Case 2:18-cr-00422-DJH Document 2042 Filed 02/07/24 Page 1 of 11
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`IN THE UNITED STATES DISTRICT COURT
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`FOR THE DISTRICT OF ARIZONA
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`United States of America,
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`Plaintiff,
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`v.
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`Michael Lacey, et al.
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`Defendants.
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`No. CR-18-00422-PHX-DJH
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`ORDER
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`On Thursday, November 9, 2023, Defendant Brunst orally moved to dismiss the
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`case based on alleged violations under the Jencks Act, 18 U.S.C. § 3500. (Docs. 1958;
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`see also Trial Tr., 11/9/2023, Doc. 1986 (“Oral Mt. Tr.”)).1 In accordance with the Court’s
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`order for supplemental briefing (Doc. 1958), Defendants collectively filed a “Motion to
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`Dismiss or Strike Testimony, and Request for a Hearing Due to the Government’s Jencks
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`and Brady violations” (Doc. 1967) (“Initial Motion”) and a “First Supplement” thereto
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`(Doc. 1972).2 The Court held a hearing on November 14, 2023 (Doc. 1971; Trial Tr.,
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`11/14/2023, Doc. 1987 (“Jencks and Brady Hr’g Tr.”)), in which it took testimony from
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`Government witness Quoc Thai, and
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`then held a supplemental hearing on
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`November 15, 2023 (Doc. 1974; Trial Tr., 11/15/2023, Doc. 1988 (“Jencks and Brady Hr’g
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`1 The Government filed a “Response to Defendants’ Oral Motion to Dismiss”
`(Docs. 1966; 1968).
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` The United States (the “Government”) filed a Response to the First Supplement (Doc.
`1990) and Defendant Spear filed a Reply. (Doc. 2005).
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`Case 2:18-cr-00422-DJH Document 2042 Filed 02/07/24 Page 2 of 11
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`Tr. #2”). The Court now rules on the unresolved issues raised by Defendants. 3
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`I.
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`Relevant Facts and Law
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`Defendants bring their Initial Motion and First Supplement asserting violations
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`under Brady v. Maryland, 373 U.S. 83 (1963) (“Brady”) and the Jencks Act. Defendants
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`broadly claim that the Government failed to disclose evidence that was favorable to
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`Defendants, thus crippling their cross-examination of Government witness Quoc Thai
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`(“Thai”) and Government cooperating witness Carl Ferrer (“Ferrer”). Defendants argue
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`that the Government violated their due process rights, which warrants dismissal of the
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`Superseding Indictment (Doc. 230) or, alternatively, that certain testimony be struck.
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`A.
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`Disclosures Under Brady
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`A prosecutor must disclose evidence favorable to an accused; otherwise, he violates
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`a defendant’s due process rights if the evidence is material either to guilt or to punishment,
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`irrespective of the good or bad faith of the prosecution. Brady, 373 U.S. at 87. The
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`discovery under Brady must be “material” or “favorable” to the defense. Woods v. Sinclair,
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`764 F.3d 1109, 1127 (9th Cir. 2014) (citing Kyles v. Whitley, 514 U.S. 419, 436–37 (1995)).
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`The test for materiality is whether the requested evidence might affect the outcome of the
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`trial. United States v. Agurs, 427 U.S. 97, 104 (1976); United States v. Michaels, 796 F.2d
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`1112, 1116 (9th Cir. 1986). The Government’s duty to disclose Brady material is “an
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`ongoing duty” to (1) “learn of any favorable evidence known to the others acting on [its]
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`behalf,” United States v. Yan Juan Zhen, 2015 WL 727923, *2 (D. Nev. Feb. 19, 2015)
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`(quoting Kyles, 514 U.S. at 432)) and (2) disclose exculpatory evidence and other evidence
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`that is favorable to the accused, including impeachment evidence. Id. (citing Giglio v.
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`United States, 405 U.S. 150, 154–55 (1972)). A request from the defense is not required to
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`trigger the Government’s duty to disclose. See Banks v. Dretke, 540 U.S. 668, 695–96
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`(2004).
