Petition — Ostrer v. United States

a reme Court, U.S

I es

OCT 10.1973

In the | MIAHAFL RODAK -,

Supreme Court of the United States.

OcrosBer TERM, 1978.

No. i

LOUIS OSTRER,

PETITIONER,

UNITED STATES OF AMERICA,

RESPONDENT.

Petition for a Writ of Certiorari to the United States

Court of Appeals for the Second Circuit.

ALAN DERSHOWITZ,

20 Elmwood Avenue,

Cambridge, Massachusetts 02138.

Counsel for Petitioner.

Of Counsel:

Harvey A. SILVERGLATE,

ANN LAMBERT GREENBLATT,

SILVERGLATE, SHAPIRO & GERTNER,

217 Lewis Wharf,

Boston, Massachusetts 02110.

BATEMAN & SLADE, INC. BOSTON , MASSACHUSETTS.

Table of Contents.

Opinions below

Jurisdiction and proceedings below

Constitutional provision involved

Questions presented

Introductory statement

Statement of facts

Findings of the District Court

1. Natco/Merchandise Plus bankruptcy fraud

2. Hellerman’s trip to Switzerland

3. Reducticn in Hellerman’s legal fee

4. Hellerman’s “restitution”

Conclusions of the District Court

The Court of Appeals’ opinion

Reasons for granting the writ

A. The Second Circuit’s treatment of the corrupt

practices found by the District Judge, and the

injustice inflicted on the Petitioner, are in stark

conflict with the more stringent standards set

and enforced by every other circuit, and is even

in conflict with the Second Circuit’s own treat-

ment of prior, less egregious cases, where the

reputation of a high prosecutorial official was

not so clearly at stake

B. The legal standards announced by the ma-

J jority of the panel below have ominous implica-

tions for the integrity of the criminal justice

system in the Second Circuit

Conclusion

Dwwon WY

29

ii TABLE OF CONTENTS.

Appendix A la

Appendix B 47a

Appendix C 64a

Table of Authorities Cited.

CASES.

Annunziato v. Manson, 566 F. 2d 410 (2d Cir. 1977) 27

Blankenship v. Estelle, 545 F. 2d 510 (5th Cir. 1977) 26

Brady v. Maryland, 373 U.S. 83 (1963) 3, 6, 8, 9,

10, 14, 17 et seq.

Cannon v. State of Alabama, 558 F. 2d 1211 (5th Cir.

1977) 33n

Dupart v. United States, 541 F. 2d 1148 (5th Cir. 1976) 26

Giglio v. United States, 405 U.S. 150 (1972) 26n

McNabb v. United States, 318 U.S. 332 (1943) 34

Mesarosh v. United States, 352 U.S. 1 (1956) 34

Ostrer v. United States, 430 U.S. 946 (1977) 2

Ostrer v. United States, 577 F. 2d 782 (2d Cir. 1978) $.

3, 27

United States v. Agurs, 427 U.S. 97 (1976) 5, 10, 17, 25,

26n, 30, 31, et seq.

United States v. Badalamente, 507 F. 2d 12 (2d Cir.

1974), cert. denied, 421 U.S. 911 (1975) 28

United States v. Brawer, 482 F. 2d 117 (2d Cir. 1973) 29n

United States v. Butler, 567 F. 2d 885 (9th Cir. 1978) 27

TABLE OF AUTHORITIES CITED. iii

United States v. Dioguardi, 492 F. 2d 70 (2d Cir. 1974) 2

United States v. Franzese, 392 F. 2d 954 (2d Cir. 1968) 28

United States v. Garza, 574 F. 2d 298 (5th Cir. 1978) 27

United States v. Johnson, 327 U.S. 106 (1946) 28n

United States v. Leja, 568 F. 2d 493 (6th Cir. 1977) 27

United States v. Librach, 520 F. 2d 550 (8th Cir. 1975) 27

United States v. McCrane, 527 F. 2d 906 (3d Cir.

1975), vacated and remanded, 427 U.S. 909 (1976),

on remand, 547 F. 2d 204 (3d Cir. 1976) 26

United States v. Ostrer, 419 U.S. 829 (1974) 2

United States v. Ostrer, 422 F. Supp. 93 (S.D. N.Y.

1976) 2, 20n

United States v. Sanfilippo, 564 F. 2d 176 (5th Cir.

1977) 27

United States v. Sutton, 542 F. 2d 1239 (4th Cir. 1976) 26

CONSTITUTIONAL AND STATUTORY PROVISIONS.

United States Constitution, Fifth Amendment 3

28 U.S.C.

§ 1254 a

§ 2255 2,11

In the

Supreme Court of the United States.

Ocroser TERM, 1978.

No.

LOUIS OSTRER,

PETITIONER,

v.

UNITED STATES OF AMERICA,

RESPONDENT.

Petition for a Writ of Certiorari to the United States

Court of Appeals for the Second Circuit.

Louis Ostrer petitions for a writ of certiorari to review the

judgment of the United States Court of Appeals for the Second

Circuit affirming the District Court’s denial of his motion to

vacate conviction and sentence.

2

Opinions Below.

The opinion of the United States District Court for the

Southern District of New York, denying the motion to vacate

conviction and sentence, is unreported and is found in Appen-

dix A, infra. The opinion of the Court of Appeals is reported

at 577 F. 2d 782, and is reproduced in Appendix B, infra.

Jurisdiction and Proceedings Below.

On January 26, 1973, Petitioner, Louis Ostrer, was con-

victed in the District Court for the Southern District of New

York after a three-week jury trial on 17 counts involving a

stock manipulation. On April 12, 1973, Petitioner was sen-

tenced to three years’ imprisonment and a $55,000 fine. On

appeal, his conviction was affirmed in a judgment of the

United States Court of Appeals for the Second Circuit entered

March 1, 1974. United States v. Dioguardi, 492 F. 2d 70.

Certiorari was denied on October 15, 1974. United States v.

Ostrer, 419 U.S. 829.

Subsequently, Ostrer learned that he had been the victim of

unlawful electronic surveillance, which resulted in a motion

for a new trial. His motion was denied after a hearing.

United States v. Ostrer, 422 F. Supp. 93 (1976). The denial

was affirmed by the Court of Appeals on the basis of the

District Court’s opinion, and a petition for rehearing was

denied on December 21, 1976. Certiorari was denied on

March 28, 1977. Ostrer v. United States, 430 U.S. 946.

The proceedings leading up to the instant petition com-

menced with a motion to vacate conviction and sentence filed

with the District Court pursuant to 28 U.S.C. § 2255 on April

14, 1977. That court, after an extensive evidentiary hearing,

3

denied the motion on August 12, 1977, after making detailed

findings of fact and rulings of law embodied in an unpublished

opinion (Appendix A to this petition). The Court of Appeals

for the Second Circuit affirmed on April 18, 1978, in a majori-

ty opinion (per Mansfield, J., joined by Smith, J.) and a con-

curring opinion (Moore, J.). Ostrer v. United States, 577

F. 2d 782. A petition for rehearing with suggestion for re-

hearing en banc was denied on July 10, 1978. Petitioner

began serving his sentence on May 3, 1978. This petition

follows. This Court has jurisdiction to review the judgment

below under the provisions of 28 U.S.C. § 1254.

Constitutional Provision Involved.

Unrrep States CoNSTITUTION, FirrH AMENDMENT.

“No person .. . shall . . . be deprived of life, liberty, or

property, without due process of law. . ..”

Questions Presented.

I. Isa due process violation presented, requiring the grant

of a new trial, where a United States District Judge has found,

after an extensive hearing on a habeas petition, that

(A) the Chief of the Criminal Division of the United

States Attorney’s Office, by means of a “ruse,” “conscious

avoidance,” and “intentional non-compliance” with its

Brady obligations, “intentionally eased the way for [the

Government's chief and indispensable prosecution wit-

4

ness Michael] Hellerman to benefit from its decision to

release the $80,000 in stolen funds,” thereby “inten-

tionally allow[ing] the witness to retrieve the $80,000

thus conferring a substantial benefit on him,” and where

this activity was carefully and intentionally hidden from

the Petitioner’s trial attorney and from the trial judge;

and

(B) the Government also failed to disclose that it had

assisted the witness in obtaining as “a reward for his co-

operation” a “rather unusual benefit,” namely, permis-

sion from another judge to leave the country on a trip to

Switzerland after the witness obtained the aforesaid

$80,000 and just before the witness was scheduled to

begin serving a prison sentence and to testify at the Peti-

tioner’s trial; and

(C) the Chief of the Criminal Division, at the witness’

request, made a telephone call to the witness’ lawyer, the

foreseeable “result or consequence” of which was “a

reduction in [the witness’ legal] fees” from $100,000 to

$50,000, and where this activity was not disclosed to

defense counsel or the court; and

(D) a $12,500 deposit made earlier by the witness into

an escrow account meant for the victims of his swindles

was, without disclosure, funneled back into the witness’

pocket after his testimony at the defendant’s trial, and an

$87,500 balance due on the witness’ restitution obligation

was forgiven by the Government, after the trial judge,

defense counsel, and the jury at the Petitioner’s trial were

led to believe that these funds were paid, and would con-

tinue to be paid, for the benefit of the victims?

II. Should this Court, under its supervisory jurisdiction

over the operations of the Federal Judiciary, order that the

5

Petitioner be granted a new trial for the reasons stated in

Question I, supra?

III. Can suppression of clear, unambiguous evidence of

serious corrupt activity by a high-ranking member of the

United States Attorney’s Office, where that activity results in

substantial pecuniary and other benefits for a critical prosecu-

tion witness, where the benefits are perceived by the witness as

a reward for his “cooperation” in the prosecution of the Peti-

tioner, where this activity is carefully and intentionally hidden

from the trial judge, defense counsel, and the jury, and where

it is not contested that the witness’ testimony was a sine qua

non for the conviction of the Petitioner, ever be considered

harmless or merely cumulative within the meaning of United

States v. Agurs, 427 U.S. 97 (1976), simply because the jury

had before it other impeachment evidence of the witness’

checkered past and of official (but lawful and ethical) leniency

toward him?

IV. Should the standards set down in United States v.

Agurs, 427 U.S. 97 (1976), for guiding a determination in a

post-trial setting as to when a suppression of exculpatory evi-

dence at trial should result in reversal of a conviction, be used

as a guideline for prosecutors to determine in advance of trial

whether certain admittedly exculpatory evidence, in light of

the totality of the Government’s anticipated case, can be with-

held at no risk to the prosecution?

V. May a majority of the members on a three-judge panel

of a Court of Appeals hearing Petitioner's habeas appeal ig-

nore, distort, and in some instances alter outright the careful

findings of a District Judge, who determined after an extensive

evidentiary hearing, on the basis of overwhelming and unam-

biguous testamentary and documentary evidence, that a

theretofore well-regarded former high official in the United

States Attorney’s Office had engaged in corrupt and undis-

6

closed practices in dealing with the key prosecution witness

responsible for Petitioner’s conviction?

Introductory Statement.

It is an extremely rare case in which a defendant in a

criminal case is found serving a prison sentence after a District

Judge has found intentional noncompliance with the Govern-

ment’s Brady obligations and a carefully orchestrated cover-

up of that noncompliance, where the situation involves activi-

ty by a high prosecutorial official and involves the secret and

corrupt bestowal on the Government's critical witness of hun-

dreds of thousands of dollars’ worth of pecuniary benefits. It

is rarer yet for a defendant to be in prison where the only

evidence against him came from the mouth of that witness.

This is just such a case — probably the most serious Brady

violation to come before this Court in recent memory, perhaps

ever.

This case raises important questions as to the continued

vitality of the rule that the prosecutor has a constitutional and

ethical duty to disclose to defense counsel and/or to the court

evidence of clearly exculpatory dimension. It also raises the

issue whether a prosecution obtained entirely on the basis of

the testimony of a witness tainted by corrupt and secret prac-

tices on the part of a high prosecutorial official can withstand

a Due Process attack in a habeas action.

Equally important, this case highlights serious questions as

to the proper deference which an appellate court must give to

the careful findings of a District Judge, who has determined

after an extensive evidentiary hearing, on the basis of over-

whelming and unambiguous testamentary and documentary

evidence, that a theretofore well-regarded former high official

in the United States Attorney's Office had engaged in corrupt

7

and undisclosed practices in dealing with the key prosecution

witness. (Put differently, it raises the question whether the

Petitioner should continue serving a prison sentence because of

an appellate court’s choice to rewrite the District Judge’s find-

ings, thereby protecting the reputation of a well-regarded

former prosecutor.)

Finally, this case sets out in bold relief the duty of this Court

to exert its supervisory powers over the administration of

justice in the lower federal courts in order to discourage and

remedy corrupt practices, where it becomes apparent that the

Court of Appeals has not faced up to, and corrected, a serious

blot on a local United States Attorney’s Office, and a serious

injustice to a federal criminal defendant.

In the face of a carefully orchestrated effort by a certain

person or persons in the Government to coverup the violations

around which this case revolves, it was by sheer fortuity that

the Petitioner learned about them and was able to bring them

to the District Court's attention in his habeas motion.

The District Court found, inter alia, the following facts:

1. The Petitioner’s motion arose out of “a single unexpected

event,” namely, the publication, by the Government's chief

trial witness against the Petitioner, one Michael Hellerman, of

a book entitled Wall Street Swindler, which revealed certain

facts, previously unknown to defense counsel and to the court,

which, counsel realized, if true, “would have been useful to

the defense in attacking Hellerman’s creaubility.” (Appendix

A, la-3a.')

2. The Petitioner’s “conviction was dependent on Heller-

man’s testimony.” (Appendix A, at 4a.)

3. “Ostrer’s trial counsel specifically requested that the

Government make available any material bearing adversely

‘Appendix A contains the “Findings and Conclusions” of District Judge

Charles E. Brieant, Jr., who conducted an extensive evidentiary hearing on

Petitioner's habeas motion.

8

on the credibilty, character or reputation of Hellerman.” (Ap-

pendix A, at 3a.)

4. The Chief of the Criminal Division of the United States

Attorney’s Office (hereinafter “the Chief”*) participated in

and aided a successful effort by Hellerman to obtain for his

personal use $80,000 that belonged to the estate of a bankrupt

corporation and was owed to its creditors. The Chief of the

Criminal Division accomplished this through a ruse. “Having

found that but for the Government activity previously de-

scribed, Hellerman would not have gained access to the

$80,000.00, we are constrained to find that the Government

thereby conferred a benefit on its cooperating witness Heller-

man which should have been disclosed to the defense.” (Ap-

pendix A, at ]4a.)

5. “[T]he Government's failure to alert defense counsel to

this matter {of the $80,000] was intentional,” and failure to in-

form the defense was purposeful and constituted “intentional

non-compliance” with the Brady obligation. (Appendix A, at

l4a, 15a.)

6. The Government knowingly conferred yet another

benefit on Hellerman when it decided “not to oppose Heller-

man’s plans for a trip to Europe while he was awaiting

sentence.” (Appendix A, at 18a). “Failing to oppose permis-

sion for Hellerman to travel was certainly a reward for his

cooperation. . . . The Government should have alerted the

defense to Hellerman’s European trip, since it failed to oppose

bail enlargement to permit the trip to go forward, a rather

unusual benefit under the circumstances of this case.” (Ap-

pendix A, at 18a-19a.)

* Judge Brieant throughout his long and detailed written findings and con-

clusions never once mentioned the name of the prosecutor involved, but

rather referred to him simply as “the Chief,” which nomenclature Petitioner

has adopted herein.

9

7. “In the logical belief that once the attorney [for Heller-

man] was informed of . . . [Hellerman’s] status as a

cooperating witness, the fee [being charged Hellerman by his

attorney, namely, $100,000] would be substantially reduced,

Hellerman asked the Chief to notify the attorney of this fact.

The Chief did call the attorney and Hellerman’s fee was sub-

sequently reduced by $50,000.00. Hellerman thanked the

Chief for his efforts.” (Appendix A, at 22a.) “.. . [T]he result

or consequence of the Chief’s call to counsel was a reduction

in fees. The Chief may have expected that this would be the

result of the call.” (Appendix A, at 22a.) This telephone call

was not disclosed to defense counsel.

The District Judge, who presided over the evidentiary hear-

ing but was not the trial judge in the criminal case, concluded

that these and other facts found by him did not require rever-

sal of Petitioner's conviction, because the Government had

provided defense counsel at trial with other information with

which to impeach Hellerman, namely, some of Hellerman’s

prior crimes, and hence the Brady material not provided

becomes of diluted importance, to the point where, in the

Judge’s view, it would not likely have raised a reasonable

doubt in the minds of the jurors. (Appendix A, at 44a.) Fur-

thermore, ruled the District Judge, this additional suppressed

evidence of Government “largesse” toward Hellerman would

not “probably” have raised a reasonable doubt, since “the jury

was well acquainted with the Government’s lenient treatment

of Hellerman.” (Appendix A, at 45a.)

On appeal, the Court of Appeals panel affirmed the judg-

ment of the District Court. Two judges on that panel,

however, substantially ignored, distorted, or altered the

careful and well-supported findings of the District Judge, and,

in the face of vehement protests by the third panel member at

this rewriting of the well-established and unambiguous facts,

10

the majority of the pane! declared that there was neither a

Due Process nor any other violation.

