Court Wipes Exec’s Email Cover-up Conviction

(CN) - Simply showing that a California real estate investor may have tossed incriminating emails in the "deleted items" folder is not enough to prove that he actually obstructed a foreclosure bid-rigging probe, the Ninth Circuit ruled Monday.

The decision wipes the possible 20-year sentence hanging over the head of Andrew Katakis, who owned California Equity Management Group and served as managing partner of Lenders Financial Group.

The appellate court's unanimous opinion also raises the government's burden of proof for defendants who toss evidence in what prosecutors call "the digital equivalent of the trash receptacle."

Following a four-week trial in March 2014, a federal jury found that Katakis and another investor tried to rig bids at real estate foreclosure auctions held in San Joaquin County from September 2008 until at least October 2009.

Prosecutors said at trial that Katakis installed DriveScrubber software on his home computer, as well as two hard drives belonging to his business partner and alleged co-conspirator Steve Swanger.

During their investigation, prosecutors discovered 10 incriminating emails implicating Katakis as a sender or recipient among the trashed items in one of Swanger's computers.

Investigators found no trace of these messages on Katakis' computer.

At trial, prosecutors argued this was because Katakis wiped the emails on his hard drive using the scrubbing software, but merely deleted them from his partner's computer.

This theory took a hit, however, after both forensic experts agreed that it was impossible that DriveScrubber erased the emails from Katakis's computers.

Nevertheless, the jury convicted Katakis of obstruction based on the assumption that he tried to delete the 10 emails.

U.S. District Judge William Shubb tossed this conviction because there was no evidence that Katakis actually destroyed the emails.

On appeal, prosecutors argued that the judge lost sight of the fact that Katakis "dumped" the emails "in the digital equivalent of a trash receptacle."

A three-judge panel of the Ninth Circuit unanimously agreed that this analogy did not help the government's case because "a deleted items folder in an email client is not like a trash can."

"Ordinarily, a trash can is eventually emptied into a larger receptacle, the trash is mingled with other garbage, and the garbage is then either destroyed or placed in a location in which it is extremely difficult to find any particular item," Circuit Judge N. Randy Smith wrote for the panel. "On Katakis' computer, in contrast, an email placed in the deleted items folder remained in that folder unless a user took further action."

Throwing evidence in a physical trash can would only constitute "an attempt to 'conceal' or 'cover up' a 'record,'" the panel found.

The judges said that they were aware that this could create a "catch-22" for investigators.

"It cannot be the case that, in order to prove concealment, the item being concealed must never be found," the 25-page opinion states.

The judges did note, however, that prosecutors charged Katakis only with actual obstruction rather than attempted obstruction.

"The government's approach would all but eliminate the act requirement from the statute: so much as taking an incriminating document from the surface of a desk and placing it in a drawer, or putting another folder on top of it, would expose a defendant to a 20-year prison sentence, so long as the defendant acted with even the faintest hope that investigators might overlook the document," Smith wrote.

Katakis' lawyer Elliot Peters of the firm Keker & Van Nest said he is "very pleased" with the ruling.

He added that he was "looking forward" to arguing for a new trial on his client's remaining counts.

Katakis faces up to 10 years in prison and a $1 million fine for violating the federal Sherman Antitrust Act.

A spokesman for the Justice Department declined Tuesday to comment on the decision.

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