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`3 Defendants requested oral argument in their Initial Motion. The Court held hearings in
`which it heard arguments and witness testimony. (See Oral Mt. Tr., Doc. 1971; Jencks and
`Brady Hr’g Tr., Doc. 1987; and Jencks and Brady Hr’g Tr. #2, Doc. 1988). Thereafter,
`Defendants supplemented their argument because the Government provided them with
`additional lates disclosures. The Motions are now fully briefed, and the Court will not be
`aided by additional oral argument on the issues.
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`Case 2:18-cr-00422-DJH Document 2042 Filed 02/07/24 Page 3 of 11
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`B.
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`Disclosures Under the Jencks Act
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`The Jencks Act (the “Act”) serves as an additional discovery tool that imposes the
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`following requirements:
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`(a)
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`In any criminal prosecution brought by the United States, no statement
`or report in the possession of the United States which was made by a
`Government witness or prospective Government witness (other than
`the defendant) shall be the subject of subpoena, discovery, or
`inspection until said witness has testified on direct examination in the
`trial [; and]
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`(b) After a witness called by the United States has testified on direct
`examination, the court shall, on motion of the defendant, order the
`United States to produce any statement (as hereinafter defined) of the
`witness in the possession of the United States which relates to the
`subject matter as to which the witness has testified.
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`18 U.S.C. § 3500(a)–(b). The Act narrowly defines “statements” as: (1) writings made by
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`the witness and “signed or otherwise adopted or approved by him;” or (2) accounts which
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`are “a substantially verbatim recital” of the witness’s oral statements “recorded
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`contemporaneously with the making of such oral statement.” Id. § 3500(e)(1)–(2).
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`The Jencks Act
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`trumps and
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`limits Brady’s compulsory
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`requirements.
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`United States v. Griffin, 659 F.2d 932, 936 (9th Cir.1981), cert. denied, 456 U.S. 949
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`(1982). If a witness statement is exculpatory, then the Jencks Act’s timing requirements
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`control. United States v. Alvarez, 358 F.3d 1194, 1211 (9th Cir. 2004). (“When the defense
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`seeks evidence which qualifies as both Jencks Act and Brady material, the Jencks Act
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`standards control.”). The Act provides sanctions for noncompliance: “the court shall strike
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`from the record the testimony of the witness, and the trial shall proceed unless the court in
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`its discretion shall determine that the interests of justice require that a mistrial be declared.”
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`18 U.S.C § 3500(d). However, a district court has discretion to refuse to impose
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`sanctions for noncompliance. Generally, a court’s decision to strike a witness’s testimony
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`for not compliance with the Jencks Act “should rest on (1) a consideration of the culpability
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`of the government for the unavailability of the material and (2) the injury resulting to the
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`defendants.” United States v. Riley, 189 F.3d 802, 806 (9th Cir. 1999) (quoting United
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`Case 2:18-cr-00422-DJH Document 2042 Filed 02/07/24 Page 4 of 11
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`States v. Sterling, 742 F.2d 521, 524 (9th Cir. 1984)). Though a defendant need not prove
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`prejudice to show a Jencks Act violation, when there is no prejudice, a witness’s testimony
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`need not be stricken. Id.
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`II.
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`Discussion
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`Defendants move for a dismissal of the indictment, or in the alternative, an order
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`striking Government witnesses Thai and Ferrer’s testimony due to the Government’s
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`failure to make timely disclosures under the Jencks Act and Brady. Defendants’ Initial
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`Motion challenges testimony relating to money transfers through accounts referenced in
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`the November 4, 2021, Financial Account Tracing Report by Thai and Postal Inspector
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`Lyndon Versoza (“PI Versoza”) (Doc. 1966-4) (“the Report”). (See Doc. 1967 at 3).
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`Defendants’ First Supplement challenges various disclosures made by the Government
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`during trial that contained emails by Ferrer. (Doc. 1972 at 3). The Court will address
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`Defendants’ Initial Motion and First Supplement in turn.
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`A.