If left standing, the opinion of the Court of Appeals would

all but extinguish the Bra. y* and Agurs* rules in the Second

Circuit, for it would establish the proposition that the Govern-

ment need not disclose exculpatory evidence to defense counsel

or to the court — including evidence of its own corrupt deal-

ings with a key prosecution witness — so long as that witness is

otherwise sufficiently flawed so that any suppressed impeach-

ment material might be seen by an appellate court as merely

“cumulative.”

An affirmance in this case would, as well, approve holdings

by both the District Court and the Court of Appeals to the ef-

fect that (1) actions by a prosecutor which only “incidentally”

(albeit substantially) benefit a cooperating witness do not con-

stitute Brady material and (2) the Government may assist in

providing pecuniary benefits (in this case stolen funds) to

cooperating witnesses and never disclose those payments, so

long as the payments are merely Government “largesse” and

are not payments which a defendant has been able to prove

were negotiated directly and explicitly in exchange for

testimony.

If this case is allowed to stand without intervention by this —

Court, the incentives for improper prosecutorial actions and

inactions, the prospects of a serious erosion of defendants

rights to a fair trial, and the dangers of a serious decline in

public respect for the federal judiciary, are all abundantly

clear.

> Brady v. Maryland, 373 U.S. 83 (1963).

* United States v. Agurs, 427 U.S. 97 (1976).

1]

Statement of Facts.

Louis Ostrer was charged in a forty-count indictment with

violations of certain provisions of the Federal securities laws,

mail fraud, and conspiracy. The trial court ordered acquittals

on twenty-three counts. The jury acquitted Ostrer on six

counts and convicted him on eleven.

Some years later, after his conviction became final, a

remarkable event occurred. Michael Hellerman, the Govern-

ment’s chief witness at Ostrer’s trial, published a book entitled

Wall Street Swindler (Doubleday & Co., Inc., 1977), an

autobiography recounting the author's life, first as a master

criminal, and then as a master prosecution witness. Ostrer’s

counsel thereupon filed a motion under 28 U.S.C. § 2255,

seeking to vacate Ostrer’s conviction and sentence on the

ground that certain exculpatory information, revealed in the

book for the first time, was known by the Government and

was suppressed at the time of trial.

District Judge Brieant, to whom the case had been trans-

ferred for collateral proceedings, convened an evidentiary

hearing at which Hellerman was ordered produced, and after

hearing Hellerman and numerous other witnesses and examin-

ing documents over the course of four days of testimony and

argument, Judge Brieant made and filed his “Findings and

Conclusions,” set out in Appendix A.

FINDINGS OF THE District Court.

1. Natco/Merchandise Plus Bankruptcy Fraud.

Judge Brieant found (Appendix A, at 6a-16a) that Heller-

man was desperately in need of funds to pay off some loan-

sharks who were threatening to kill him. Hellerman thereby

12

designed a plan for siphoning $80,000 from Natco and Mer-

chandise Plus, two companies that were on the verge of

bankruptcy as a result of an ongoing scheme engineered earlier

by Hellerman to milk their funds.

However, Hellerman learned that his cohort in crime,

Samuel Falgiano a/k/a Sammy Feet, also had intentions to

steal this $80,000, and Hellerman thus found himself in direct

competition with Feet. Hellerman thereupon went to the

Chief of the Criminal Division, disclosed the ongoing

bankruptcy fraud, and revealed that Sammy Feet was about

to pick up the $80,000 at a casino in the Bahamas. The Chief

responded by having the FBI freeze the money at the casino’s

bank in Miami and by retrieving the funds himself. The Chief

turned the funds over to a lawyer hand-picked by Hellerman.

Hellerman then used the money for personal purposes, in-

cluding payment to the loan sharks.

Judge Brieant found that Hellerman “desperately needed”

these funds and that he felt that, unless he had the money to

pay off the loan sharks, his life would be in danger. (Ap-

pendix A, at 7a.) The District Court made the following

specific findings of fact:

(1) the Government prevented Sammy Feet from steal-

ing the $80,000.00 in Natco funds by freezing the pro-

ceeds of the check which Schustek and Feet had caused to

be deposited in the Bahamas casino, which had deposited

it in turn in Florida; (2) Hellerman and Schustek did

reveal the full story of the Natco swindle, including their

own participation, to the Government, thereby making

the Government fully aware of the intended goal of Nat-

co’s bankruptcy, before it released the $80,000.00 . . .;

(3) the Government was aware before it reached its deci-

sion to release the funds to an attorney authorized by

Schustek, that Hellerman desperately needed this money

13

to pay off loansharks who were threatening his life.” (Ap-

pendix A, at 10a.)

The District Court found that the Government's extraor-

dinary largesse did not go unnoticed by Hellerman:

“Hellerman expressed his own belief, at the eviden-

tiary hearing, and in [Wall Street Swindler,| that the

Government intentionally allowed him to retrieve the

$80,000.00 thus conferring a substantial benefit on him.”

(Appendix A, at 11a.)

The intentional nature of the Government’s conduct is clear

in the court’s findings:

“The Court finds, as it must based on the record before

it, that it should have been readily apparent to the

Government, when it did release these funds, that the

money inevitably would end up in Hellerman’s pocket. In

effect, the Government chose to look the other way.

While denying Hellerman’s direct request for the money,

the Government accorded him the opportunity to gain

possession of it indirectly by the charade of having the

corporation’s ‘attorney’ demand and receive it for deposit

in a corporate bank account. By conscious avoidance the

Government thus intentionally eased the way for Heller-

man to benefit from its decision to release the $80,000.00

in stolen funds to an attorney ‘representing’ Natco.” (Ap-

pendix A, at lla-12a.)

This “charade” was kept secret until Hellerman’s publica-

tion of Wall Street Swindler. Judge Brieant found that careful

14

and calculated steps were taken by the Chief at the time of the

Belmont trial to keep this information from Ostrer’s trial

counsel. (Appendix A, at 15a.) The court found “intentional

non-compliance” with the Brady rule by the Government on

the basis of the numerous steps taken or omitted by the

Government that effected a cover-up. “So many oversights

may not be regarded as merely a coincidence,” concluded the

District Court. (Appendix A, at 16a.)

Judge Brieant concluded that this information concerning

the Government's vital role in getting the $80,000 of stolen

Natco funds to Hellerman constituted a violation of Brady v.

Maryland. (Appendix A, at l4a.)

2. Hellerman’s Trip to Switzerland.

Ostrer learned for the first time from reading Wall Street

Swindler that, just prior to Hellerman’s testifying in the Bel-

mont trial, he sought and obtained from another District

Judge a postponement of his surrender date to begin serving

his sentence and permission to travel to Switzerland.® The

Swiss trip ended, and Hellerman began serving his sentence,

just a couple of days before he testified at Ostrer’s trial.

Judge Brieant found that Hellerman obtained court permis-

sion to make the trip, with no Government opposition to his

motion. The Government's non-opposition to this trip was

found to be a “benefit” conferred upon Hellerman. In this

connection, Judge Brieant found that “[f]ailing to oppose per-

mission for Hellerman to travel was certainly a reward for his

cooperation” (Appendix A, at 18a), and that, therefore,

“The Government should have alerted the defense to

Hellerman’s European trip, since it failed te oppose bail

‘Judge Brieant sets out the facts surrounding the Swiss trip in his opinion

at Appendix A, at 16a-19a.

15

enlargement to permit the trip to go forward, a rather

unusual benefit under the circumstances of this case.”

(Appendix A, at 18a-19a.)

Judge Brieant recognized that:

“Had the defense possessed this information it would

then have had the opportunity to cross-examine Heller-

man with respect to the trip and to argue to the jury that

when the Government failed to oppose this junket, it con-

ferred a benefit. Indeed it could have been argued that

Hellerman intended to secrete substantial sums of money

in Switzerland.” (Appendix A, at 18a.)

3. Reduction in Hellerman’s Legal Fee.

Hellerman retained a law firm that set a fee for him of

$100,000,° before the attorneys learned that Hellerman was a

cooperating witness. Then the following scenario took place:

“In the logical belief that once the attorney was informed

of his status as a cooperating witness, the fee would be

substantially reduced, Hellerman asked the Chief to

notify the attorney of this fact. The Chief did call the at-

torney and Hellerman’s fee was subsequently reduced by

$50,000.00. Hellerman thanked the Chief for his

efforts.” (Appendix A, at 22a.)

*Judge Brieant’s discussion and findings concerning the reduction of

Hellerman’s legal fee are set out in his opinion, Appendix A, at 2la-23a.

16

Judge Brieant did “recognize that the result or consequence

of the Chief's call to counsel was a reduction in fees.” (Ap-

pendix A, at 22a.) The court even admitted that “The Chief

may have expected that this would be the result of the call.”

(Id.) However, in the court’s view, since the Government

“had the right” to inform Hellerman’s counsel of his status as a

cooperating witness, “(t]he fee reduction was incidential.”

(Appendix A, at 22a, 23a.) Concluded the District Court:

“The Government cannot be said to be conferring a

benefit through the disclosure of required information

simply because that information happens to be bene-

ficial. We therefore find that the Government did not

violate Brady by failing to inform defense counsel of the

Chief’s contacts with Hellerman’s counsel.” (Appendix

A, at 23a.)

4. Hellerman’s “Restitution.”

At Ostrer’s trial, Hellerman told the jury that, in connection

with his own conviction, he had made restitution of $12,500,

and intended to make an additional $87,500 restitution, to the

victims of his swindles.

Judge Brieant found that after Hellerman’s testimony at

Ostrer’s trial, Hellerman sought and received a refund of the

escrowed $12,500, in order to fund a personal business ven-

ture, and he thereafter made no further restitution. (Appen-

dix A, at 34a.) Judge Brieant stated that “the whole idea of

making restitution in the amount of $100,000.00 is on its face

an illusory and foolish thing.” (/d.) Wrote Judge Brieant:

“We must recognize this whole matter of the restitution

for what it was — high sounding words calculated to

17

ameliorate Hellerman’s sentences on three indictments.”

(Appendix A, at 35a.)

Judge Brieant concluded that despite Hellerman’s nonpay-

ment of an obligation he told the jury about, and the Govern-

ment'’s failure to do anything to hold Hellerman to his obliga-

tion, and notwithstanding the court’s own view that it was

unlikely from the start that restitution would be made, Heller-

man’s trial testimony in this regard was not perjurious, and the

Government's failure to disclose was not a Brady violation.

Thus, the $100,000 that Hellerman saved by not making

restitution, combined with the $50,000 reduction in legal fees

and the $80,000 Natco funds, totalled $230,000 in Govern-

ment “largesse” to Hellerman that was undisclosed to the trial

judge or to defense counsel at Ostrer’s trial.

CONCLUSIONS OF THE District Court.

The District Court applied a standard that it thought was

required in light of this Court’s opinion in United States v.

Agurs, 427 U.S. 97 (1976). The court said:

“We conclude that in Ostrer’s case no reasonable per-

son could say that the suppressed evidence probably

would have altered the outcome of the trial. This con-

clusion is based on the fact that the Ostrer jury was

already abundantly aware of Hellerman’s cooperation

with the Government, the substantial benefits he had ob-

tained thereby, and of his participation in fraudulent and

illegal schemes without number.” (Appendix A, at 42a.)

(Emphasis in opinion.) ~

18

The District Court rejected Ostrer’s contention that the sup-

pressed material would not have been merely cumulative for

the jury, since it attested to the Government’s willingness “to

pay generously for Hellerman’s testimony.” The court based

its rejection on three perceived factors.

First, stated the court, “[t]here is no essential difference

between pecuniary benefits which are given in exchange for

testimony and benefits in the form of freedom from prosecu-

tion.” (Appendix A, at 42a.)

Secondly, the court said, “(t]he Government's willingness to

close its eyes to Hellerman’s appropriation of the $80,000 has

not been shown to have been a negotiated benefit in exchange

for Hellerman’s testimony,”’ even though the gift of $80,000

in stolen funds to Hellerman was meant to keep the Gov-

ernment’s witness alive and happy. (Appendix A, at 43a.)

The third reason the court rejected Ostrer’s contention that

the pecuniary benefits fell into a distinct class all their own is

stated as follows:

“There is reason to believe that Hellerman’s embezzle-

ment of the $80,000.00 was tolerated only because of the

Government’s awareness that unless Hellerman could

repay his debts, his life, and therefore his testimony

would be endangered. Thus, the $80,000.00 can be con-

sidered as merely one facet of the Government’s broader

’ The District Court makes this statement notwithstanding its specific find-

ing that one of the reasons it was to the Government's benefit to help Heller-

man steal the $80,000 was because, as the Chief recognized, Hellerman’s life

would be in danger if he could not pay the loansharks, and this kind of

danger would have required the Government to pull Hellerman off the street

as an informant prematurely and place him in protective custody instead.

“[I]t was in the Government's interests to leave Hellerman at liberty on an

undercover basis as an informant rather than placing him in a safe house.

Nor did Hellerman want to go into hiding or flee.” (Appendix A, at 10a.)

19

program to guarantee Hellerman’s safety rather than as

an effort to put cash in his pocket.” (Appendix A, at

43a.)

This is a remarkable rationalization indeed for the Govern-

ment’s participation with Hellerman in a larceny in a violation

of inter alia, Federal bankruptcy laws. Besides, it directly

contradicts the second stated reason for rejecting Ostrer’s con-

tentions, for it shows beyond any doubt that there was a

definite connection between Hellerman’s status as a witness

and the $80,000 favor done for him by the Chief.

Despite the startling nature of the revelations brought out at

the evidentiary hearing and found by the District Court, that

court stated that this suppressed material would not have

struck the jury any differently than it was struck by the revela-

tions at trial of earlier crimes committed by Hellerman

(without Government assistance). The court insisted that

there would be no difference in the mind of a juror between a

concession by the Government limiting Hellerman’s guilty

plea to three indictments and his exposure to “only” five years

in prison (he in fact was sentenced to two years and served

only three days in jail and nine months in a “safe house”), and

the kinds of “concessions” revealed at the hearing. (Appendix

A, at 43a-44a.)

THE Court oF APPEALS’ OPINION.

in Ostrer’s case, the Court of Appeals for the Second Circuit

was faced with what was undoubtedly the most serious Brady

violation ever to come before that court, presented by the

detailed findings of a conscientious and cautious District

20

Judge. It was shocking to counsel, as it must have been to the

District Court and, one assumes, to the Court of Appeals, to

learn that the Chief had knowingly and willingly released

$80,000 in stolen funds under circumstances such that “it

should have been readily apparent to the Government, when

it did release these funds, that the money inevitably would end

up in Hellerman’s pocket.” (Appendix A, at lla.) “in

effect,” Judge Brieant sadly concluded, “the Government

chose to look the other way.” (Id.)

It was, however, equally shocking when the majority opin-

ion of the panel proceeded to state, as the judicially found ver-

sion of the facts, not Judge Brieant’s careful and unambiguous

findings, but rather the version given on the witness stand by

the Chief and urged by the Government in its briefs in the

District Court and on appeal — which version was not

credited by Judge Brieant, who saw and heard the live

witnesses before him and who examined in minute detail the

damning documents placed in evidence.

The concurring opinion of Judge Moore (Appendix B, at

60a-63a)*® credited Judge Brieant’s fact findings, but never-

theless concluded that revelation to the jury of such a corrupt

act by a high governmental official as the illicit payment of

$80,000 in stolen funds to the Government’s “keystone”

witness,® and the subsequent intentional suppression of that

*The opinion of the Court of Appeals is found as Appendix B to this Peti-

tion.

*Indeed, Michael Hellerman was more than the Government's key

witness. He was the Government's only incriminating witness against

Ostrer. In the absence of Hellerman’s testimony, all of Ostrer’s admitted ac-

tions in purchasing the securities at issue were entirely consistent with

Ostrer’s being Hellerman’s dupe, rather than his co-conspirator or ac-

complice. As Judge Brieant found in an earlier proceeding, “the proof

against Ostrer was substantial, if the jury found the testimony of Hellerman

credible, as it must have done in order to have returned these guilty

verdicts.” United States v. Ostrer, 422 F. Supp. 93, 106 (S.D. N.Y. 1976)

(emphasis supplied).

21

fact, would not likely have affected the verdict of a jury

which, even without this shocking evidence, deliberated for

2 days before returning its verdict.

The majority of the panel, however, decided the case on the

basis of facts that were ccntrary to Judge Brieant’s finding — a

technique which obviously rankled Judge Moore and moved

him to write his concurring opinion.

The majority of the panel surely understood how the

evidence found by Judge Brieant would likely have affected

any jury with a modicum of ethical sensibilities and common

sense. Yet, rather than deal with the facts found by the

District Court, the majority decided the case on the basis of

facts that did not exist. The majority apparently felt that it

could not affirm the District Court and uphold the conviction

on the basis of the facts below, at least not without doing harm

to the reputation of the Chief, who was by then in private

practice and active in local bar activities.

The majority’s opinion states the “facts” by summarizing

the discredited testimony of the Chief, rather than Judge

Brieant’s findings. (Appendix B, at 50a et seq.) The panel

fails to mention that this version was heard and rejected by the

District Court. Thus, for example, the majority notes that the

Chief “warned Hellerman and Schusteck that they would be

prosecuted if the money was later diverted by them to non-

corporate purposes.” (Jd. at 50a.) Judge Brieant, on the

other hand, found that the Chief never intended any such pro-

secution, for the Chief knew that Hellerman would likely get

the money.'’° As for the “warning,” Judge Brieant, in stark

contrast to the panel’s description of it, found:

'©“ By conscious avoidance the Government thus intentionally eased the

way for Eellerman to benefit from its decision to release the $80,000... .”

