Federal agents seized so many computerized records in their raid on Morgan Management's headquarters in May, prosecutors have blown through their July 27 deadline to turn them over to defense lawyers and still need months more to accomplish the task.
"We seized a number of devices," Assistant U.S. Attorney Douglas A. Penrose said during a status conference Monday in the mortgage fraud case. The devices contained millions of documents, and prosecutors do not yet know which documents relate to the accusations against two Morgan Management executives and two mortgage brokers from Buffalo.
Magistrate Judge H. Kenneth Schroeder, who had set the July 27 deadline for "voluntary discovery," told Penrose that federal prosecutors are making a shambles of the scheduling order he signed to keep the case moving and protect the defendants' right to a speedy trial.
"Do you now realize the conundrum the government has created?" he said.
Penrose explained that a huge volume of records – in court papers he mentioned 5 million unique emails, among other things – were held on the computers and hard drives that agents hauled away from the real estate company's headquarters in the Rochester suburb of Pittsford on May 14, almost three months ago.
Those emails, along with myriad financial records, must be transferred onto a common software platform and made searchable using keywords. While that work is almost done, Penrose said, the records still must be analyzed to see if they were eligible to be seized under the search warrant, if they relate to the case and if they should not be excluded for other reasons, such as attorney-client privilege. A team of up to 20 FBI agents is being assembled for those reviews, he said.
The FBI and the U.S. Attorney's Office in Western New York on May 22 announced the indictment of four businessmen: Morgan Management executives Kevin Morgan and Todd Morgan, the nephew and son, respectively, of founder Robert C. Morgan; and Frank Giacobbe and Patrick Ogiony, principals of Aurora Capital, a mortgage brokerage firm in Buffalo.
Prosecutors allege the Morgans worked with Giacobbe and Ogiony to make apartment complexes look more profitable than they really were in order to obtain mortgages larger than accurate figures would have allowed. Those inflated mortgages, prosecutors said, were then packaged and sold to investors as regulated securities.
Morgan Management does business in Buffalo and Rochester and in other cities across the eastern half of the United States, and has borrowed billions of dollars to finance or refinance its acquisitions. U.S. Attorney James P. Kennedy Jr. held out the possibility in May that others may face indictment, too.
There has been fallout since then. Fannie Mae – one of the two government-sponsored entities that help fund the housing market by purchasing mortgages from lenders – said it will not package Morgan project loans for sale to investors. Mortgages on two Syracuse-area complexes owned by Morgan Management have been deemed by an industry research firm as in danger of "imminent default." And Robert Morgan's brother, Herbert Morgan, has sued him, claiming he did not receive his share of the proceeds when the company sold four apartment complexes in Texas.
In court papers and in court on Monday, Penrose said prosecutors need just a few more weeks to deliver to defense lawyers the data and evidence gathered before the raid on Morgan Management headquarters.
But while lawyers for three of the defendants did not object to his request for more time to present the records collected in the raid, the lawyer for Todd Morgan would not go along unless other deadlines – deadlines defense lawyers have to meet after receiving the records – are adjusted accordingly.
Schroeder, the magistrate, seemed to sympathize with Rochester attorney David Rothenberg's position. He said he had a problem with prosecutors contending they needed more time to process a huge amount of potential evidence, but still feeling as though they can dump the data on defense lawyers after the deadline and expect them to keep pace.
"You can't have it both ways," Schroeder told Penrose.
He gave prosecutors more time but not as much as they wanted. Prosecutors, Schroeder said, must turn over all records gathered before the raid by Aug. 24. Records collected in the raid must be processed by Sept. 28 and turned over to defense lawyers by Oct. 12. The lawyers will then assess where things stand, and whether to change other deadlines, in a status conference set for Oct. 31.
Story topics: watchdog