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`Defendants’ Initial Motion (Doc. 1967): the November 4, 2021, Financial
`Account Tracing Report
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`On November 8, 2023, the Government disclosed Thai’s email transmitting the
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`Report as part of its ongoing Jencks disclosure, stating a belief that “it may fit into that
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`category[.]” (Exh. 6268). The Report is 90 pages and describes tracing activity for
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`numerous bank accounts, trusts, credit unions, websites, and listed properties.4
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`(See generally Doc. 1966-4). The Report also includes information on when each account
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`was established, and in some cases, the origin of the respective funds. (Id.) For each
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`account listed, the Report documents the location of the account; the account holder; and
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`various wire transfers to and from each account, including transfers and payments to
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`4 The Report includes information on: Prosperity Bank Account, Compass Bank Account,
`National Bank of Arizona Live Oak Bank Ascensus Broker Services, First Federal Savings
`and Loan of San Rafael, Republic Bank of Arizona, Bank of America, San Francisco Fire
`Credit Union Green Bank, Perkins Coie Trust Company Account, Alliance Bernstein,
`K&G, FIO Bank, Bank Frick, Knab Bank, Rabo Bank, Acacia Conservation Fund Saxo
`Payments Account, LHV Bank, Compass Bank Midfirst Bank, a listing of Ascio/WMB
`Inc websites and listed properties by address and location. (See generally Doc. 1966-4).
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`Case 2:18-cr-00422-DJH Document 2042 Filed 02/07/24 Page 5 of 11
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`entities and individuals such as Ferrer, Backpage Operators, Defendant Spear, Defendant
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`Brunst, and Defendant Lacey. (Id.)
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`1.
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`Quoc Thai’s Testimony
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`Defendants posit the Report is Jencks material because Thai referred to it in an email
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`as “the tracing document that Lyndon and I [Thai] put together years ago.” (Doc. 1967 at 3;
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`Exh. 6266). The Court held an evidentiary hearing on November 14, 2023, to further probe
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`the extent that Thai was involved in developing the Report. (See Doc. 1971; Jencks and
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`Brady Hr’g Tr., Doc. 1987). Thai testified that he did not write the Report, rather PI
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`Versoza did.5 (Jencks and Brady Hr’g Tr., Doc. 1987 at 36). Thai stated he contributed to
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`the Report by “reviewing [it] for any kind of grammatical issues and organizing the table
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`of contents and other things.” (Id. at 40; see also id. at 45). He testified that his role was
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`“building out and proving up the money laundering charges, charges 53 through 100” and
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`that PI Versoza was “primarily focused on the asset forfeiture.” (Id. at 40). Thai stated he
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`did not use the Report as a basis for his summary charts, and he rather “used the source
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`material and built it up from scratch[.]” (Id. at 41). He explained the Report “wasn’t
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`thorough enough for [his] purposes” as he was focused on the money laundering charges,
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`and “that [the Report] was kind of an asset forfeiture document.” (Id. at 43).
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`On cross-examination, Thai clarified that the work he conducted—which focused
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`on money laundering charges—was separate from PI Versoza’s work—which focused on
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`asset forfeiture tracing. (Id. at 51). Thai disagreed that his work showed up in the Report
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`or his trial exhibit (Exh. 1479) because his work started after he received subpoenaed
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`financial documents, which was separate from PI Verzosa’s work. (Jencks and Brady Hr’g
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`Tr., Doc. 1987 at 51). He further testified that he did not compare his work to that in the
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`Report. (Id. at 51–52). Thai was unable to answer Counsel for Defendant Brunt’s basic
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`questions about information referenced in the Report. (Id. at 55–57).
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`2.
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`The Report is not Quoc Thai’s Jencks Material
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`At the supplemental hearing on November 15, 2023, the Court found the Report was
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`5 PI Versoza was not a listed trial witness.
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`Case 2:18-cr-00422-DJH Document 2042 Filed 02/07/24 Page 6 of 11
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`not Thai’s Jencks material. (Jencks and Brady Hr’g Tr. #2, Doc. 1988 at 18). See also
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`United States v. Bernard, 623 F.2d 551, 558 n.21 (9th Cir. 1980) (as revised) (discussing
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`the contours of what qualifies as Jencks material under 18 U.S.C. § 3500(e)). Thai’s
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`testimony showed the Report was not “signed or otherwise adopted or approved” by Thai,
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`nor did it include accounts which are “a substantially verbatim recital” of his oral
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`statements. 18 U.S.C. § 3500(e). Indeed, Thai struggled to answer basic questions about
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`the Report’s content. He further testified that he did not write it, nor did he use it in
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`preparation for his testimony. Defendants’ supplemental filings do not raise new
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`arguments, and the Court finds the developed record supports its initial finding.