(Appendix A, at 1la-12a.)

22

“The Chief’s contemporaneous warning to Hellerman

and Schustek that they would be prosecuted if they stole

this money was obviously a paper tiger, since Hellerman

knew full well that if the Government didn’t want him to

get the money, all it had to do was keep it, or release it to

a Natco receiver, its creditors or the bankruptcy court.

Hellerman was right. He was never prosecuted for steal-

ing the $80,000.00.” (Appendix A, at 14a.)

The panel reports that the Natco funds, “according to [the

Chief's] instructions,” were deposited into “a corporate ac-

count.” (Appendix B, at 5la.) Judge Brieant analyzed and

described this same incident as follows:

“In effect, the Government chose to look the other way.

While denying Hellerman’s direct request for the money,

the Government accorded him the opportunity to gain

possession of it indirectly by the charade of having the

corporation’s ‘attorney’ demand and receive it for deposit

in a corporate bank account.” (Appendix A, at lla.)

The panel makes the following observation, claiming to be

describing one of Judge Brieant’s findings:

“Although Judge Brieant found that Ostrer had failed

to establish that the $80,000 was ‘intentionally released

to Hellerman so he could pay loansharks,’ he also con-

cluded that the Government's decision had in effect made

it possible for Hellerman to gain a benefit and that it

should have advised counsel of these facts prior to trial.”

(Appendix B, at 5la.)

23

This is a very different picture from what emerges from the

full context of Judge Brieant’s findings. Indeed, Judge Brieant

found that Hellerman expressed the belief that the Govern-

ment knowingly and intentionally conferred an $80,000

benefit on him (Appendix A, at lla), while the Chief “denied

strenuously that these funds were intentionally released to

Hellerman so he could steal them.” (J/d.) In the face of this

conflicting testimony, and the Chief's evident refusal to con-

firm Ostrer’s claim that the Chief intentionally released the

money to Hellerman, Judge Brieant noted that

“QOstrer, who must bear the burden of proof, has been

unable to confirm the contention that these funds were

intentionally released to Hellerman so he could pay the

loansharks.” (Appendix A, at 11a.)

Judge Brieant did not, however, stop here, as the Court of

Appeals majority did. He went on to say the following:

“This, however, does not conclude the matter. The

Court finds, as it must based on the record before it, that

it should have been readily apparent to the Government,

when it did release these funds, that the money inevitably

would end up in Hellerman’s pocket. In effect, the

Government chose to look the other way. While denying

Hellerman’s direct request for the money, the Govern-

ment accorded him the opportunity to gain possession of

it indirectly by [a] charade. . ..” (Id.)

In other words, Judge Brieant said simply that Ostrer could

not prove the Chief’s intention by direct evidence — i.e., out

of the Chief’s mouth. However, the circumstantial evidence

24

was overwhelming and, as a result of it, the court had to con-

clude that the Chief intentionally assisted Hellerman in get-

ting the money. “By conscious avoidance the Government

thus intentionally eased the way for Hellerman to benefit from

its decision to release the $80,000.00 in stolen funds. . ..” (Ap-

pendix A, at lla-12a.)

In one of its more startling statements, the majority makes

the entirely unsupported claim that

“The undisclosed evidence fell far short of a Govern-

ment benefit in exchange for the witness’ cooperation. It

remains undisputed that [the Chief] refused to turn over

the $80,000 to Hellerman and that, upon deciding to turn

it over to Natco, had warned him and Schustek that they

would be prosecuted if they diverted the money to non-

corporate purposes. At most the Government's role, in

view of Schustek’s disregard of this warning, became am-

biguous.” (Appendix B, at 56a.)

Judge Brieant’s findings utterly contradict this view. For

example, Judge Brieant found that the Chief knew that

Hellerman needed the money “to pay off loansharks who were

threatening his life” and that “it was in the Government's in-

terests to leave Hellerman at liberty on an undercover basis as

an informant rather than placing him in a safe house. Nor did

Hellerman want to go into hiding or flee.” (Appendix A, at

10a.) This explains, of course, why the Chief had to get the

$80,000 to Hellerman — to keep him alive, happy, nearby,

and willing to take the stand.

Not only does it not “remain undisputed that [the Chief]

refused to turn over the $80,000 to Hellerman” (Appendix B,

at 56a), but Judge Brieant found precisely to the contrary —

that the Chief snatched the funds out of the reach of Heller-

man’s rival, Sammy Feet, and “eased the way for Hellerman”

to obtain the funds. (Appendix A, at 1la.)

25

Finally, the panel refers to “the direct incriminating

evidence against Ostrer” introduced at the trial. (Appendix B,

at 58a.) Yet there was not an iota of such evidence; neither

the District Court, nor the Government in its briefs or oral

arguments, had pointed to a single piece of evidence in-

criminating'' Ostrer, other than the testimony of Hellerman.'?

Judge Brieant found specifically that “[c]learly, the conviction

was dependent on Hellerman’s testimony.” (Appendix A, at

4a.)

Reasons for Granting the Writ.

A. Tue Seconp Circuit’s TREATMENT OF THE Corrupt PRAC-

TICES FounD BY THE District JUDGE, AND THE INyusTICE IN-

FLICTED ON THE PETITIONER, ARE IN STARK CONFLICT WITH

THE More STRINGENT STANDARDS SET AND ENFORCED BY

Every OtuHer Circuit, AND Is Even in Direct ConFLicr

WITH THE SECOND Circurt’s OWN TREATMENT OF Prior, LEss

Ecrecious Cases, WHERE THE REPUTATION OF A HIGH

PROSECUTORIAL OFFICIAL was Not So CLEARLY AT STAKE.

The opinion of the Court of Appeals panel is in stark con-

trast to the Brady and Agurs law developed in other circuits,

and to the law as it is stringently enforced in other circuits.

'' There was, of course, documentary and other evidence that Ostrer pur-

chased Belmont Franchising stock and paid for it. This was not disputed by

Ostrer. The only question at trial was whether Ostrer knew of the

manipulation when he bought the shares, or whether he purchased the

securities on a “hot tip” from Hellerman who, unbeknownst to Ostrer, was

intent on “parking” some stock with Ostrer in order to reduce the number of

free-floating shares and thereby make the subsequent manipulation more

manageable. The fact that Hellerman left Ostrer holding worthless stock at

the end of the scheme, even though Hellerman got his friends bailed out with

hefty profits, is more consistent with Ostrer’s innocence than with his guilt.

‘? Judge Moore's concurring opinion suffers from the same cleer error. He

refers to “all the evidence before [the jury] of Ostrer’s guilt.” (Appendix B,

26

Other circuits, for example, have been far less tolerant than

the panel in the case at bar, in situations where the prosecutor

stood mute and allowed a witness to give misleading testi-

mony, even if that testimony might not be technical perjury.

See, for example, Blankenship v. Estelle, 545 F. 2d 510 (5th

Cir. 1977) '°; United States v. McCrane, 527 F. 2d 906 (3d Cir.

1975), vacated and remanded, 427 U.S. 909 (1976), on re-

mand, 547 F. 2d 204 (3d Cir. 1976)'*; Dupart v. United

States, 541 F. 2d 1148 (5th Cir. 1976); United States v. Sutton,

542 F. 2d 1239 (4th Cir. 1976).

Yet, in the case at bar, the Second Circuit would tolerate the

Government's standing mute while Hellerman insisted that

the written plea agreement produced for the court and jury

constituted his entire understanding with the Government,

and insisted further that the favors he received were all in the

nature of reduced charges and a more modest sentence.

at 63a.) He fails to realize, or to mention, that all of this evidence came, un-

corroborated, from the mouth of Hellerman.

'9In Blankenship, the Fifth Circuit was emphatic in its holding that a pros-

ecutor is under a duty to correct not only his witness’ perjury, but also an “er-

roneous impression” which could mislead the jury about the existence and

scope of any Government deal with the witness:

“Although in the instant case the testimony that Brooks and

Crawford were ‘under indictment’ may have been technically true, it

left the erroneous impression of an impending trial and the absence of

leniency as an inducement to testify. This court has recently made

clear that we will not tolerate prosecutorial participation in technical-

ly correct, yet seriously misleading, testimony which serves to conceal

the existence of a deal with material witnesses.” 545 F. 2d at 513.

‘In McCrane, the United States Attorney's office had sent letters to

various business and state agencies stating that a key Government witness

had cooperated with the grand jury, thereby facilitating the witness’ obtain-

ing business. The Third Circuit held that this evidence of favored treatment

should have been disclosed, because this Court's holding in United States v.

Agurs, supra, did not dilute the earlier holding in Giglio v. United States,

405 U.S. 150 (1972), to the effect that the Government could not coun-

tenance false or misleading testimony coming from its witnesses.

27

Similarly, other circuits have been quick to reverse convic-

tions where there was a failure to disclose that a witness had

been given financial incentives. See, for example, United

States v. Librach, 520 F. 2d 550 (8th Cir. 1975)'5; United

States v. Garza, 574 F. 2d 298 (5th Cir. 1978) .'*

Yet, in the case at bar, nearly a quarter of a million dollars

in incentives — $80,000 of that being stolen funds in the

Government's temporary custody — are not seen as sufficient-

ly material to warrant disclosure and, in the absence of

disclosure, reversal.

In numerous other cases, courts of appeals have reversed

convictions for Brady violations far less egregious than in the

case at bar. See, for example, United States v. Butler, 567

F. 2d 885 (9th Cir. 1978); United States v. Leja, 568 F. 2d 493

(6th Cir. 1977); United States v. Sanfilippo, 564 F. 2d 176 (5th

Cir. 1977).

Equally serious is the fact that the doctrines and standards

sought to be promulgated by the Second Circuit in the case at

bar are in stark contrast to earlier decisions within the Second

Circuit itself.

Thus, the Ostrer holding and analysis cannot be reconciled

with the recent holding in Annunziato v. Manson, 566 F. 2d

410 (2d Cir. 1977). In Annunziato, the Second Circuit re-

versed a conviction on Brady grounds where it was discovered

post-trial that a state’s witness, who at trial had denied that

'*The Librach decision is particularly relevant, since the Eighth Circuit

there dealt with a situation similar to that in the case at bar. In Librach, a

Government witness had received $9,947.65 in “subsistence payments” from

the Government, and this was not disclosed. This amounts to far less, of

course, than the approximately $230,000 in undisclosed financial benefits ac-

corded Michael Hellerman.

'°In Garza, the Fifth Circuit reversed because it was undisclosed that, in a

prior case, the Government had agreed to reduce from $350,000 to $20,000

the appeal bond of a person who was now a Government witness. 574 F. 2d

at 301.

28

any “deal” had been made for his testimony, later testified in

another case that indeed such a deal had been made.

Similarly, in United States v. Badalamente, 507 F. 2d 12

(2d Cir. 1974), cert. denied, 421 U.S. 911 (1975), the Second

Circuit reversed a conviction because the Government failed

to disclose that a prosecution witness had written to a judge

that he was under pressure from the prosecutor to testify. How

can a reasoned distinction be drawn between letters evidenc-

ing prosecutorial pressure on a witness, and evidence of a tran-

saction whereby the Government’s chief witness is given

$80,000 in stolen funds?

In an earlier case, the Second Circuit evinced shock at a

financial incentive being given to a witness even with court

approval and when disclosed to the jury. United States v.

Franzese, 392 F. 2d 954, 963 (2d Cir. 1968).'”

Similarly, in earlier cases, the Second Circuit has assiduous-

ly avoided revising the fact findings of a District Judge where

the findings were amply supported by the evidence.'* Under

the Second Circuit’s own precedents, Judge Brieant was fully

justified in drawing the conclusions he did, including his con-

clusion that the Chief intended to confer financial benefits

upon Hellerman.'®

'"In Franzese, $9,800 of the proceeds of a robbery were returned, upon

court order, to a Mrs. Codero — the wife of one of the robbers, a man who

became a Government witness. This peculiar maneuver “was fully before

the jury” at trial. Jd. at 963. Although the Court of Appeals “confess[ed]

that the Government's attitude strikes us as rather complaisant,” it saw “no

basis for invoking our supervisory powers when the Government submitted

the issue to the trial judge . . ..". Jd. In contrast to the disclosures made in

Franzese, the curious disposition of the Natco monies in the case at bar was

neither presented to the Trial Court for approval nor presented to the jurors

at the Belmont trial.

'8See United States v. Johnson, 327 U.S. 106 (1946).

'°In an earlier opinion written, ironically, by one member of the panel in

the case at bar, the Second Circuit stated that “a defendant's knowledge of a

fact may be inferred from wilful blindness to the existence of the fact,” and

29

B. THe Lecat STANDARDS ANNOUNCED BY THE MAJORITY OF

THE PANEL BELOW HAVE OMINOUS IMPLICATIONS FOR THE IN-

TEGRITY OF THF CRIMINAL JUSTICE SYSTEM IN THE SECOND

Circuit.

What is perhaps most disturbing about the legal standards

announced by the panel’s majority are their implications for

the future operation of the criminal justice system in the Sec-

ond Circuit. If followed by prosecutors, the effects will be

corrosive in the extreme.

The majority — disagreeing with Judge Brieant’s specific

finding and holding to the contrary — found that (1) Ostrer’s

trial counsel did not make a specific request for Brady material

and (2) even if the Brady request filed by co-defendant’s

counsel were to inure to Ostrer’s benefit, even that request was

not sufficiently specific.

The co-defendant did indeed make the following request:

“any other material in the possession of the Government

bearing adversely on the credibility, character and

reputation of Michael Hellerman; and . .. any other

material relating to any matter which defense counsel

could properly use in cross-examination to inquire into

Hellerman’s motive and bias in favor of the Government

or expectation of favor from the Government.” (Appen-

dix A, at 39a; Appendix B, at 55a).

that defendants can be convicted who “deliberately shut their eyes to what

they had ample reason to believe was the truth.” United States v. Brawer,

482 F. 2d 117, 129 (2d Cir. 1973). Thus, Judge Brieant’s findings cannot be

faulted becaue he drew logical inferences from time to time in guaging the

Chief's intentions. Judge Moore, in his concurring opinion, recognizes that

Judge Brieant's findings are “clearly supported by the record.” (Appendix B,

at 60a.)

30

Both Judge Brieant and Judge Moore considered this request

sufficiently specific within the meaning of United States v.

Agurs, supra. Indeed, in light of what trial counsel knew at

the time of trial, one is hard pressed to suggest how the request

could have been any more specific.*°

Furthermore, as Judge Moore points out in his concurring

opinion, there is no reason, either in policy or in conformity

with Agurs, why the request of one defendant should not be

considered the request of all. (Appendix B, at 62a, n. 1.)

United States v. Agurs, 427 U.S. at 106-107.*!

The majority goes on to strike the potentially most serious

blow to the integrity of the judicial process — a blow which is

bound to redound to the detriment of the Second Circuit and

of litigants appearing in that circuit for many years to come.

The majority holds that information concerning “the Govern-

ment’s role in the Natco episode . . . was not material” and

hence was not even Brady material. (Appendix B, at 58a

n. 4.) Such a holding will likely result in the failure of the

Government in future cases to turn over to defense counsel all

manner and kind of highly exculpatory evidence, for very little

evidence would ever have to be turned over if, in order to be

classed as Brady material, it has to exceed in impeachment

If the panel's opinion is permitted to stand, then all defense counsel, in

order to protect their clients’ Brady rights, will have to file voluminous and

even scandalous Brady motions in every criminal case. Indeed, one wonders

how Ostrer’s counsel would have been dealt with had he filed, without

foundation (for in fact the foundation was suppressed at the time), a Brady

motion asking to be provided, inter alia, with evidence of all stolen funds

turned over to a Government witness with the assistance of the United States

Attorney's Office, and of all bankruptcy frauds in which the Government,

directly or indirectly, assisted a witness to loot a bankrupt corporation's

estate! This holding is nothing short of a parody of the Agurs requirement

that the defendant make a “specific request” for exculpatory material.

*! Indeed, in the case at bar, counsel were led to believe that “any request

by either defendant inured to the benefit of the other.” (Appendix A, at 39a

n. 17.)

31

potéitial and relevance the Government's role in funneling

$80,000 of stolen funds to the Government's only witness by

means of a “charade.”

At the very least, this startling holding seriously confuses the

standards for judging when evidence is exculpatory (and hence

subject to being disclosed under Brady), with the standards for

judging in the post-conviction context, when exculpatory

evidence is of such significant materiality to the verdict that

failure to turn it over to trial counsel necessitates vacating the

conviction.

The result called for by the majority opinion is, logically,

that if and when, for example, a trial prosecutor learns that

the Chief of the Criminal Division has “facilitated” a witness’

obtaining stolen funds, the prosecutor need not disclose that

information prior to or at trial, if the prosecutor can predict

that the jury will already be faced with a considerable amount

of evidence of the witness’ prior wrongdoings. Yet reasonable

people must agree — one hopes — that evidence such as the

Natco caper is the very strongest sort of Brady material and ab-

solutely must be turned over on pain of reversal. Indeed, only

in a society utterly insensitive to corruption could such in-

formation not be considered vital to, if not determinative of, a

jury’s decision as to whether or not to believe critical parts of

the key witness’ testimony and hence of the Government's

case.

If allowed to stand, the opinion of the Court of Appeals

would have a further corrosive effect on the administration of

justice in the Second Circuit because it would create a loop-

hole in the Government’s Brady/Agurs obligation that would

be as wide as the obligation itself. Thus, for example, the

Court of Appeals held that “[t]he undisclosed evidence fell far

short of a Government benefit in exchange for the witness’

*8 The Court of Appeals obviously adopted, with respect to all of the finan-

cial favors accorded Hellerman, the District Judge's conclusion with respect

32

cooperation.” (Appendix B, at 56a.)* Under this formula-

tion, a prosecutor would be allowed to confer any number of

benefits upon a witness, and fail to disclose same, provided he

or she went through a “charade” to make it appear that the

benefits were being conferred as mere “largesse” and not in

connection with or explicitly in exchange for the witness’ testi-

mony!

In addition, the Court of Appeals’ formulation leaves open a

substantial possibility of future convictions of innocent de-

fendants. Where the Government’s chief witness has already

been shown to be flawed by prior criminal activities revealed

to the jury, it would be merely cumulative to disclose still

other wrongful acts by the witness — even substantial finan-

cial rewards obtained in conjunction with a high Government

official and which would demonstrate not only the witness’

character, but also his bias and motive, as well as the charac-

ter, bias and motive of the Government which has vouched for

the witness in front of the jury.” Thus, the more susceptible

of disbelief a prosecution witness is, the weaker the Govern-

ment’s obligation of disclosure becomes!

What the Court of Appeals has done here is to turn the

“harmless error” doctrine of Agurs on its head. What this

Court obviously meant in Agurs was that a failure to disclose

exculpatory evidence at trial has to be weighed in terms of its

effect on the trial in order to determine, in the post-conviction

setting, whether a new trial has to be granted. In making

such a judgment, a court should take into account the quantity

and quality of other evidence against the defendant. If it

to only one such favor. Judge Brieant found that while the Chief’s telephone

call to Hellerman’s lawyer had the effect of cutting his legal fee in half, and

while the Chief may have known that this would be the result, the fee reduc-

tion was nevertheless incidental, for there was no negotiated quid pro quo of

the favor in exchange for the testimony. (Appendix A, at 22a-23a.)

*? Throughout Ostrer’s trial, counsel for the Government suggested before

the jury that Hellerman, for all his past misdeeds, was now reformed and

was telling the truth.

33

turns out that the witness concerning whom the Government

failed to disclose impeachment evidence was not quite so

crucial to the conviction, then the Brady violation might be

seen as harmless. This Court did not say in Agurs, or any-

where else, however, that where the tainted witness’ testi-

mony is the sine qua non to the conviction, the failure of the

Government to fully disclose substantial impeachment ma-

terial can ever be seen as harmless.

The Court of Appeals opinion also exhibits an untenable —

and dangerous — failure to distinguish between financial cor-

ruption of a witness, and the performance by the Government

of legitimate (and usually disclosed) favors for a witness, such

as the bestowal of prosecutorial leniency.** The Court of Ap-

peals concluded that the evidence of financial favors was “a

mere drop in the bucket when viewed in the context of the

wealth of other impeaching material used upon cross-

examination of Hellerman.” (Appendix B, at 56a-57a.) Yet

when the court goes on to list the “other impeaching

material,” it is seen that none of it fits into the category of

financial incentives — legal or illegal. (Id., at 57a-58a.)

Aside from the issue of how the jury would likely have

reacted to evidence of the Natco and other financial-incentive

episodes present in this case, this Court must aiso be concerned

* The Fifth Circuit in a similar situation complimented the Government

for not arguing that, simply because a jury has already once convicted the de-

fendant on the basis of weak or flawed evidence, this means that the Govern-

ment has no obligation to disclose yet other flaws in that witness’ testimony

or character, since such additional flaws are not likely to get a better recep-

tion by the jury than the already-disclosed flaws. See Cannon v. State of

Alabama, 558 F. 2d 1211, 1216 (5th Cir. 1977).

*S This infirmity is found as well in the District Court's opinion, which said

that the evidence of suppressed financial favors to the witness is not “substan-

tively different” from the revelations disclosed to the jury that Hellerman

had a checkered past and benefitted from the Government’s beneficent exer-

cise of its prosecutorial discretion. (See Appendix A, at 42a-43a.)

34

in its supervisory capacity with the implications of this case for

the future administration of criminal justice in the Second Cir-

cuit, as well as the interest that the Bankruptcy Court has in

this matter.2° See McNabb v. United States, 318 U.S. 332

(1943).

This Court, and all federal appellate courts, have a solemn

duty to take action where there is “a corruption of the truth-

seeking function of the trial process.” United States v. Agurs,

427 U.S. at 104. This Court has eloquently set out its duties in

this regard:

“This is a federal criminal case, and this Court has super-

visory jurisdiction over the proceedings of the federal

courts. If it has any duty to perform in this regard, it is to

see that the waters of justice are not polluted. Pollution

having taken place here, the condition should be reme-

died at the earliest opportunity.” Mesarosh v. United

States, 352 U.S. 1, 14 (1956).

It is abundantly clear in this case that the Court of Appeals

has failed to redress a shocking injustice done to the Petitioner,

and has equally failed to set proper standards for the future

guidance of District Judges as well as prosecutors. Other

agencies of Government are not likely to fill the void.?” This

Court is, indeed, the forum of last resort for Petitioner and all

those who might follow in his unfortunate footsteps.

98 It should be noted, after all, that the funds that the Chief released,

rightfully belonged to the creditors of the bankrupt corporation that was, at

that very time, under the jurisdiction of the Bankruptey Court.

27Counsel for Ostrer initiated correspondence with the Professional

Responsibility Office of the Department of Justice with respect to the

unethical and illegal actions of the Chief in this case. The most recent — and

obviously final — response from that office, appended hereto as Appendix C,

demonstrates how futile are Ostrer’s efforts to see justice done in this matter.

35

Conclusion.

For the foregoing reasons, Petitioner prays that this Court

issue the writ and review the judgment of the Court of Ap-

peals.

Respectfully submitted,

ALAN DERSHOWITZ,

20 Elmwood Avenue,

Cambridge, Massachusetts 02138.

(617) 495-4617

Counsel for Petitioner.

Of Counsel:

HARVEY A. SILVERGLATE,

ANN LAMBERT GREENBLATT,

SILVERGLATE, SHAPIRO & GERTNER,

217 Lewis Wharf,

Boston, Massachusetts 02110.

(617) 723-2624

36

la

Appendix A.

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

LOUIS OSTRER,

PETITIONER,

77 Civ. 1805-CLB

-against-

UNITED STATES OF AMERICA,

RESONDENT.

Findings and Conclusions

(Following Hearing on Petition Pursuant to

28 U.S.C. § 2255)

Brieant, J.

On April 14, 1977,' Louis Ostrer (“Ostrer”), filed his peti-

tion pursuant to 28 U.S.C. § 2255, to vacate his January 26,

1973 conviction following a jury trial before Chief Judge

Edelstein for eleven counts of stock fraud including violations

of 15 U.S.C. §§77q(a), 77x, 78j(b) and 78ff, Rule 10b-5 (17

C.F.R. 240.10b-5), promulgated thereunder by the Securities

and Exchange Commission, federal mail fraud statute (18

U.S.C. §1341) and the conspiracy laws (18 U.S.C. §371) aris-

ing out of the Belmont stock swindle. As a result of this con-

' Ostrer’s surrender had been noticed for April 15, 1977 pursuant to a man-

date of the Court of Appeals issued following affirmance of a denial of a

prior application for post conviction relief

2a

viction, Ostrer had been sentenced to a term of three years im-

prisonment and fined $55,000.00 in April of 1973.?

Ostrer’s instant petition alleges several grounds for relief,’

all arising out of a single unexpected event. In late March

?Shortly after the verdict Ostrer sought a new trial on the ground of in-

competence of one of the jurors. This motion was denied by Chief Judge

Edelstein in United States v. Ostrer, 361 F. Supp. 954 (S.D.N.Y. 1973).

Ostrer’s conviction, as well as the denial of that new trial motion, alleging

that the conviction was tainted as a result of an unlawful wiretap of Ostrer’s

premises by the New York District Attorney. After conducting an eviden-

tiary hearing this Court denied petitioner's motion on June 4, 1976 in United

States v. Ostrer, 422 F. Supp. 93 (S.D.N.Y. 1976), affirmed, 551 F.2d 303

(2d Cir.) cert. denied, 97 S. Ct. 1581 (1977).

Ostrer then filed a third motion for a new trial on the ground that con-

tinuous cooperation between state and federal prosecutors prior to and dur-

ing his trial, must have led to the tainting of the federal prosecution, through

the inevitable communication of the fruits of the illegal wiretap. Since this

motion was filed after the two year statute of limitations required for new

trial motions by F.R.Cr.P. 33, the Court considered the motion as a petition

to set aside the conviction pursuant to 28 U.S.C. §2255. That petition was

denied in a Memorandum and Order of this Court filed on April 29, 1977.

Petitioner then moved for reconsideration, based on further new evidence,

and a hearing was subsequently held on May 10, 1977. The Court has now

reaffirmed its denial of Ostrer’s petition in a separate Memorandum and

Order issued simultaneously herewith.

‘The instant petition also alleges several defects in Ostrer’s sentencing pro-

ceedings. The parties have chosen, however, not to brief these allegations at

this time since it is pointless to determine the validity of the sentencing if

Ostrer is to be awarded a new trial. Since we cannot know whether there

will be a new trial until appellate review is complete, the claims regarding

the sentencing proceedings will not be treated in this decision. On resent-

encing, if such is required, conceivably Ostrer could receive a shorter

sentence, but on the trial record a non-custodial sentence would be inap-

propriate in any event.

In a separate motion filed together with the instant petition, Ostrer also

moved to reopen the evidentiary hearing he!d to determine the competence

of the juror, Geneva Rush. In addition to his earlier challenge of the juror’s

competence, heard by Chief Judge Edelstein, Ostrer again challenged the

competence of juror Rush in his motion for a new trial filed on December 11,

1974 before this Court. At the hearing on that motion it was determined

3a

1977, more than four years after his conviction, Ostrer learned

that Michael C. Hellerman, one of the Government's major

witnesses at his trial, had co-authored an autobiographical

memoir entitled Wail Street Swindler (“WSS”), which was

about to be published. After a careful reading of the

manuscript, of which he obtained a pre-publication uncor-

rected proof, Ostrer concluded that the Government had

repeatedly violated his constitutional right to a fair and just

trial by intentionally suppressing material in its possession,

which would have been useful to the defense in attacking

Hellerman’s credibility.

In his petition Ostrer alleges that the Government failed to

satisfy its obligation under Brady v. Maryland, 373 U.S. 83

(1963), to provide any and all exculpatory evidence which

might prove helpful to the defense. It is undisputed that

Ostrer’s trial counsel specifically requested that the Govern-

ment make available any material bearing adversely on the

credibility, character or reputation of Hellerman. Ostrer now

contends that Hellerman’s book, and his testimony at the hear-

ing, demonstrates conclusively that the Government did not

reveal to the defense all of the information in its possession.

Ostrer further claims that possession of this information dur-

ing the trial would have enabled him to avert conviction by

that Rush was an attendant and not a patient at the hospital where she was

employed. Based on that determination, petitioner withdrew his motion.

Since petitioner has presented no new evidence in his current set of affidavits

concerning Geneva Rush, which had not already been before the Court of

Appeals in 1974, the Court declines to consider petitioner's motion to vacate

sentence based on the claimed incompetence of this juror. This branch of the

motion is cumulative, repetitious and untimely.

4a

destroying Hellerman’s credibility with the jury. Clearly, the

conviction was dependent on Hellerman’s testimony.‘

Ostrer alleges several specific instances of the Government's

failure to disclose information concerning Hellerman. All

have been considered. Those worthy of discussion are dis-

cussed under the separate headings below.

As a separate ground for relief, Ostrer alleges that the

Government failed to turn over to the defense material which

it was required to produce under 18 U.S.C. §3500. This sec-

tion, commonly called the Jencks Act, requires that the

Government make available to the defense prior to cross-

examination all statements of a Government witness which are

within the Government’s possession, commonly called “3500

material”, or in New York courts, “Rosario material.” By

custom and practice in this Circuit, this requirement has come

to include all records of discussions between the prosecution

and the witness, records of debriefing sessions of the witness,

and any documents or prosecutors notes which incorporate the

substance of any statements of the witness as, for example, in-

ternal memoranda of the United States Attorneys Office and

FBI 302s. Ostrer asserts that the Government failed to turn

over existing 3500 material and also “purposely failed to

generate” 3500 material in order to deprive the defense of

useful material with which to cross-examine Hellerman.

Ostrer specifically charges that Hellerman’s book makes

clear that the then Chief of the Criminal Division of the

United States Attorneys Office of the Southern District of New

York (“the Chief”) took extensive notes of his conversations

‘In United States v. Ostrer, 422 F. Supp. 93, 106 (S.D.N.Y. 1976) this

Court held:

“The proof against Ostrer was substantial, if the jury found the

testimony of Hellerman credible, as indeed it must have done in order

to have returned these guilty verdicts.”

5a

with Hellerman; yet, no such notes were turned over to the

defense. Similarly, Ostrer charges that material prepared by

Assistant United States Attorney (“AUSA”) John Wing was

never turned over to the defense in its entirety.

The third and final ground on which Ostrer bases his claim

for relief is the charge that Helierman committed perjury at

the Belmont trial, both with and without the prior knowledge

of the Government. Ostrer argues that the extent of Hellex-

man’s perjury establishes that he was an inherently incredible

and unreliable witness whose testimony could not be accepted

as true.

An evidentiary hearing was conducted by this Court on May

10, 11 and 31, 1977 in order to make a determination as to

whether or not the Government had violated its Brady obliga-

tions or 18 U.S.C. §3500; and to determine whether Heller-

man had committed perjury at trial with respect to the specific

grounds alleged by Osi:r, thereby denying petitioner’s right

to a fair trial. Post-hearing briefs have been received and con-

sidered. The Court has accepted and considered the final

published edition of Hellerman’s book, now on sale, as

evidence in chief. The Government persists in its objections to

this. A short answer is that the hearsay declarant (Hellerman)

was available for cross-examination. Indeed, he declined to

vouch for his book, without reservation, and falsely impugned

the accuracy of his co-author, an experienced writer who

organized the book from transcripts of tapes dictated by

Hellerman. The book does have some obvious errors and a

general aura of Munchausen about it. If further discussion is

necessary we note that much of it comprises admissions against

penal and financial interest; it was created while Hellerman

was in the federa! witness protection program, and he was en-

couraged to write it by prosecutors, marshals and other

members of officialdom who facilitated this great effort before

during and after. As a final bizarre twist, Hellerman, who

6a

has been relocated under another identity to prevent his death

at the hands of mobsters, says that where he now is he could

not be seen in possession of the book.

Facts

A. Brady Violations

Petitioner's first ground for seeking relief is, as we have

noted, the Government’s alleged failure to provide the defense

with all of the Brady material in its possession concerning

Hellerman.

1. The Natco Swindle

Ostrer’s first and most important contention is that the

Government purposely withheld information concerning its

role in assisting Hellerman in embezzling $80,000.00 which

Hellerman, through a fraudulent scheme had drained

unlawfully from Natco, Inc. and Merchandise Plus, Inc.

(“Natco”).°

’Natco and Merchandise Plus were two Long Island beauty supply com-

panies. The swindle, concededly engineered by Hellerman with the aid of

Schustek, involved Hellerman’s acquisition of the ownership and control of

both companies, using loanshark funds. His plan was to sell present and

future inventory, default on the suppliers’ bills for this inventory, and siphon

off or steal the cash proceeds of the sale of the inventory from the companies,

in a clandestine fashion. As was intended, this scheme, or “bust out”, left the

companies with no inventory, unpaid suppliers’ bills, and creditors whose

only recourse lay in bankruptcy court. Hellerman had been indicted in this

district in 1971 for his role in the Natco swindle conspiracy. See United

States v. Falgiano et al., 71 Cr. 476 and 71 Cr. 499. On October i2, 1973

the Government filed a nolle prosequi with respect to so much of this indict-

ment as concerns Hellerman.

7a

As the bankruptcy of Natco became inevitable Hellerman

became exceedingly anxious to obtain the last $80,000.00 still

remaining in the company’s account. Hellerman wrote in

WSS and in his testimony at the evidentiary hearing before me

said that he desperately needed these funds in order to pay off

loansharks to whom he owed large sums of money. Hellerman

apparently believed that delay in repaying these loans would

endanger his life. At this time he was at liberty and was an

undercover “cooperating individual”. He therefore devised a

scheme whereby Steven Schustek, then in nominal control of

the company, would draw a check for the $80,000.00 in his

own name, cash it and remit the proceeds to Hellerman, who

would then pay off his debts. Such a check was eventually

drawn to the order of, and signed by Steven Schustek. (Tran-

script “Tr.” at 32).

However, Hellerman’s plan did not work. His vo-con-

spirator in the Natco fraud, Sam Falgiano a/k/a Sammy Feet,

suspecting Hellerman’s plan, determined to seize the proceeds

for himself, by depositing and cashing the check in a casino in

the Bahamas.®

Upon learning of Feet’s intention, Hellerman related the

whole story of the Natco conspiracy fraud to the Chief, who

then arranged for the FBI to freeze the proceeds of the check,

then in a Florida bank.

Having prevented Feet from stealing the money, the

Government now faced the problem of determining how to

dispose of the funds which had come into its possession. By

this time the Government was certainly fully aware of the con-

*The check which Schustek had drawn to his own order was disposited by

Schustek and Sammy Feet with the Paradise Island Casino in the Bahamas.

After giving the check time to clear, these two were to return to the Bahamas

to obtain the proceeds of the check by a facsimile gambling scheme. When

Feet returned he was informed by the casino personnel that the FBI had

stepped in and seized the money. (Tr. at 42).

8a

spiracy to commit fraud culminating in Hellerman’s attempt

to siphon off Natco’s last $80,000.00, since the full story of the

fraud had been related to the Chief by both Hellerman and

Schustek. (Tr. at 262, 267).

Hellerman testified at the evidentiary hearing that during

his talks with the Chief he made it known that he desperately

needed these funds to pay off his debts to the loansharks, who

were threatening his life. The Chief did not deny, in his

testimony at the hearing, that Hellerman had spoken of his

pressing need for substantial sums of money (Tr. at 254), and

had, in fact, requested that the $80,000.00 in Natco funds be

turned over to him. (Tr. at 263-64).

When Hellerman suggested to the Chief that the Govern-

ment release the $80,000.00 in Natco funds to him, this sugges-

tion was rejected. The Chief determined, however, that his

office had no legal right to continue the hold on these funds

since, according to the Chief's testimony, to do so might cause

Natco to go into bankruptcy thereby giving rise to a possible

cause of action by Natco’s creditor’s against the federal govern-

ment. (Tr. at 268). Faced with this perceived problem the

Government concluded that these funds should be returned to

Natco corporate bank account. The Government, it seems,

viewed such a means of returning the funds to Natco as

something which would break the chain of causation, so that if

Hellerman thereafter stole the money from Natco’s account a

second time, or Falgiano or Schustek did so, those concerned

could make the traditional Navy officer’s claim: “It didn’t

happen on my watch, sir.”

To achieve this end, the Chief apparently let it be known to

Hellerman that the funds would be released only to an at-

torney representing Natco, so that the attorney’s participation

would assure that the money would go into the corporate ac-

count, rather than Hellerman’s pocket.

9a

On January 29, 1971, three days after Natco’s petition in

bankruptcy was filed, Edward Kurland, Esq., presented a let-

ter to the United States Attorneys Office (Exhibit F) in which

he stated that he represented Merchandise Plus (Natco) and

was authorized to make a demand for the $80,000.00 check

made out to Stephen Schustek, then in the possession of the

United States Attorney. This letter was accompanied by a re-

tainer appointing Kurland, which was handwritten and

signed by Stephen Schustek (Ex. F). Upon receipt of these im-

pressive documents, the Government turned over the

$80,000.00 check to Kurland, who immediately deposited it in

a special account in his own name. Once the check cleared,

the funds were transferred to a newly established account in

the name of Merchandise Plus from which Schustek subse-

quently withdrew all but $23.00 (Ex. G). Schustek then

turned the money over to Morris Winters, Esq. (Hellerman’s

personal attorney who shared an office suite with Edward

Kurland), who then turned it over to Hellerman. Thus, the

$80,000.00 less the fees of the two attorneys, did indeed find

its way forthwith to Hellerman, who doled it out to pay off

loansharks who were pressing him, and for other personal pur-

poses.

What are we to make of this bizarre story? Three questions

spring immediately to mind. Did the Government knowingly

allow $80,000.00 in stolen funds to be made available to

Hellerman? If the Government did, in fact, aid Hellerman in

this way, was it not obligated, under the Brady doctrine, to so

inform the defense counsel at Ostrer’s trial? Finally, if the

Government failed to inform defense counsel of the Natco in-

dictment and/or the facts of the stolen $80,000.00. was this

failure intentional?’

"We consider infra, the ultimate question, namely: If the Government

did so violate its obligation under Brady, what effect did this have on Ostrer’s

trial?

10a

Not unexpectedly, petitioner would have us draw the worst

possible inference, and conclude in effect that the Govern-

ment was knowingly facilitating larceny by Hellerman. We

must remain mindful that: “A wisdom developed after an

event and having it and its consequences as a source is a stand-

ard no man should be judged by.” Costello v. Costello, 209

N.Y. 252 (1913).

After reviewing the testimony and the exhibits received in

evidence at the evidentiary hearing, the Court finds the

following facts: (1) the Government prevented Sammy Feet

from stealing the $80,000.00 in Natco funds by freezing the

proceeds of the check which Schustek and Feet had caused to

be deposited in the Bahamas casino, which had deposited it in

turn in Florida; (2) Hellerman and Schustek did reveal the full

story of the Natco swindle, including their own participation,

to the Government, thereby making the Government fully

aware of the intended goal of Natco’s bankruptcy, before it

released the $80,000.00 to Kurland; (3) the Government was

aware before it reached its decision to release the funds to an

attorney authorized by Schustek, that Hellerman desperately

needed this money to pay off loansharks who were threatening

his life. Moreover, it was in the Government’s interests to

leave Hellerman at liberty on an undercover basis as an infor-

mant rather than placing him in a safe house. Nor did Heller-

man want to go into hiding or flee

In the face of all of this, the Government released the funds

to attorney Kurland, specially retained by Steven Schustek for

the sole purpose of cashing this check, without investigating

either Kurland or his intentions, or those of Schustek with

respect to the $80,000.00. In addition, the Government made

no effort to ascertain whether Natco was actually then

bankrupt (which it was as of January 26, 1971, although Mer-

chandise Plus did not file until] March 8, 1971) or whether the

intended fraud was sufficiently advanced so that the seized

lla

money could be heid in the Government’s possession as

evidence, or to prevent its theft by Hellerman.

Hellerman expressed his own belief, at the evidentiary hear-

ing, and in WSS, that the Government intentionally allowed

him to retrieve the $80,000.00 thus conferring a substantial

benefit on him. He also testified, however, that the Chief

warned him that if he used these funds he and Schustek would

be held liable and subjected to prosecution. The Chief, in his

testimony, denied strenuously that these funds were inten-

tionally released to Hellerman so he could steal them, citing

his specific warning to Hellerman and Schustek should they

resume their prior attempt to embezzle the funds. Ostrer,

who must bear the burden of proof, has been unable to con-

firm the contention that these funds were intentionally re-

leased to Hellerman so he could pay the loansharks.

This, however, does not conclude the matter. The Court

finds, as it must based on the record before it, that it should

have been readily apparent to the Government, when it did

release these funds, that the money inevitably would end up in

Hellerman’s pocket. In effect, the Government chose to look

the other way. While denying Hellerman’s direct request for

the money, the Government accorded him the opportunity to

gain possession of it indirectly by the charade of having the

corporation’s “attorney” demand and receive it for deposit in a

corporate bank account.’ By conscious avoidance the Govern-

ment thus intentionally eased the way for Hellerman to benefit

*Indeed an attorney so receiving corporate funds in the regular course, and

thereafter depositing them in a corporate account would have found it dif-

ficult to prevent Schustek, an authorized signatory on the Merchandise Plus

accounts, from issuing checks for noncorporate purposes. Here, however,

Hellerman and Schustek could not use the regular Natco bank accounts for

reasons that are obvious, and therefore opened a new one solely to clear this

check and comply with the Government's requirement that it be deposited in

a corporate account before being stolen.

12a

from its decision to release the $80,000.00 in stolen funds to an

attorney “representing” Natco.

We must now consider whether the Government was

obligated under Brady to reveal this $80,000.00 matter to

defense counsel at the Ostrer trial. The Brady obligation re-

quires that Government make the defense aware of all benefits

and promises which it has conferred upon a cooperating

witness, in order that the defense will have adequate informa-

tion with which to attack that witness’ credibility on cross-

examination.

To begin with, the Government did not inform defense

counsel at trial of Hellerman’s indictment in the Natco or

Falgiano case. This oversight is surprising since defense

counsel at trial were given copies of all of Hellerman’s other in-

dictments. (Belmont Tr. at 470). In addition, most of Heller-

man’s other indictments were included in the Memorandum of

Agreement, entered into between Hellerman and the Govern-

ment on October 19, 1972, a copy of which was made

available to the defense. The failure to inform counsel of

°On October 5, 1972, the Government entered into a written agreement

with Michael Hellerman in which it a) offered Hellerman a plea to one two-

year count in the Belmont indictment and one two-year count in the “At

Your Service” indictment (United States v. Hellerman, 72 Cr. 1246) in addi-

tion to the two-year count already accepted in the Imperial indictment

(United States v. Aloi, et al., 71 Cr. 967); b) promised to secure Hellerman’s

physical safety while in custody; c) promised to relocate Hellerman after his

incarceration; d) agreed to drop further prosecutions of Hellerman in a

specified number of cases; and e) promised to use its best efforts to dissuade

state and local prosecutors from pressing their related prosecutions of Heller-

man. In return for these promises Hellerman agreed to a) commit no further

crimes; b) refrain from doing any business in securities; c) testify truthfully at

trial if required; and d) provide the Government with information when re-

quired. If Hellerman broke any of these promises the Government would

then be free to prosecute Hellerman for any of his past criminal activities.

In his letter of May 18, 1977, AUSA Richard Weinberg informed the

Court that this Memorandum and other Brady at 3500 material had been

turned over to defense counsel at Ostrer’s trial. At the trial, AUSA McGuire

13a

Hellerman’s Natco indictment is certainly a failure to comply

with Brady. However, we do note that Jay Goldberg, Esq.

trial counsel for Ostrer’s co-defendant, John Dioguardi, knew

of the Natco indictment by way of a pre-trial interview with

Hellerman. Goldberg briefly questioned Hellerman about

Natco in the presence of the jury. The extent of this question-

ing makes it abundantly clear that he knew of Hellerman’s

part in the Natco swindle, but not of the release of the

$80,000.00 by the U.S. Attorney’s Office. Maurice Edel-

baum, Esq., Ostrer’s trial counsel, knew nothing of Natco ex-

cept what he heard at the trial and therefore did not question

Hellerman on the subject.

Defense counsel in the exercise of reasonable diligence

should have known of the Natco indictment because, having

been filed in 1971 in this district, it was a matter of public

record. But they could not have known of the $80,000.00

benefit to Hellerman, which was not described in the indict-

ment.

For its part, the Government denies having conferred any

benefit on Hellerman with respect to this $80,000.00, and

therefore disclaims responsibility for informing defense

counsel of the matter. AUSA McGuire who tried the Belmont

case, did not himself know of the $80,000.00. By April 26,

1971 (See Ex. G), the Chief and several other AUSAs were

aware of the ultimate disposition of the $80,000.00, to the ex-

tent that they knew that Hellerman’s man Schustek had taken

it. Under the principal set forth in Giglio v. United States, 405

U.S. 150, 154 (1972), that the prosecutor’s office is a single

informed the Court that he had “furnished [defense] counsel with [all] the

various indictments in which Hellerman has been named.” (Belmont tr. at

470). The Government does not dispute that the Natco indictment was not

included in the batch of indictments which McGuire provided to defense

counsel. (Tr. at 34).

l4a

entity for Brady purposes, we conclude that if the fact of

Government participation with respect to the $80,000.00 is

Brady material, then the Government was obligated to make

this information known to the defense.

Having found that but for the Government activity

previously described, Hellerman would not have gained access

to the $80,000.00, we are constrained to find that the Govern-

ment thereby conferred a benefit on its cooperating witness

Hellerman which should have been disclosed to the defense.

The Chief’s contemporaneous warning to Hellerman and

Schustek that they would be prosecuted if they stole this

money was obviously a paper tiger, since Hellerman knew full

well that if the Government didn’t want him to get the money,

all it had to do was keep it, or release it to a Natco receiver, its

creditors or the bankruptcy court. Hellerman was right. He

was never prosecuted for stealing the $80,000.00.

Prior to Ostrer’s trial the Government was aware that

Hellerman had actually obtained the funds and had used them

to pay off the loansharks, and that its treatment of the money

made it possible for the witness to help himself to a benefit.

This knowledge should have been communicated to defense

counsel at the Belmont trial as Brady material.

We cannot be sure whether this oversight was intentional or

negligent. People intend the natural and ordinary conse-

quences of their acts, and we may therefore infer that the

Government’s failure to alert detense counsel! to this matter

was intentional. The Government argues that its failure to

notify the defense of the $80,000.00 was an innocent oversight

resulting from the belief that no benefit had been conferred on

Hellerman by Government, a belief which led inevitably to a

failure of communication between prosecutors. '°

'© Although the Government is one entity for the purpose of determining

the Brady obligation, it may not be so for the purpose of determining intent.

15a

The Court’s finding of an intentional non-compliance

results from several items, including: a) the Government's

failure to include the Natco indictment in the Memorandum of

Agreement; b) the Government’s failure to provide the defense

with a copy of the Natco indictment; c) the Government's

disclosure to Judge Lasker, in a memorandum of November 2,

1972 of Hellerman’s cooperation ia the investigation of the

Natco swindle; and, d) the absence of any mention of the Nat-

co funds in the memorandum prepared by AUSA John Wing

and made available to the defense, listing matters in which

Hellerman was involved but for which he would not be pros-

AUSA McGuire certainly did not intentionally suppress the information con-

cerning the disposition of the $80,000.00 since he, himself, was unaware of

the fact. On the other hand, he probably knew of the existence of the Natco

indictment.

In a memorandum to Judge Lasker, dated November 2, 1972, the Govern-

ment outlined Hellerman’s participation in security fraud matters then pend-

ing in the Southern District of New York, and described his cooperation with

the United States Attorney’s Office in several investigations. This memoran-

dum, written only two months prior to Ostrer’s trial, summarized Heller-

man’s cooperation in Natco as follows.

“During the fall of 1970, Hellerman also alerted this office to a

bankruptcy fraud then in progress which resulted in the indictment of

Samuel Falgiano and others. Your Honor will recall the facts from

having presided over this trial. At the time Hellerman came to us with

this information we had absolutely no knowledge of this fraud. Hel-

lerman was instrumental in persuading Steven Schusteck to become a

government witness and kept this office closely advised of the final

stages of the fraud. Because of Hellerman’s information we were able

to prevent Falgiano and others from cashing the $100,000 of corporate

checks at the gambling casinos.”

The Memorandum does not tel] the Court, however, of the ultimate fate of

the “$100,000” which was saved from Falgiano. The most significant point

about this exhibit is that it was not made available to Ostrer, nor was the in-

formation contained therein imparted to his counsel.

16a

ecuted. The memorandum prepared for Judge Lasker by

AUSA Wing, over the signature of the Chief, was never turned

over to defense counsel as either Brady or 3500 material, nor

was the underlying fact of Hellerman’s participation in the

Natco swindle initially, or in the $80,000.00 caper. So many

oversights may not be regarded as merely a coincidence.

2. The Swiss Trip

During the summer of 1972, just prior to Ostrer’s trial,

Hellerman’s bail was enlarged, and he was given permission

by Judge Lasker to make a trip to Europe (including

Switzerland) at a time when he was awaiting sentence. The

Government offered no opposition to Hellerman’s request,

which was sought openly from the Court and when granted,

became a matter of public record.

Ostrer now alleges that while on this trip Hellerman, with

the knowledge and acquiescence of the Government,

deposited substantial sums of money in a secret Swiss bank ac-

count. Ostrer contends that the Government’s failure to in-

form the defense counsel of this trip constitutes another Brady

violation.

There is no doubt that Hellerman visited Switzerland in the

late summer of 1972. He was tired and needed a rest! Also,

he was considering whether he would relocate there when he

took up a new identity following completion of all his

testimony. Nevertheless, no credible proof is offered that

Hellerman deposited a large sum of money, or any money in a

secret Swiss bank account during this trip. Hellerman wrote

in WSS, and testified at the evidentiary hearing that he did not

deposit substantial sums of money in Switzerland. He recalled

being stopped at the airport when departing for Europe at the

instance of a personal creditor who activated the New York

17a

Port Authority Police on the suspicion that he was carrying

lerge sums of stolen money. The police search disclosed no

li -ge sum of money. After verifying that Hellerman had per-

mission to leave the country, the police allowed him to depart.

The Chief, as well as AUSA McGuire, in affidavits submit-

ted in these proceedings, deny having had any knowledge that

Heilerman took substantial sums of cash out of the country

with him, depositing it in a foreign bank account. The Chief

also testified at the evidentiary hearing that he had no such

knowledge. I accept this testimony as truthful.

The only evidence offered by Ostrer of Hellerman’s having

deposited $300,000.00 in a secret Swiss bank account is the af-

fidavit of April 12, 1977 and the testimony of Martin Roth, a

lawyer convicted of obstruction of justice and stock fraud."!

Roth testified that Hellerman personally informed him that he

had concealed a substantial sum of money in a secret Swiss ac-

count. Roth testified that he repeated the story to Hellerman’s

former attorney, Mr. Ernest Schlachter. Neither party called

Schlachter as a witness.

Roth appeared vindictive towards Hellerman. Although

Roth, an attorney, has not been disbarred, his credibility is

weak. Besides the likelihood that Roth is lying there is the fur-

ther likelihood that Hellerman, whose whole life consisted in

fraternizing with the “wise guys”, falsely told Roth that he had

money in Switzerland, and did so as part of his general brag-

gadocio. In any event, having observed both Hellerman and

''Martin Roth was a close associate of Hellerman, since 1968. In 1971,

Hellerman offered to pay for Roth’s honeymoon, but did so with the help of a

stolen credit card. Roth was convicted in December 1972 of participation in

the so-called “Globus” stock fraud case, another Hellerman generated ven-

ture. Convicted on his plea of guilty to a second indictment in April, 1974,

he served a total of fifteen months imprisonment on both cases. Roth

testified at the evidentiary hearing that he had Hellerman to thank for all his

legal troubles. (Tr. at 405).

