Feds’ Data Retention Found ‘Unreasonable’

MANHATTAN (CN) - Holding an accountant's computer data for 2½ years before sifting through the files for signs of tax evasion is an "unreasonable seizure," the 2nd Circuit ruled this week.

"If the government could seize and retain non-responsive electronic records indefinitely, so it could search them whenever it later developed probable cause, every warrant to search for particular electronic data would become, in essence, a general warrant," U.S. Circuit Judge Denny Chin wrote in the 37-page majority opinion.

The finding wiped the convictions of Connecticut accountant Stavros Ganias, who was sentenced to two years in prison after a jury found that he ducked $160,000 in federal income taxes.

Stanley Twardy Jr., with Day Pitney LLC, representing Ganias, said his client was on bail pending appeal when the decision was released Tuesday.

"We're pleased that the Second Circuit ruled that while technology changes, the constitutional rights of citizens, specifically those under the Fourth Amendment, remain inviolate," Twardy wrote in an email.

In late 2003, Army investigators made forensic copies of the files on three computers that Ganias owned, in a probe of two of his clients, American Boiler and Industrial Property Management, a military contractor.

Storing the data on two sets of 19 DVDs, Army investigators never purged the files that were unresponsive to the warrant, and later asked the IRS to join the investigation.

"Further investigation in 2005 and early 2006 indicated that Ganias had been improperly reporting income for both of his clients, leading the government to suspect that he also might have been underreporting his own income," the opinion summarizes.

The IRS eventually obtained a warrant to search the data that Army investigators had gleaned 2½ years earlier, but which had not been covered under the prior warrant.

"The Fourth Amendment was intended to prevent the government from entering individuals' homes and indiscriminately seizing all their papers in the hopes of discovering evidence about previously unknown crimes," Chin wrote. "Yet this is exactly what the government claims it may do when it executes a warrant calling for the seizure of particular electronic data relevant to a different crime."

Hanni Fakhoury, a staff attorney with the Electronic Frontier Foundation, said in a telephone interview Thursday that the ruling was a "very important decision" that he believed could resonate, given the controversy over the National Security Agency's mass collection of data.

"I would certainly argue that it calls into question the whole collect-it-all-and-sniff-through-it-later practice," he said.

In partial dissent, U.S. Circuit Judge Peter Hall agreed that the government held the data an "unreasonable" amount of time, but he disputed that the evidence should have been suppressed.

He also questioned his colleagues' conclusion that Ganias, 72, is "not a case of a dangerous defendant being set free."

Citing Bernie Madoff's Ponzi scheme as an example of the "serious and nefarious effects of money fraud crimes on society," Hall wrote, "I am loathe to conclude that guns, drugs and/or contraband are the only indicia of a dangerous defendant."

Tom Carson, a spokesman for the U.S. Attorney's Office for the District of Connecticut, said the office was reviewing the decision.

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit