from the business. The SEC does not bring remedial proceedings against everyone whom it investigates and it does not prevail in all the proceedings that it does bring. Anyone who had to defend himself against the agency would acknowledge having had problems with it even if he had been exonerated. The judge’s error, however, was harmless, because the evidence against Iles, especially in light of our conclusion that her own previous fraud judgments were properly placed before the jury, was compelling.

Id. at *6.

The 106 issue.
Paladino was deposed in a previous SEC proceeding.  In the proceeding he said: "“I learned that this money that’s been coming in was investment money, and I was totally surprised because I assumed this whole time that this was trade money.”  (If the money was trade money, then Paladino was not guilty, if it was investment money, then he was guilty).

The trial court allowed the government to introduce a cropped version of this deposition.  Thus, Paladino's deposition testimony was represented as saying: "I learned that this money that’s been coming in was investment money[]."  Judge Posner continues:

There were other harmful deletions. For example, handed during his deposition a “secured investor program agreement,” Paladino said it “looks familiar” but added that he hadn’t seen it until after the scheme had ended and the SEC had filed suit. The judge allowed the government to delete the addition even though, since Paladino’s guilt depended on what he knew when, the date on which he first saw the document was crucial.

Thus, "[i]n permitting the government to make this and other misleading deletions, the trial judge violated Fed. R. Evid. 106[]."  Id. at *8.

UPDATE: See Fifth Amendment and Erroneous 106 Rulings.