18a

Roth testify on this point, and on the basis of all the evidence I

decline to find that Hellerman deposited $300,000.00, or any

money, in a secret Swiss bank account. I also find that the

Government was unaware of any such action by Hellerman.

Even if Hellerman did secrete money during his trip to

Switzerland, Ostrer has been unable to prove that Hellerman

stashed money in Europe with the knowledge and consent of

the United States Attorney’s Office, which is the critical ques-

tion. If the Government had allowed Hellerman to stash a

large sum of money in Switzerland it would have conferred a

substantial benefit on Hellerman, which it would then have

been compelled to disclose to the defense.

The Government is required to communicate as Brady

material information which it knows to be true. It is not re-

quired to communicate its fears or speculations. Thus,

Ostrer’s reliance on the fact that the Chief had expressed the

fear that Hellerman might wish to stash funds or flee during

his trip to Europe (Tr. at 312) is misplaced since such specula-

tion is not Brady material.

The only benefit which the Government knowingly con-

ferred upon Hellerman here was the decision not to oppose

Hellerman’s plans for a trip to Europe while he was awaiting

sentence. Actual permission to take the trip was given by

Judge Lasker in response to Hellerman’s motion.

Failing to oppose permission for Hellerman to travel was

certainly a reward for his cooperation. Had the defense

possessed this information it would then have had the oppor-

tunity to cross-examine Hellerman with respect to the trip and

to argue to the jury that when the Government failed to op-

pose this junket, it conferred a benefit. Indeed it could have

been argued that Hellerman intended to secrete substantial

sums of money in Switzerland. The Government should have

alerted the defense to Hellerman’s European trip, since it

19a

failed to oppose bail enlargement to permit the trip to go for-

ward, a rather unusual benefit under the circumstances of this

case.

However, the Swiss trip was a matter of public record. It

took place through the authorization of an independent

judicial officer, who might well have declined to authorize it

without regard to the Government’s failure to oppose. I

decline to find that the Government’s failure to disclose the

Swiss trip to the defense was intentional. It appears to have

been simply an oversight, due either to a mistaken belief that

the defense was aware of the trip or to the conviction that

merely failing to oppose Hellerman’s request of a judicial of-

ficer for permission to travel while awaiting sentence was not a

benefit which resulted in the creation of Brady material.

Whichever it was, the Court does not find an intentional sup-

pression of Brady information.

3. Hellerman’s Motion to Reduce Sentence

Ostrer seems to allege that the Government had some kind

of undisclosed agreement with Hellerman or his attorneys in

effect during Ostrer’s trial, relating to Hellerman’s March 3,

1973 Rule 35 motion to reduce sentence.'? However, no

evidence was offered to support this contention. No witness

testified that the Government had reached any agreement

with Hellerman regarding his sentence. In fact, AUSA

McGuire states in his affidavit that he was unaware of any

'?Hellerman testified at the evidentiary hearing that he had always

planned to file the typical Rule 35 motion to reduce sentence. The motion

was filed in March, 1973 and was heard and granted by Judge Lasker on Sep-

tember 28, 1973. The Government took no position with respect to this mo-

tion. Hellerman’s sentence was reduced to time served with the remaining

time to consist of unsupervised probation.

20a

Government promise or representation to Hellerman relating

to the Rule 35 motion. The Chief, in his testimony, cor-

roborates McGuire’s statement, which remained uncon-

tradicted throughout the hearing. The Government, in fact,

took no position on Hellerman’s motion to reduce. Since we

are unable to find that any promise was made to Hellerman

which was not revealed to the defense, there can be no viola-

tion of the Government’s Brady obligation in this respect.

Ostrer’s real complaint here is that AUSA McGuire made a

facially absurd and unfounded statement to the trial Court but

not in the presence of the jury conc-:aing Hellerman, under-

lined below.

“I can make a representation, and that is what is con-

cerning me, the government has not made any represen-

tation, express or implied that it will or even that it might

make any communication of any kind whatsoever to the

parole board. Indeed, it is my understanding that this

witness’ [Hellerman] attorneys do not expect to reply (sic)

for an early parole nor do they expect to make an applica-

tion for a reduction of sentence.” (Belmont Tr. at 696.)

As the record shows, McGuire’s representations were true, but

his expectation was wrong. Although it is likely that McGuire

should not have stated his expectations to the Court, this com-

plaint by Ostrer is untimely. Every sentenced hoodlum in-

tends to make an application to reduce pursuant to Rule 35

F.R. Cr. P. There is nothing to lose but the paper. Ostrer has

known since March, 1973 that McGuire’s expectation was un-

founded and wrong, yet he waited four years to challenge it.

This contention has no place in a habeas petition said to be

based on the revelations in Hellerman’s book. It is rejected for

want of merit.

Qla

4. Hellerman’s Place of Imprisonment

In his petition, Ostrer alleges that the Government made a

promise or representation to Hellerman that he would be able

to serve his sentence in a “safe house” as opposed to an or-

dinary prison and that this promise was not revealed to the

defense in accordance with Brady. Once again, however,

there is no evidence in the record to support this contention.

The Memorandum of Agreement, which was made available

to the defense, states that the Government “will take such

precautions as are necessary to secure his [Hellerman’s]

physical safety,” while he is in prison. This statement ade-

quately notified the defense that the Government might seek

to have Hellerman serve his time in a safe house rather than an

ordinary prison. (Tr. at 373-77). Moreover, AUSA Wing

testified at the evidentiary hearing that prior to January, 1973

no promises or representations were made to Hellerman as to

where his sentence would be served. (Tr. at 379).'° This

testimony stands uncontradicted. In fact, Hellerman’s ac-

count in WSS confirms that he was not promised that he

would serve his sentence in a safe house, although he made

every effort to obtain such a promise. Since there was no

unrevealed promise, there is no Brady violation.

5. Reduction of Hellerman’s Attorneys Fees

Ostrer alleges that Hellerman received a benefit from the

Government by way of the Government’s successful efforts to

"On June 1, 1977 AUSA Richard Weinberg furnished the Court with

copies of two letters written by AUSA John Wing to Henry Petersen of the

Justice Department requesting that Hellerman be allowed to serve his time in

a safe house. These letters are dated February 6, 1973 and May 25, 1973,

well after the completion of Ostrer’s trial.

22a

gain a reduction in his attorneys fees. Hellerman reports in

WSS and his testimony, that when he first consulted his chosen

attorney he was asked for a retainer of $100,000.00. In the

logical belief that once the attorney was informed of his status

as a cooperating witness, the fee would be substantially re-

duced, Hellerman asked the Chief to notify the attorney of this

fact. The Chief did call the attorney and Hellerman’s fee was

subsequently reduced by $50,000.00. Hellerman thanked the

Chief for his efforts.

The Chief agrees generally with Hellerman’s account of

these events. He testified that he did call the attorney and

discussed Hellerman’s status as a cooperating witness, a fact of

which the attorney was previously ignorant.'** He did not

discuss the fee during this conversation. Since the amount of

effort required to represent a cooperating witness is obviously

less, counsel did reduce the fee.

The Government maintains that it committed no im-

propriety in revealing Hellerman’s status as a cooperating

witness to his attorney at his request. We agree with the

Government that it neither sought nor won a fee reduction for

the benefit of Hellerman. The record amply supports this

conclusion. The Chief in his testimony denied that he in-

terceded with respect to Hellerman’s legal fees.

Of course, the Court does recognize that the result or conse-

quence of the Chief’s call to counsel was a reduction in fees.

The Chief may have expected that this would be the result of

the call. Nonetheless, the Government had the right, perhaps

even the obligation, to inform Hellerman’s counsel of his true

status, regardless of the potential beneficial effect of this infor-

'94 Although Hellerman had a conference with his attorney, he did not

disclose his status as a cooperating witness since he was acting in an under-

cover capacity at that time. His conference with the attorney was not in

private and he was fearful that if he disclosed his status the information

would be leaked.

23a

mation. Hellerman’s status as a cooperating witness had to

have been communicated by the prosecutor to the witness’

counsel, or sought by counsel from the prosecutor at some

time. The fee reduction was incidental to this requirement.

The Government cannot be said to be conferring a benefit

through the disclosure of required information simply because

that information happens to be beneficial. We therefore find

that the Government did not violate Brady by failing to inform

defense counsel of the Chief’s contacts with Hellerman’s

counsel.

6. Non-prosecution of Hellerman’s family

Hellerman claims that after negotiations by his attorneys

the Government agreed not to prosecute any members of his

immediate family. Hellerman testified to his belief that this

agreement was an important part of his deal with the Govern-

ment. This covenant was not made a part of the Memoran-

dum of Agreement nor was it communicated to the defense.

Since Thomas Edwards, Esq., who assisted counsel in

representing Hellerman was responsible for negotiating the

agreement with the Government, Edwards is found to be a

person with intimate knowledge of the contents of the agree-

ment between Hellerman and the Government. Edwards

testified that the Government informed him that whether

Hellerman cooperated with the Government or not, it had no

interest in prosecuting Hellerman’s relatives. (Tr. at 394-95).

Edwards further testified that he was “certain . . . that this

had nothing to do whatsoever with any quid pro quo. . . be-

tween the Government and Hellerman.” (Jd. at 398.)

The Chief, in his testimony, corroborated the fact that the

nonprosecution of Hellerman’s family was not part of the

Government’s agreement with Hellerman. The failure of the

24a

Memorandum of Agreement to mention Hellerman’s family

also confirms Edwards’ version of the story. Hellerman may

have thought that his lawyers won a big concession when, in

fact, the nonprosecution was a matter of prosecutorial discre-

tion exercised by the Government unilaterally.

Since we do not find that the Government conferred a

benefit on Hellermen in return for his cooperation, the deci-

sion not to prosecute Hellerman’s family was not Brady

material, which must be turned over to the defense. Govern-

ment actions which fortuitously benefit a witness are different

from benefits in exchange for testimony which must be re-

vealed to the defense to provide material for an attack on a

witness’ credibility.

B. Violation of 18 U.S.C. § 3500"*

Ostrer claims that Hellerman’s book and testimony reveal

that the Government failed to turn over §3500 material which

418 U.S.C. §3500 provides as follows.

“(a) 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 of the case.

(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 sub-

ject matter as to which the witness has testified. If the entire contents

of any such statement relate to the subject matter of the testimony of

the witness, the court shall order it to be delivered directly to the

defendant for his examination and use.

(c) If the United States claims that any statement ordered to be pro-

duced under this section contains matter which does not relate to the

25a

the Government generated regarding Hellerman. Hellerman

testified that the Chief and other AUSAs took extensive notes

of certain of their conversations. He describes one incident in

great detail. According to Hellerman the Chief had a desk

drawer which contained “extensive notes” which the Chief

subject matter of the testimony of the witness, the court shall order the

United States to deliver such statement for the inspecticn of the court

in camera. Upon such delivery the court shall excise the portions of

such statement which do not relate to the subject matter of the

testimony of the witness. With such material excised, the court shall

then direct delivery of such statement to the defendant for his use. If,

pursuant to such procedure, any portion of such statement is withheld

from the defendent and the defendant objects to such withholding,

and the trial is continued to an adjudication of the guilt of the defend-

ant, the entire text of such statement shall be preserved by the United

States and, in the eveat the defendant appeals, shall be made available

to the appellate court for the purpose of determining the correctness of

the ruling of the trial judge. Whenever any statement is delivered to a

defendant pursuant to this section, the court in its discretion, upon ap-

plication of said defendant, may recess proceedings in the trial for such

time as it may deterir‘ne to be reasonably required for the examination

of such statement by said defendant and his preparation for its use in

the trial.

(d) If the United States elects not to comply with an order of the

court under subsection (b) or (c) hereof to deliver to the defendant any

such statement, or such portion thereof as the court may direct, the

court shall strike from the record the testimony of the witness, and the

trial shall proceed unless the court in its discretion shall determine that

the interests of justice require that a mistrial be declared.

(3) The term “statement”, as used in subsections (b), (c), and (d) of

this section in relation to any witness called by the United States,

means —

(1) a written stetement made by said witness and signed or other-

wise adopted or approved by him;

(2) a stenographic, mechanical, electrical, or other recording, or

a transcription thereof, which is a substantially verbatim recital of

an oral statement made by said witness and recorded contem-

poraneously with the making of such oral statement; or

(3) a statement, however taken or recorded, or a transcription

thereof, if any, made by said witness to a grand jury.

26a

had taken at a session on Natco with Hellerman in the

Berkshire Hotel. When, at a later date, the Chief told Heller-

man that he had no such notes, Hellerman suggested that he

look in his desk drawer and in fact the notes were there. (Tr.

at 74-78, WSS at 269).

The Chief’s testimony before me was that he took no notes

of his meetings with Hellerman, which was corroborated by a

search conducted by AUSA Richard Weinberg, during and

after the evidentiary hearing, which revealed no 3500 material

in the Natco file which could or should have been produced at

the Belmont trial. (Gov't Brief II at 30). The Chief's

testimony is also corroborated by the testimony of AUSA Wing

who stated that he could recall no notes made by the Chief

regarding Hellerman.

In a carefully formulated statement contained in his af-

fidavit of April 28, 1977, the Chief stated that he could not

recall taking any notes of conversations with Hellerman

which,

“could be construed in any way as ‘a substantially ver-

batim recital of an oral statement’ made by Hellerman

which relates to the subject matter of Hellerman’s

testimony as contemplated by Title 18, United States

Code, Section 3500.”

AUSA Harold F. McGuire states in his affidavit that he pro-

duced no 3500 material other than that submitted to defense

counsel at trial. McGuire also states (in further corrobora-

tion of the Chief’s testimony) that he knows of no other 3500

material relating to Hellerman’s testimony at Belmont which

was not made available to defense counsel.

Hellerman’s testimony as to the Chief’s “drawerful” of notes

remains uncorroborated. There is ample evidence to the con-

27a

trary on this point. We are left with no more than a specula-

tion that certain notes exist. Mere speculation is insufficient to

support Os'rer’s claim that the Government failed tc provide

existing 3500 material.

The other possibility which must be examined is that the

Chief and AUSA Wing did take notes of their interviews with

Hellerman but felt that these notes did not concern matters as

to which Hellerman could testify on his direct examitiation in

Belmont or that these notes did not consist of a “substantially

verbatim recital” (18 U.S.C. §3500(e) definition of

‘statement’) of oral statements by Hellerman. This theory is

supported by Wing who testified that he turned over to AUSA

McGuire prior to the Belmont trial fifteen to twenty pages of

his notes from Hellerman interviews. (Tr. at 369). Wing also

testified, however, that these notes did not contain material

relevant to Belmont. For the most part these notes concerned

other investigations and other criminals. Wing prepared his

two-page Brady memorandum which was given to defense

counsel, by extracting any reference in these notes which

related to Belmont or bore on Hellerman’s credibility. It is

well established that only those notes containing actual state-

ments adopted or approved by the witness need be turned over

to defense counsel as 3500 material. See Goldberg v. United

States, 425 U.S. 94 (1976).

During the evidentiary hearing the Court instructed the

Government to make available any of the Wing notes not

already turned over to the defense, which might be construed

as Brady or 3500 material. (Tr. at 370). This order included

material relating to Ostrer, the Belmont trial or the prior

criminality of Hellerman. The search of these notes was car-

ried out by AUSA Weinberg, who reported that the notes con-

tained no further Brady material. (See letter of AUSA

Weinberg to Harvey Silverglate, May 31, 1977). We find,

therefore, that Ostrer has failed to prove that the Government

28a

was remiss in turning over existing and relevant 3500 material

to the defense at the Belmont trial.

Ostrer does not stop with the claim that existing 3500

material was suppressed. He argues, in the alternative, that

the Government purposely refrained from producing 3500

material on Hellerman in order to avoid the necessity of mak-

ing such material available to the defense. This contention is

without merit. Ostrer is unable to cite any precedent which

establishes a requirement that the Government create 3500

material. A prosecutor has the discretion to decide whether to

take any notes of his conversations with witnesses and whether

to include in those notes “substantially verbatim recitals” of

the statements of that witness.

Ostrer’s claims with respect to Brady and 3500 are essential-

ly overlapping. The Brady obligation requires the Govern-

ment to provide the defense with exculpatory information, in-

cluding written or oral material in its possession which is

useful for the impeachment of a Government witness. For ex-

ample, if an AUSA interviewed Hellerman and learned that

Hellerman was made a promise by another AUSA, or that

Hellerman had committed a new offense, he would be re-

quired to alert the defense counsel to this information, regard-

less of whether or not he wrote it down in the witness’ words.

Section 3500 requires the production of Government records of

a witness’ actual statements. Here, the lack of substantial

3500 material does not relieve the Government of its obliga-

tion to make the defense aware (via Brady) of exculpatory or

“impeaching” information. The result is the same. Either

material information was withheld or it was not. The Court

finds no separate violation of the Government’s obligation to

make existing 3500 material available to the defense.

29a

C. Perjury by Hellerman

Ostrer alleges several instances of Hellerman’s “perjury.”

During the Belmont trial Hellerman characterized Ostrer as

his partner or as a co-conspirator in the Belmont stock swindle.

In his book, on the other hand, Hellerman identifies Ostrer as

another “pigeon” in Belmont, i.e., one who is himself a victim

of aswindle. The characterization at trial of Ostrer by Heller-

man as a conspirator rather than as a victim is viewed by

Ostrer as an intentional perjury which lies at the heart of the

Government’s case.

