In the Courts

During the relevant period, Brown was a managing director and the head of Merrill Lynch's Strategic Asset and Lease Finance group. During his testimony before a federal grand jury, Brown stated that Enron had only ever offered Merrill Lynch “strong comfort” that it would buy back the barge equity within six months, never a promise to do so. Based on his actions in connection with the sale and alleging that Brown knowingly lied during his grand jury testimony, the government indicted Brown on wire fraud, conspiracy, perjury, and obstruction of justice charges. While he was initially convicted on all charges, Brown had previously prevailed in a separate appeal of his wire fraud and securities convictions before the Fifth Circuit. In that appeal, the court held that the government had used an improper “honest services” theory of fraud to secure those convictions. The Fifth Circuit also held that Brown's re-trial on those counts would not amount to double jeopardy but, nevertheless, the government chose to abandon those charges after Brown prevailed on appeal.

In his latest appeal, Brown argued that the government, in providing only summary letters of FBI and Senate interviews and prior testimony from executives of both Enron and Merrill Lynch before his trial ' as opposed to the “raw notes” of these matters ' had suppressed favorable evidence, in violation of Brady v. Maryland, 373 U.S. 83 (1963). The district court had held that the government did not suppress favorable evidence and that, even if it had, the information was not material.

Some of the potential Brady material had been reviewed in camera by the district court and deemed non-discoverable. For those items, the Fifth Circuit noted that its review was only for clear error, whereas the previously unexamined material had to survive de novo scrutiny.

While the Fifth Circuit found that “[f]avorable information was plainly suppressed,” the court held that the district court's prior ruling did not amount to reversible error. Noting that considerable evidence of Brown's guilt was found throughout the record, the court held that the potential Brady material, even when viewed cumulatively, did not provide the panel with a “definite and firm conviction” that it established a substantial probability of a different outcome. Based on this conclusion, the panel affirmed Brady's remaining perjury and obstruction of justice convictions.

Fifth Circuit Affirms Convictions of Former Merrill Lynch Managing Director

On Aug. 12, the United States Court of Appeals for the Fifth Circuit, in an opinion authored by Circuit Judge Jerry E. Smith, affirmed the obstruction of justice and perjury convictions of former Merrill Lynch & Co. (“Merrill Lynch”) executive James A. Brown. United States v. Brown, No. 10-20621. The decision was based on the grounds that the district court's ruling ' that evidence not completely disclosed by the government prior to trial would have left the case's outcome unchanged ' did not constitute clear error.

Brown's convictions were tied to a 1999 transaction between Merrill Lynch and Enron Corporation (“Enron”). For a sum of $28 million, Merrill Lynch had acquired an equity interest from Enron in three barge-mounted power generators off the Nigerian coast. The government alleged that the equity sale, in which 75% of the purchase price was in the form of a loan from Enron to Merrill Lynch, was a sham transaction. Specifically, the government alleged that Enron never actually sold the barge stake to Merrill Lynch; rather, Enron secretly promised that it would re-purchase the equity within six months, via a company run by then-CFO Andrew Fastow, while guaranteeing Merrill Lynch a 15% return along with an “advisory fee” of $250,000. The government alleged that the equity purchase was designed to artificially enhance Enron's fourth-quarter earnings for that year, assisting the company in meeting its earnings forecasts. Enron booked approximately $12 million in profit based on the transaction.

During the relevant period, Brown was a managing director and the head of Merrill Lynch's Strategic Asset and Lease Finance group. During his testimony before a federal grand jury, Brown stated that Enron had only ever offered Merrill Lynch “strong comfort” that it would buy back the barge equity within six months, never a promise to do so. Based on his actions in connection with the sale and alleging that Brown knowingly lied during his grand jury testimony, the government indicted Brown on wire fraud, conspiracy, perjury, and obstruction of justice charges. While he was initially convicted on all charges, Brown had previously prevailed in a separate appeal of his wire fraud and securities convictions before the Fifth Circuit. In that appeal, the court held that the government had used an improper “honest services” theory of fraud to secure those convictions. The Fifth Circuit also held that Brown's re-trial on those counts would not amount to double jeopardy but, nevertheless, the government chose to abandon those charges after Brown prevailed on appeal.

In his latest appeal, Brown argued that the government, in providing only summary letters of FBI and Senate interviews and prior testimony from executives of both Enron and Merrill Lynch before his trial ' as opposed to the “raw notes” of these matters ' had suppressed favorable evidence, in violation of Brady v. Maryland , 373 U.S. 83 (1963). The district court had held that the government did not suppress favorable evidence and that, even if it had, the information was not material.

Some of the potential Brady material had been reviewed in camera by the district court and deemed non-discoverable. For those items, the Fifth Circuit noted that its review was only for clear error, whereas the previously unexamined material had to survive de novo scrutiny.

While the Fifth Circuit found that “[f]avorable information was plainly suppressed,” the court held that the district court's prior ruling did not amount to reversible error. Noting that considerable evidence of Brown's guilt was found throughout the record, the court held that the potential Brady material, even when viewed cumulatively, did not provide the panel with a “definite and firm conviction” that it established a substantial probability of a different outcome. Based on this conclusion, the panel affirmed Brady's remaining perjury and obstruction of justice convictions.