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`Even if Thai adopted statement(s) in the Report, the Government points out that the
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`Report’s content was previously disclosed to Defendants prior to trial. (Doc. 1990 at 2).
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`The Government states the Report’s contents were included in various seizure warrants by
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`PI Versoza that were filed in a related 2018 ancillary proceeding in California federal court.
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`(Docs. 1966-1; 1968-1; 1968-2). (See Doc. 1966-7 (comparing the Report to previously
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`disclosed documents)). These seizure warrants were disclosed that same year to Counsel
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`for Defendant Lacey, Defendant Brunst, and Defendant Spear. (Docs. 1966-5; 1966-6).
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`The record thus shows that Defendants have been aware of the Report’s content since 2018.
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`So, their claimed prejudice is unsubstantiated.
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`Furthermore, the Court is not persuaded by Defendants’ assertion that they could
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`have used the Report to impeach Thai on a critical issue about the money laundering
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`charges. Defendants maintain that “the [G]overnment elicited (false) testimony from Thai
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`that ‘Cereus Properties appears to be an entity used to pay the various payroll expenses of
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`the . . . activity relating to Backpage.com.’” (Doc. 1967 at 5–6 (citing Doc. 1923 at 136)).
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`Defendants further contend “[t]here was not a shred of evidence at trial or anything in the
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`discovery produced by the government corroborating Thai’s assertion regarding Cereus
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`Properties.” (Id. at 6). They claim that because the Report states that “Prosperity Account
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`Bank . . . wired [money] . . . to S&W Payroll, a company Backpage uses to pay its
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`employees,” the Report contradicted Thai’s testimony. (Id.) Yet, the Report was not
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`Case 2:18-cr-00422-DJH Document 2042 Filed 02/07/24 Page 7 of 11
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`authored by Thai so it could not be used to impeach him.6 Thai represented he conducted
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`his own investigations.
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`In any event, the Government’s “First Amended Consolidated Master Verified
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`Complaint for Forfeiture” (Doc. 1966-2), which was filed in United States v. $1,546,076.35
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`In Bank Funds Seized From Republic Bank of Arizona Account ‘1889, et. al., No. CV-18-
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`8420-RGK(PJWx) (N.D. Cal. June 1, 2020), contain similar allegations—that is, Cereus
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`Property assets “are alleged to have been traceable to SUA, involved in money laundering,
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`or both, and was used as a funnel account to pay Backpage Operators” and, relatedly, other
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`use of Prosperity Bank accounts. (Doc. 1966-2 at 48 (emphasis added)). So, Defendants
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`were aware of the allegations about how Cereus Property and Prosperity Banks accounts
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`were used because they are alleged in their related forfeiture case. Defendants cannot now
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`fain surprise or claim they were hindered from a more vigorous cross-examination of Thai
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`about his supporting evidence or lack thereof.
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`B.
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`Defendants’ First Supplement (Doc. 1972): Carl Ferrer’s Emails
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`On November 14, 2023, the Government turned over another 26 pages of documents
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`to Defendants. (Doc. 1972-1). The Government states it did so as part of their related
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`forfeiture case. (Doc. 1990 at 2–4). The documents include emails between Ferrer and
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`PI Versoza in July 2018 wherein Ferrer responds to and answers questions about the
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`location of and use of accounts, and forwards information and spreadsheets to PI Versoza.
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`(Doc. 1972-1). Ferrer also asks questions of “Stephanie Parks” via Proton Mail about
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`prepaid legal payments, and retainer wire confirmations, and forwards these emails to
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`PI Versoza. (Id. at 5–8). Ferrer also used a Proton email address in communicating with
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`PI Versoza and others. (Id.). These communications occurred after the Government filed
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`the present matter.