Another example of Hellerman’s alleged “perjury” at the

Belmont trial was his claim, in connection with his own con-

viction, to have made restitution of $12,500.00 and his stated

intention to make restitution of the remaining $87,500.00

which he had agreed to provide. Ostrer alleges that Heller-

man lied again when he testified that he did not know whether

Ostrer had made or lost money on the Belmont deal, since

Hellerman wrote in WSS that Ostrer in fact lost $105,000.00

in the Belmont swindle. Ostrer provides other examples of

contradictions between Hellerman’s trial testimony and the

revelations in WSS.

But beyond the particular allegations of perjury, Ostrer’s

contention is that Hellerman is simply a perpetual liar and

therefore an inherently unreliable witness. Ostrer argues that

since the Government’s Memorandum of Agreement with

Hellerman, which was made available to defense counsel at

trial, vouches for Hellerman’s credibility, the Government’s

knowledge of Hellerman’s continuing propensity to lie re-

quired it te impart this knowledge to the defense.

In each instance of alleged perjury we must decide whether

a) there was any actual perjury by Hellerman, and b) whether

the Government knew of the perjury and failed to bring it to

the attention of the Court and jury. Actual perjury by a

30a

Government witness is a sufficient ground for relief in a mo-

tion for a new trial if,

“ . , the court should decide . . . [that] the jury prob-

ably would have altered its verdict if it had had the op-

portunity to appraise the impact of the newly-discovered

evidence. . . .” United States v. Stofsky, 527 F.2d 237,

246 (2d Cir. 1975).

It is not clear, however, that perjury by a Government witness

raises a due process attack on a conviction sufficient to gain

relief pursuant to 28 U.S.C. §2255. See Brach v. United

States, 542 F.2d 4, 8 (2d Cir. 1976); United States v. Franzese,

525 F.2d 27, 31 n.7 (2d Cir. 1975). See also Davis v. United

States, 417 U.S. 333, 345-46 (1974). If, on the other hand, the

Government knowingly used perjurious testimony, a due proc-

ess claim is surely raised.

At the Belmont trial, Hellerman characterized Ostrer as a

co-conspirator and a “money-man”. (Belmont Tr. at 427-28).

In WSS, by contrast, Hellerman refers to Ostrer as “another

pigeon”. It is also implicit in WSS that Hellerman pulled his

relatives and friends out of the Belmont swindle when it

started to go bad, but left Ostrer in, holding the bag.

Hellerman has not admitted perjury or directly contradicted

his trial testimony. In conveying the impression, at the Bel-

mont trial, that Ostrer was a conspirator there is no perjury.

Hellerman never stated that Ostrer was not also used in some

way by Hellerman and other co-conspirators. It is possible to

be both a conspirator and a victim in situations like Belmont,

and nothing in Hellerman’s testimony precluded the jury from

drawing this conclusion. In fact, in trial Exhibit 3545, which

was made available to the defense, AUSA McGuire, in an

outline of Hellerman’s intended testimony notes under the

3la

sub-heading “contact with Ostrer” “[Hellerman] sets Ostrer

up to buy the stock.” Thus, the defense was alerted to the

possibility that Ostrer was set up by Hellerman and could have

cross-examined Hellerman at length on this characterization.

Moreover, Hellerman does not ever label Ostrer as a

“pigeon” or “sucker” in WSS or in his testimony at the eviden-

tiary hearing. In WSS, while discussing Ostrer’s role in Bel-

mont, Hellerman states,

“The technique was relatively simple. I’d put someone

like Ostrer in the stock at $15 with a couple of brokerage

houses. Now, when I wanted to sell Ostrer out, at say

$36 a share, all I had to do was find another pigeon at one

of the brokerage houses and sell him the stock Ostrer was

holding.” WSS at 210.

From this single quotation Ostrer concludes that Hellerman

believes him to have been a “pigeon”. This is not the only

possible interpretation of this quotation, which appears in a

chapter of the book entitled, “Anything For a Buck.” Else-

where in this chapter Hellerman writes that Ostrer “became

interested in getting into a stock deal with me” (Id.) and that

Ostrer “wanted to get in on a stock bust-out so bad he could

taste it.” (WSS at 209). In the full context of this chapter

Hellerman is hardly describing an innocent investor who un-

wittingly becomes a victim of a stock fraud. Rather, he is

describing someone who knowingly agreed to raise money and

participate in a stock fraud. The gist of the crime was joint ac-

tion to perpetrate the swindle of stock houses and members of

the general investing public by purchasing and later selling.

All this Ostrer did. That his group leader, Hellerman, treated

him unfairly is of no relevance.

32a

This analysis is equally applicable to Ostrer’s claim that

Hellerman’s actions in getting his friends out of Belmont in

time while leaving Ostrer in to take a loss, confirms Heller-

man’s use of Ostrer as a victim. Once again, Hellerman’s ac-

tion in leaving Ostrer in the Belmont pool does not absolve

Ostrer of his role in conspiring to commit a stock fraud. In

any case, Hellerman certainly did alert the Government, and

in turn the defense to the notion that he was not above taking

advantage of his partner. I find that Hellerman committed no

perjury at the Belmont trial in characterizing Ostrer as a par-

ticipant in a stock fraud. I also find that the Government was

not a party to any perjury in this aspect of Hellerman’s testi-

mony.

The same reasoning must be applied to Ostrer’s claim that

he was unfairly described by AUSA McGuire and Hellerman

as the “money man” in the scheme, since in WSS Hellerman

states that he “was fully aware that Lou [Ostrer] was in hock

to his eyeballs to loan sharks . . .” (WSS at 209). Even if this

statement is true, it has no effect on Ostrer’s role as a “money

man” in the Belmont stock fraud. Ostrer was able by what-

ever means to provide Hellerman with $105,000.00 and an ad-

ditional $60,000.00.'5 (WSS at 212). Moreover, Hellerman

testified at the trial that Ostrer had been forced to borrow the

$60,000.00 from Hickey DiLorenzo (Belmont Tr. 472-73,

484-86) and that Hellerman himself had advanced $52,500.00

to Ostrer. (Belmont Tr. 476-483). Thus, the jury was fully

aware both of Ostrer’s poor financial condition and of his

ability to provide cash for a phony stock deal. Hellerman’s

characterization of Ostrer as a “money man” is not a materi-

ally false declaration.

'S According to Hellerman, he and Ostrer jointly borrowed the $60,000.00

from Hickey DiLorenzo at interest of $900 per week. Ostrer raised the other

$105,000.00 by borrowing from several friends, two of whom became his

partners in the deal. (WSS at 212).

33a

Finally, Ostrer’s claim that Hellerman committed perjury

when he testified that he did not know whether Ostrer made

or lost money on the Belmont deal is without merit. At the

trial, when Hellerman was asked this question he responded

that he did not know but could explain this answer. Ostrer’s

counsel permitted no explanation. (Belmont Tr. at 795). In

WSS Hellerman stated that Ostrer lost $105,000.00 in the Bel-

mont deal. (WSS at 227). In the context of the entire book,

however, it is clear that Hellerman does not know who really

lost the $105,000.00 since he knows that some percentage of

that money is borrowed. He therefore does not know how

much money Ostrer personally lost, if any. The Court finds

that Hellerman committed no perjury when he stated at the

trial that he did not know whether Ostrer had lost money on

the Belmont deal.

During the Belmont trial Hellerman testified that he had

already made restitution to his victims in the amount of

$12,500.00 and that he intended to make further restitution of

$87,500.00. (Belmont Tr. 671-72, 866-67). Actually, Heller-

man had deposited $12,500.00 in escrow with his attorney for

the ostensible purpose of making restitution to the various vic-

tims of his life of crime.

During his testimony at the evidentiary hearing, Hellerman

admitted that he had paid no further restitution in the four

years since the time of the Belmont trial, although he stated

that he still intended to do so. Ostrer now alleges that Heller-

man’s statements at trial constitute perjury since he neither

made restitution of the $12,500.00, nor obviously did he in-

tend to make a further restitution. Ostrer further contends

that the Government was aware of this perjury since it knew

full well that Hellerman’s escrow agent had not yet paid out

the $12,500.00.

Unfortunately, Ostrer’s position arises from a misconception

concerning a sealed document which the Court inspected in

34a

camera and then referred to, in passing, during the eviden-

tiary hearing. Long after Ostrer’s trial, Hellerman’s attorney

sought a return of the greater part of the $12,500.00 restitution

which Hellerman had paid at the time of the Belmont trial, for

the purpose of allowing Hellerman to make a new start in a

business venture. Judge Lasker agreed to allow Hellerman to

retrieve this money. Thus, at the time that Hellerman testi-

fied at the Belmont trial he had, in fact, made restitution of

$12,500.00, to the extent that he had placed the money in

escrow and under the control of the Court. There is certainly

no perjury in that part of his testimony.

The second half of Hellerman’s restitution testimony con-

sists of his intention to repay the remaining $87,500.00 of the

restitution figure agreed to by him at the time of sentence.

Hindsight has revealed that Hellerman did not fulfill his inten-

tion as stated at the Belmont trial. But how can this Court say

that it was not his intention at that time to make good on his

promise? Even if Hellerman knew that he was lying, it would

certainly be impossible for the Government to have known

that he had no intention of fulfilling his self-proclaimed expec-

tation. There is no evidence here that the Government and

Hellerman had reached an agreement, prior to the Belmont

trial, that Hellerman would not have to make restitution in the

amount of $87,500.00. There is no evidence whatsoever that

the Government had failed to make some such promise known

to the defense. There was no such arrangement. Hellerman

testified as to his subjective intentions at that time. I do not

find that Hellerman committed perjury by the testimony given

at Ostrer’s trial.

Of course a reading of WSS shows, and it should have been

readily apparent at the time, that the whole idea of making

restitution in the amount of $100,000.00 is on its face an il-

lusory and foolish thing. To begin with, that sum is a drop in

the bucket measured against what he stole. And most of his ill

35a

gotten gains were ripped off from fellow crooks, or unidentifi-

able members of the general public who bought stock when

Hellerman sold. If the Court or Hellerman’s counsel had at-

tempted to find the claimants, determine the amount of their

claims, and effect pro rata distribution at two cents on the

dollar, they would have faced a task more complex than ad-

ministering a class action recovery under Rule 23 F.R. Civ. P.

We must recognize this whole matter of the restitution for

what it was — high sounding words calculated to ameliorate

Hellerman’s sentences on three indictments. There is no

showing that the concept of restitution was initiated by the

Government.

Ostrer’s final allegation of perjury is that Hellerman has

been shown by WSS to be a hardened and continuous liar and

he is therefore simply incapable of telling the truth. This is

not really an allegation of a specific perjury, rather a charge

that Hellerman is a liar now, and was one at the time of the

Belmont trial, and the Government knew it. This arg ment is

being made to the wrong Court at the wrong time. Whether

or not we find Hellerman now to be an honest, truthful person

is not significant. This same issue was in effect tendered to the

jury which convicted Ostrer, and to other juries at other times

in other cases. Ostrer’s trial jury clearly believed enough of

Hellerman’s testimony to find Ostrer guilty as charged. The

increment in the knowledge of Hellerman’s untruthful nature

over that which was known by the Belmont jury is inconse-

quential. The Court declines to find that as a result of Heller-

man’s propensity for dishonesty he must necessarily have com-

mitted perjury at the Ostrer trial. Indeed, our reading of that

trial record suggests that he was a more careful witness then,

than at the habeas hearing before me.

In sum, the Court does not find that on the evidence submit-

ted here Hellerman committed any specific perjury at trial. It

follows that the Government did not knowingly rely on per-

jured testimony at Ostrer’s trial.

36a

CONCLUSIONS

We have found that the Government violated its Brady

obligation in two instances, (1) by failing to disclose to the

defense its activities resulting in the release of the $80,000.00

in Natco funds which ended up in Hellerman’s pocket; and,

(2) by failing to disclose its consent effected by silence with

respect to the permission granted to Hellerman to travel to

Switzerland. There has been no Brady violation with respect

to Hellerman’s reduction in sentence, place of imprisonment,

counsel fees, or the nonprosecution of Hellerman’s family.

We have also found that the Government neither violated

its obligations pursuant to 18 U.S.C. §3500 nor knowingly en-

couraged or allowed the use of perjured testimony by Heller-

man.

Finally, we have found no proof of perjury in Hellerman’s

trial testimony with or without the Government’s knowledge.

Thus, the only question which we must still answer is

whether the Government’s failure to disclose the Natco affair

and the Swiss trip violated Ostrer’s constitutional rights,

thereby denying him a fair trial.

The standard for making such a determination is set forth in

United States v. Agurs, 427 U.S. 97 (1975), which we are re-

quired to apply. Petitioner has argued that the Agurs stand-

ard is not applicable here since it was not in existence at the

time of Oster’s trial. We reject that contention. The instant

petition was filed in April, 1977, well after the date of the

Agurs ruling. In seeking a new trial, Ostrer is bound by the

standards existing at the time his petition is considerer. The

Supreme Court has informed us of the correct standard for

determining the materiality of undisclosed evidence, to enable

us to conclude whether a new trial is constitutionally required; |

therefore, all prior standards are obsolete and may be regard-

37a

ed as having been wrong ab initio. See United States v. Corr,

77 Civ. 2642, p. 12 (S.D.N.Y. June 23, 1977).

In Agurs, the Supreme Court enumciated a tripartite test

for properly applying the rule of Brady v. Maryland, in the

context of three separate fact situations. Only the first two

parts of the test need be considered here.

The first such category of cases is typified by Mooney v.

Holohan, 294 U.S. 103 (1935), a case in which “the undis-

closed evidence demonstrated that the prosecution’s case in-

cluded perjurious testimony and the government knew or

should have known of the perjury.” (Agurs at 103.)

“In a series of subsequent cases, the Court has consistent-

ly held that a conviction obtained by the knowing use of

perjured testimony is fundamentally unfair, and must be

set aside if there is any reasonable likelihood that the false

testimony could have affected the judgment of the jury.”

Id. (emphasis added.)

Since we have already found that Ostrer’s conviction was not

obtained by the knowing use of perjured testimony (nor by

perjury at all) our case is not covered by the first Agurs stand-

ard.’ Nonetheless, we note that the strict standard of ma-

teriality applied in such cases requires that the conviction

‘©In his post-hearing brief, Ostrer now claims that Hellerman’s perjury is

found in his affirmative answer to the question of whether his entire agree-

ment with the Government was embodied in the Memorandum of Agree-

ment. We do not find that answer to constitute perjury. Both Hellerman’s

attorneys and the Government believed that this Memorandum did con-

stitute his agreement with the Government. If the Government conferred

other benefits upon him, either directly or indirectly, Hellerman took these

benefits to be mere largesse, outside his agreement to testify for the Govern-

ment. This position is not unreasonable. Perjury requires scienter.

38a

be set aside, “if there is any reasonable likelihood that the false

testimony could have affected the judgment of the jury.”

Agurs at 103. (emphasis added). The Court goes on to explain

its application of the strictest standard of materiality.

“(T]he Court has applied a strici standard of materiality,

not just because they [these cases! involve prosecutorial

misconduct, but more importantly because they involve a

corruption of the truth seeking function of the trial pro-

cess.” Id. at 104.

The second category of cases treated in Agurs is that typified

by Brady, where the defense has made a pretrial request for

specific evidence. In Brady the defense requested the extra-

judicial statements of the witness Boblit, Brady’s accomplice.

One of Boblit’s extrajudicial statements was suppressed. The

Supreme Court found that the suppression of this statement

deprived Brady of his rights.

“We now hold that the suppression by the prosecution of

evidence favorable to an accused upon request violates

due process where the evidence is material either to guilt

or punishment, irrespective of the good faith or bad faith

of the prosecution.” Brady v. Maryland, 373 U.S. 83, 87.

Material evidence, in the Brady context, is defined as that

evidence which might have affected the outcome of the trial.

In Brady the suppressed evidence was found to be material to

the question of punishment, since the evidence, a confession

by the accomplice, indicated that Brady had not actually

strangled the murder victim.

39a

The instant case is a Brady type case, though there is at least

one significant difference. Brady involved actual exculpatory

evidence whereas we are concerned here only with evidence

useful for impeachment. See Giglio v. United States 405 U.S.

150 (1972); Napue v. Illinois, 360 U.S. 264 (1959). Such

evidence does, of course, include evidence of favors, in-

ducements, of promises. United States ex rel. Washington v.

Vincent, 525 F.2d 262 (2d Cir. 1975). The other difference is

that here the Government did not ignore or fail to respond to

defendants’ Brady request.

Prior to Ostrer’s trial both Ostrer and his codefendant

Dioguardi sought specific material from the Government con-

cerning Hellerman. Dioguardi’s counsel, Jay Goldberg, Esq.

specifically sought, !”

“any material in the possession of the Government bear-

ing adversely on the credibility, character and reputation

of Michael Hellerman; and ... any other material

relating to any matter which defense counsel could prop-

erly use in cross-examination to inquire into Hellerman’s

motive and bias in favor of the Government or expecta-

tion of favor from the Government.” (Ostrer’s Brief I at

p. 8, Ostrer’s Brief II at p. 97).

In response to this request, the Government gave the defense a

packet of material which included the Memorandum of Agree-

ment, trial notes of AUSA McGuire, the two-page Wing

Memorandum listing several acts for which Hellerman would

not be prosecuted, and copies of many of Hellerman’s indict-

ments. (See AUSA Weinberg’s letter of May 18, 1977.) In ad-

1’ The trial judge ruled that any request by either defendant inured to the

benefit of the other.