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`In their First Supplement, Defendants state they had not fully reviewed and analyzed
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`the effect of the late disclosures to their case. (Doc. 1972). They note, however, an email
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`that contradicted Ferrer’s testimony “that he did not know how much the retainers were.”
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`6 Defendants’ argument about Posting Solutions meets the same fate for the same reasons.
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`Case 2:18-cr-00422-DJH Document 2042 Filed 02/07/24 Page 8 of 11
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`(Id. at 3). Defendants further argue the email demonstrated that “Mr. Ferrer, Michael Gage,
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`and Stephanie Parks communicated with the government using protonmail.com email
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`addresses” while part of the government’s trial presentation was an assertion that the use
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`of protonmail.com was indicative of criminal intent. (Id.) The Government says that the
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`late disclosures were inadvertent, unintentional, and were part of the eventual forfeiture
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`trial, and “do not concern the subject matter of Ferrers testimony during the guilt phase of
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`the trial.” (Doc. 1990 at 2). The Court disagrees with the latter assertion.
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`1.
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`Carl Ferrer’s Jencks Material
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`The Superseding Indictment alleges Defendants committed money laundering by
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`funneling Backpage.com proceeds through various bank accounts and transactions flowing
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`in and out of those accounts. (Doc. 230 at 44–92). The Government’s cooperating witness,
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`Ferrer, testified at length about how Backpage.com’s proceeds were funneled into these
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`accounts and who benefited from them. Defendants posited that Ferrer was the one who
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`controlled and benefitted from the Backpage.com operation. The late disclosures include
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`Ferrer sending PI Versoza a list of his international merchant and treasury accounts in
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`which he had amassed proceeds from Backpage.com. (See Doc. 1972-1 at 1). It is of no
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`moment that the email would be produced at an eventual forfeiture proceeding because
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`Ferrer’s email was relevant to the subject matter of his testimony. Further, that email was
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`written “signed or otherwise approved or adopted” by him. It is therefore Jencks material
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`under 18 U.S.C. § 3500(e).
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`Ferrer’s forwarded emails on payments wired or transferred to IOLTA or retainer
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`accounts, however, are of a different ilk. They are forwarded emails written by others
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`explaining what amount has been or will be paid in lawyer fees and retainers and from
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`what accounts. They are neither Jencks, nor Brady, nor Giglio material. The Court finds
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`that the Government erred in failing to produce the emails written by Ferrer listing his
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`merchant and treasury accounts. Nonetheless, these late disclosure does not warrant
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`dismissal of the case or striking Ferrer’s testimony because the material had been
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`previously disclosed, albeit in a variety of forms.
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`Moreover, Defendants’ access to these late disclosures had no prejudicial effect on
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`Case 2:18-cr-00422-DJH Document 2042 Filed 02/07/24 Page 9 of 11
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`their cross-examination of Ferrer on the benefits of his plea agreement. To be sure, the
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`cross-examination was exceedingly thorough. Counsel for Defendant Brunst practically
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`went paragraph by paragraph through Ferrer’s plea agreement attempting to extract his
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`understanding of all its benefits. (See generally Trial Tr., 9/26/2023, Doc. 1830 (reflecting
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`extensive cross-examination of Ferrer by Counsel to Defendant Spear and Counsel to
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`Defendant Brunst)). Counsel focused on the Government’s agreement that enabled Ferrer
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`to keep assets from Backpage.com to pay his attorneys fees. (Id. at 11). Though Ferrer
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`could not recall the precise amount (as listed in the 2018 email communications), he
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`testified that he did not think it was over $1,000,000. (Id. at 12). Counsel for Defendant
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`Spear’s questions related to the number of attorneys Ferrer employed, their locations and
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`hourly rates. He asked Ferrer “to be clear, the money, the Backpage money that’s being
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`used to pay your lawyers for the last five years, have . . . you been paying those bills or has
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`somebody else been paying those bills?” (Id. at 22). Ferrer answered, “the balance that’s
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`being used to pay my lawyers, whatever is left over will be forfeited.” (Id.) When asked
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`“you don’t’ know how much has been charged, right?” Ferrer stated “I haven’t been paying
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`very close attention to it . . . I do get billings, but I just really don’t look at them.” (Id.)