40a

dition, AUSA McGuire and the Chief orally informed defense

counsel of the history of Hellerman’s cooperation with the

Government. (See Belmont Tr. pp. 525-560). The only im-

peachment-type evidence which the Government failed to

reveal was the Natco matter and Heilerman’s trip to

Switzerland.

Although we recall that in Brady the Supreme Court

specifically stated that the good faith or bad faith of the pro-

secutor was irrelevant in making the determination whether a

defendant is entitled to a new trial, we have found that at least

with respect to Natco the Government’s suppression of

evidence must be presumed intentional. The principle

stressed in Brady was the avoidance of an unfair trial to the ac-

cused, not punishment of society for the blunders or misdeeds

of the prosecutor. Brady v. Maryland, 373 U.S. at 87. This

principle is reiterated in Agurs. (Id. at 110, n. 17).

This Circuit had developed a pre-Agurs standard for deter-

mining new trial motions based on “prosecutorial culpability”

and the materiality of the evidence. The standard was set

forth in detail in United States v. Morrell, 524 F.2d 550, 553

(2d Cir. 1975).

“If the prosecutor has intentionally suppressed evidence

or ignored evidence whose high value to the defense could

not have escaped his attention, a new trial is warranted if

the evidence is merely material or favorable to the

defeuse. E.g., United States v. Kahn, 472 F.2d 272, 287

(2d Cir.), cert. denied, 411 U.S. 982, 93 S. Ct. 2270, 36

L. Ed. 2d 958 (1972); United States v. Keogh, 391 F.2d

138, 146-47 (2d Cir. 1968). If, on the other hand, the

government’s failure to disclose is merely inadvertent or

negligent, a new trial is required only if there is a ‘signifi-

cant chance that this added item, developed by skilled

4la

counsel as it would have been could have induced a

reasonable doubt in the minds of enough jurors to avoid a

conviction.’ United States v. Rosner, 516 F.2d 269, 272

(2d Cir. 1975); United States v. Seijo, 514 F.2d 1357,

1364 (2d Cir. 1975); United States v. Miller, 411 F.2d

825, 832 (2d Cir. 1969).”

See also United States v. Hinton, 521 F.2d 164, 166 (2d Cir.

1975). We regard that rule obliterated by Agurs, see page 110

of 427 U.S.

We must now determine whether this suppressed evidence is

material in accordance with the standard developed in

Agurs.'® First, we must define the term “material”. In Agurs,

the standard of materiality is whether the suppressed evidence

probably would have affected the outcome of the trial, that is,

that it creates the reasonable doubt that did not otherwise ex-

ist. See Dissent of Marshall, J. in Agurs, page 115. The stand-

ard differs from the “significant chance” standard previously

used in this Circuit in cases where there was no prosecutorial

misconduct. The latter standard provided as follows:

'8In a case involving Government suppression of evidence, the defendant is

not required to satisfy the difficult test of demonstrating that the newly

discovered evidence would have resulted in acquittal. This is the standard

generally applied in evaluating motions for new trial under F.R. Cr. P. 33

based on newly discovered evidence.

“On the one hand, the fact that such evidence was available to the pro-

secutor and not submitted to the defense places it in a different

category than if it had simply been discovered from a neutral source

after trial. For that reason the defendant should not have to satisfy the

severe burden of demonstrating that newly discovered evidence would

have resulted in acquittal. If the standard applied to the usual motion

for a new trial based on newly discovered evidence were the same

when the evidence was in the State’s possession as when it was found in

a neutral source, there wouid be no special significance to the pro-

secutor’s obligation to serve the cause of justice.” (citation omitted)

Agurs at 111.

42a

“If there is a significant chance that the withheld

evidence, developed by skilled counsel, would have in-

duced a reasonable doubt in the minds of enough jurors

to avoid a conviction, then the judgment of conviction

must be set aside.” (Agurs, Dissent at 119).

Only if it can be held rationally that the suppressed evidence

probably would have created a reasonable doubt as to defend-

ant’s guilt, may the conviction be set aside.

We conclude that in Ostrer’s case no reasonable person

could say that the suppressed evidence probably would have

altered the outcome of the trial. This conclusion is based on

the fact that the Ostrer jury was already abundantly aware of

Hellerman’s cooperation with the Government, the substan-

tial benefits he had obtained thereby, and of his participation

in fraudulent and illegal schemes without number.

Ostrer argues, on the other hand, that the suppressed infor-

mation is substantively different from that revealed at trial

and not merely cumulative, since it attests that the Govern-

ment was willing to pay generously for Hellerman’s testimony.

We reject this argument because of three considerations. (1)

The convicting jury at the trial was aware of the extensive

benefits conferred upon Hellerman in exchange for his

testimony. There is no essential difference between pecuniary

benefits which are given in exchange for testimony and

benefits in the form of freedom from prosecution.'® In fact, it

might be argued that the benefit of less time in prison is far

more valuable than a mere cash benefit to a fellow who never

‘It was argued by the defense in summation that the Government had

provided Hellerman with substantial financial benefit by failing to prosecute

him for a $250,000.00 swindle he participated in after assuring the Govern-

ment that he would go straight. (Belmont Tr. at 1764-65).

43a

had any trouble getting money. (2) The Government’s will-

ingness to close its eyes to Hellerman’s appropriation of the

$80,000 has not been shown to have been a negotiated benefit

in exchange for Hellerman’s testimony. (3) There is reason to

believe that Hellerman’s embezzlement of the $80,000.00 was

tolerated only because of the Government’s awareness that

unless Hellerman could repay his debts, his life, and therefore

his testimony would be endangered. Thus, the $80,000.00

can be considered as merely one facet of the Government’s

broader program to guarantee Hellerman’s safety rather than

as an effort to put cash in his pocket.

During the trial the jury heard Hellerman repeatedly

acknowledge his participation in numerous criminal activities.

Hellerman testified that during the preceeding five years he

was involved in approximately eight to twelve criminal acts

for which he was not prosecuted, and three cases in which he

pleaded guilty. (Belmont Tr. 390-91, 602). Hellerman

acknowledged his role in frauds involving the securities of Bel-

mont Franchising Corporation, Globus, Automated Informa-

tion, Minute Approval Credit, and At Your Service Leasing.

(Belmont Tr. 690-91; 716-17). He admitted that he was in-

volved in having someone pay bribes to New York City

policemen, and he testified to his well founded belief that the

United States Attorney’s Office would convince the local

authorities not to prosecute him. (Belmont Tr. 806-07).

Hellerman acknowledged that he purchased stocks, dresses,

and jewelry which he knew to have been stolen (Belmont Tr.

808), and that he paid money to others for the purpose of brib-

ing state court judges, a state liquor authority investigator,

and a union delegate. (Belmont Tr. 811). In addition,

Hellerman testified that he had been involved in criminal ac-

tivity in connection with Natco and Merchandise Plus (Bel-

mont Tr. 741), that he had been barred by the SEC from ac-

tivities in the securities industry since 1961 (Belmont Tr. 606),

44a

that he told Jack Kelsey to file false papers with the SEC

hiding Hellerman’s interest in a brokerage firm (Belmont Tr.

612), and that he participated in a scheme to submit a

fraudulent check to a Bahamian bank. (Belmont Tr. 619). He

also acknowledged disobeying court orders. (Belmont Tr. at

731).

The jury also heard Hellerman testify that after he had

begun to cooperate with the Government and had agreed not

to engage in any additional criminal activity, he broke that

promise, and continued his illegal conduct. (Belmont Tr.

822-23; 938-39; 948). Hellerman testified that after he broke

his promise he engaged in swindles which earned him over

$250,000.00 and for which he was not prosecuted.

Finally, the summations for both Ostrer and Dioguardi

were replete with references to Hellerman’s corrupt and

criminal activity and the “extraordinary” agreement he

entered into with the Government immunizing him from pros-

ecution for most of his crimes.

Trial counsel emphasized clearly to the jury that the

Government had “bought” the testimony of a man who, hav-

ing promised the United States Attorney’s Office once before

that he would not commit any more crimes, then went out and

continued his corrupt and sordid activities. (Belmont Tr.

1721-24; 1731-33; 1754; 1783; 1793-94).

In view of the extensive data provided to the jury, we find

that the Natco information is not material, in the sense that it

probably would not have affected the outcome of the trial. In

words quoted from Agurs, p. 102, it “shed no light on Sewell’s

[read Hellerman’s] character that was not already apparent

from the uncontradicted evidence.” Nor does the suppressed

evidence raise a reasonable doubt. One more promise or

benefit to Hellerman is no evidence of Ostrer’s innocence.

Therefore, the Court concludes that the suppression of the

Natco $80,000.00 matter does not require us to grant Ostrer a

new trial.

45a

This Swiss trip does not warrant a new trial since, for the

same reasons set forth above, there is no probability that this

information would have raised a reasonable doubt. The jury

was well acquired with the Government's lenient treatment of

Hellerman, and one more instance of Government largesse

would not have been of any significance. Oster is therefore

not entitled to a new trial based on the suppression of informa-

tion concernig the Swiss trip.

BaIL

On April 1, 1977, the Court of Appeals found that Ostrer’s

appeal of this Court’s order of November 3, 1976, [422 F.

Supp. 108 (S.D.N.Y. 1976)], denying, for want of power only,

an extension of bail pending appellate finality, was moot since

the Supreme Court had just denied certiorari on Ostrer’s un-

derlying claims with respect to which this Court had con-

tinued him on bail. Thereafter, Ostrer’s surrender was

directed for April 15, 1977.

On April 14, 1977, however, Ostrer filed the instant petition

for relief pursuant to 28 U.S.C. §2255, which sought a con-

tinuation of bail pending the determination of issues not

previously litigated and unknown until Hellerman published

his book. The Government has agreed with Ostrer that this

Court has the power to grant or continue Ostrer’s bail if it

finds that the new matters which he presents in his petitions

raise a substantial challenge to his conviction, which, in the

opinion of the Court, requires continued bail. In a letter to

the Court of Appeals of April 11, 1977, AUSA Lawrence B.

Pedowitz wrote as follows:

“It is the Government’s position that, while the District

Court would be ill-advised to grant Ostrer bail on his mo-

tion to reopen the evidentiary hearing, since Ostrer’s

46a

underlying claims are totally without merit, the District

Court does have power to release Ostrer on bail if it sees

fit.”

Mr. Pedowitz was referring, in his letter, to the motion which

this Court denied on April 29, 1977, which was held to be

totally without merit. Nonetheless, the Government con-

cedes, by implication, that this Court has the power to grant

bail on any new motion or petition brought by Ostrer. The

Court also believes that it has that power.

On April 18, 1977, by an oral order of this Court, Ostrer

was continued on bail pending the determination of the in-

stant petition. We now extend bail until the Court of Appeals

shall determine Ostrer’s appeal from today’s orders, or other-

wise direct.

Ostrer has always honored the terms and conditions of his

bail. His attendance at court has been prompt and regular.

Although we have denied Ostrer the substantive relief which

he is seeking, we find that, again, he has raised colorable

claims affecting his constitutional right to a fair trial. We can-

not say that the claims raised in the instant petition are im-

posed solely for delay. He is entitled to seek to bring these

issues before the Court of Appeals prior to his incarceration,

provided he proceeds diligently to do so. See United States v.

Ostrer, 422 F. Supp. 50, 107-108. This is so notwithstanding

the long period of time which elapsed here since the jury ver-

dict.

So ordered.

CHARLES L. BRIEANT,

U. S. D. J.

Dated: New York, New York

August 12, 1977

Appendix B.

47a

UNITIED STATES COURT OF AP CEALS

Ion tue Secorn Cincurr

&

7

7 ~

No. 525—September Term, 1977.

(Argued January 16, 1978 Decided April 1S, 1978.)

Docket No. 77-2103

Louis Ostrer,

Pelilioner-lppelant.

—against—

Unrrep States or Axrerica,

Appellee.

Before:

Moore, Sait and Mawnsricxp,

Cirentt Judges,

,—_——

>

Appeal from an order of the Southern District of New

York, Charles L. Brieant, Jr., Judge, denying after a hear-

ing appellant’s petition under 28 U.S.C, £2855 ta vaeate his

conviction of conspiracy to violate federal seenrities laws

and mail and wire fraud statutes, and of substantive viola-

tions.

Affirmed.

> a

Auan Dersnowitz, Esq, Cambridee, Mass.

(Harvey A. Silverglate, Msq.. Aun Tiambert

Greenblatt, Attorney, Keinuceth Kurnos,

Silverzlate, Shapiro & (Gertuer, Boston,

Mass., of conasel), for Petifioncr-.tnpellant.

2611

48a

Tucirany Wrinnenc, Assistant United Slates At-

torney (Robert LB. liske, Jr., United States

Attorney for the Southern Distriet of New

York, Lawrence Pedowitz, Robert J. -Jos-

sen, Assistant United States Attorneys, New

York, N.Y., of counsel), for slppellee.

~

or

MawnsFreLp, Circuit Judge:

On January 26, 1973, Louis Ostrer was convicted hy a

jury in the Southern District of New York, David N.

Edelstein, Chief Judge, after a three-week trial on 11

counts of a 40-count indictment charging him with conspir-

ing in violation of 18 U.S.C. §371 to violate certain provi-

sions of the federal securities laws andl rezulations, 15

U.S.C. §§77q(a), T7x, 78j(b), TSH, Rule 10b-5, 17 C.PLT.

940.-10b-5, and the federal mail and wire fraud statutes, 18

U.S.C. §§1341, 1248, and with substantive violations of

these securities“and mail fraud statutes. Chief Judge

Edelstein sentenced him to a term of three years imprison-

ment and to pay fiues of $55,000. We affirmed his conviction

in Curted States v. Dioguardi, 492 F.2d 70 (2d Cir.), cevt.

denied, 419 U.S, 829 (1974).

After pursuing other post-conviction relief without sue-

cess' Ostrer, who has now been free on baii for more than

five years, was scheduled to commence service of his sen-

1 Shortly after his conviction, Ostrer moved for a new trial on the

hasis of a juror’s alleged muntal iscompetence. Jude Ttelstein denied

this motion at the time of sentencing. We ailirmel the denial of the

motion in Urtied States v. Dioguardi, $92 F.2d 70 (2d Cir.), cert. demic,

419 U.S. §29 °(1974).

On Deeember 1], 1974. Ostrer filed another motion for a new trial,

which alleged that during his trial tho Government had been privy to

conversations hetween Ostrer and his counsel. After a hearing this motion

war slenied, United Slates v. Ostrer. 422 FP. Supp. 93 (S.D.N.Y. 1976).

and the denial of the motion was affirmed in United States ¥. Ostrer,

55] P2d 303 (2d Cir.)}, cert. denied, 430 U.S. 946 (1977).

2612

49a

tence on April 15, 1977. Ilowever, on April 14, 1977, he

filed in the district court a petition to vacate his conviction

pursuant to 28 U.S.C. $2255 on the ground that the Govern-

ment had not disclosed at Ostrer’s trial certain infqrination

required by Brady v. Maryland, 373 U.S. 83 (1963), and 18

U.S.C. §3500, and that additional evidence had been ac-

quired concerning the mental instability of a person who

had served on his trial jury. After an evidentiary hearing,

the petition was denied. We affirm.

The evidence at Ostrer’s trial showed that Le and several

others, including his co-defendant John Dioguardi, were

involved in a scheme to raise artificially the price of the

stock of the Belmont Franchising Corporation (Belmont).

The cornerstone of the Government’s case ayainst Ostrer

was the testimony of Michael Hellerman, a participant with

Ostrer and Dioguardi in the Belmont fraud. Ostrer’s de-

fense at trial consisted primarily of an attempt to impeach

Helleruian’s credibility. See United States v. Dioguardi,

supra, 492 F.2d at 73-74 (2d Cir. 1974).

The present appeal is concerned principally with evi-

dence of two incidents known to the Govermument prior to

Ostrer’s trial, but which were not discovered by Ostrer

until recently. He contends that this evidenee should have

been made available to him as Brad: material before trial

because it amounted to benelits given to Llellerman by the

Government in return for his cooperation and testimony,

which Ostrer’s counsel could have exploited in his cross-

examination of Hellerman to show a further motive for

IIellerman to lic.

The first of these incidents is the so-called “Natco Epi-

sode.” While Hellerman was cooperating secretly as a

Government informant in 1970-71 he advised the United

States Attorney’s Office that he and several other indi-

viduals were involved in a fraud designed to drive Nateo,

2013

50a

Tue. (“Nateo”’), and Merchandise Plus, Tae. two Long

Island-based companies, into bankrupley. As) the cone

panies went bankrupt, I[ellerman amet others, including

Steven Schusteck, the president uf Naico, planued to steal

the companics’ assets and leave the eredjtors empty-

handed.

Mellerinan informed the Govermnent that nart of this

fraud involved the cashing of an $50,000 cheek throngh a

casino in the Bahamas. Acting on Hellerman's informa-

tion, BI agents were able to thwart this aspeet of the

frand by preventing the cheek from being cashed. As a re-

sult, however, the Government found iiself in possession

of corporate funds belonging to Nateo.

Robert Morvillo, formerly chief of the Criminal Division

of the U.S. Attorney’s Ollice for the Southern District of

New York, testified at the hearing on appellant’s $2255 pe-

tition that the Government «id

This text is long and has been trimmed here. Open the source document for the complete record.