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`Defendants argue that late disclosures prevented them from impeaching Ferrer or
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`refreshing his recollection on the $4,000,000 plus from the Backpage.com proceeds that
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`Ferrer used to pay to his lawyers. (Doc. 1972 at 3). Yet, the disclosures of Ferrer’s emails
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`forwarding to PI Verzosa statements of fees paid and from what source is not Ferrer’s
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`Jencks statement. And, given the thoroughness and totality of Ferrer’s cross-examination,
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`it is difficult for the Court to see how refreshing Ferrer’s recollection that $4,000,000,
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`rather than $1,000,000 , was paid to his attorneys fees so far could result in prejudice. The
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`Government’s late disclosure therefore does not warrant striking testimony and falls far
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`short of warranting dismissal of the case.
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`2.
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`Brady/Giglio Disclosures
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`The Court next turns to Defendants’ claim that the Ferrer emails were produced in
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`violation of Brady. The Government asserts that it did not suppress the emails or
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`disclosures so no violation occurred. (Doc. 1966 at 10). The Court agrees.
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`Case 2:18-cr-00422-DJH Document 2042 Filed 02/07/24 Page 10 of 11
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`As mentioned infra, the Government has an ongoing obligation to disclose Brady
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`material that includes material evidence favorable to defendants, is exculpatory or includes
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`impeachment evidence. The test for materiality is whether the requested evidence might
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`affect the outcome of the trial. Agurs, 427 U.S. at 104. The Government asserts that
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`Ferrer’s statements, with slight modifications, are included in PI Versoza’s two seizure
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`warrant affidavits which have been in the Defendant’s possession since November 2018.
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`(Doc. 1966 at 10). It asserts that those affidavits provide more detailed information than
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`what was recently disclosed. (Id.). The Court’s review of the seizure affidavits and the
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`Ferrer emails shows the Court that the Government previously produced “the substance of
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`the information” and that the Ferrer emails and Versoza Report are cumulative evidence
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`which Defendants have been aware. (Doc. 1966-7 at 19–21); see United States v. Marashi,
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`913 F.2d 724, 734 (9th Cir. 1990). Therefore, no Brady violation has occurred.
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`The Court acknowledges it is problematic that the Government claimed in its
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`rebuttal closing that Defendants started using Proton Mail “because they know what they’re
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`doing is wrong, and they are trying to reduce the ability to see the evidence of that.”
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`(Doc. 1972 at 3). Indeed, such a statement demonstrates a lack of awareness that the
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`Government’s own agents were communicating with its cooperating witness routinely
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`through his Proton Mail. Nonetheless, the Government’s statement is consistent with the
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`record testimony of Ferrer that Defendants would routinely change methods of email
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`communication to avoid detection. Moreover, “[i]mproprieties in counsel’s arguments to
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`the jury do not constitute reversible error unless they are so gross as probably to prejudice
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`the defendant, and the prejudice has not been neutralized by the trial judge.” United States
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`v. Navarro, 608 F.3d 529, 535–36 (9th Cir. 2010) (quoting United States v. Guess, 745
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`F.2d 1286, 1288 (9th Cir. 1984)). The Court also instructed the jury that the Counsels’
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`summations are not evidence. So, the Governments’ statement does not warrant dismissing
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`the case.
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`III. Conclusion
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`The Court finds that the Report did not constitute Government Witness Thai’s
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`Jencks statement. No Jencks violation occurred. The Court further finds that Government
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`cooperating witness Ferrer’s written email to PI Versoza (Doc. 1972-1 at 1) is Jencks
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`material and that the Government failed to produce it after he testified. However, the
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`Government’s Jencks violation did not result in prejudice to Defendants. Finally, the Court
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`finds that the Government previously disclosed substantial duplicative information in the
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`Report and Ferrer emails to Defendants and thus no Brady violation occurred.
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`Accordingly,
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`IT IS ORDERED that Defendants’ “Motion to Dismiss or Strike Testimony, and
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`Request for a Hearing Due to the Government’s Jencks and Brady violations” (Doc. 1967)
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`is DENIED.
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`Dated this 7th day of February, 2024.
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`
`Honorable Diane J. Humetewa
`United States District Judge
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