Chris Lazarini | Contributing Legal Editor | Securities Litigation CommentatorBass, Berry & Sims attorney Chris Lazarini examined a case in which an indigent defendant sought to obtain Criminal Justice Act (CJA) funds to retain an expert. The court denied the defendant access to CJA funds because the defendant did not prove that (1) the expert was necessary to mount a plausible defense and (2) the defendant’s case would be prejudiced without the funds.

Chris provided the analysis for Securities Litigation Commentator (SLC). The full text of the analysis is below and used with permission from the publication. If you would like to receive additional content from the SLC, please visit the SLC website to sign up for the newsletter.

USA vs. Stauffer, No. 16-1951 (6th Cir., 6/19/17)

An indigent defendant seeking to obtain Criminal Justice Act funds to retain an expert must show (1) engaging the expert is necessary for the defendant to mount a plausible defense and (2) the defendant’s case would be prejudiced without the funds.

Defendant was charged with wire fraud and money laundering in a foreign-currency-exchange Ponzi scheme. The prosecution offered testimony from victims and an employee of Interactive Brokers (“IB”), an internet-based brokerage. The victims testified they gave money to Defendant to trade foreign currencies and received from him payments on “profitable” trades and account statements purporting to show trading activity and the balance of a pooled IB account. When the payments stopped, Defendant told victims his IB account had been hacked and significant funds had been lost in trades placed by the hacker. The IB employee testified that the victims’ IB statements were fake, because the trades reflected on the victim statements were not in IB’s database. He also testified that, although Defendant opened two IB accounts, one was never funded and the other only minimally funded. Defendant did not testify, but argued in closing that the hacking story was true, pointing to the absence of templates on Defendant’s computer from which Defendant could have forged IB statements. The jury found Defendant guilty.

On appeal, Defendant argues that the district court erred in denying him Criminal Justice Act (“CJA”) funds to hire a digital-forensic expert whom, he claimed, would locate metadata on his computer supporting his hacking claim. Reviewing the district court’s denial of CJA funds for abuse of discretion, the Court finds no abuse. To obtain CJA funds, an indigent defendant must show that engaging the expert is necessary to mount a plausible defense and that defendant’s case would be prejudiced without the funds. Here, Defendant’s friends raised money to retain defense counsel, who substituted in for Defendant’s court-appointed counsel and represented to the district court that funds sufficient to mount a defense were in place. The Court agrees with the district court’s assessment that the need for CJA funds was foreseeable and should have been addressed when Defendant substituted counsel. The Court also points out that before denying the motion for CJA funds, the district court suggested that Defendant move in a parallel CFTC action to unfreeze Defendant’s assets to pay the forensic expert, but Defendant did not heed that suggestion.

Finally, the Court agrees with the district court’s doubts that an expert would benefit the defense, noting the absence of evidence that IB’s database had also been hacked, an event which would have been necessary to delete trading activity from its database, and citing the testimony of an IRS agent who traced the cash flow in Defendant’s personal bank accounts and established that it closely tracked Defendant’s receipt of deposits from, and issuance of payments to, victims. Because CJA funds were not necessary for Defendant to present a plausible defense and because Defendant was not prejudiced without those funds, the Court finds the district court did not abuse its discretion in denying them.

Defendant also objected to his 120-month sentence and, in particular, to the application of a four-level enhancement for violation of commodities law and a two-level adjustment for willfully obstructing or attempting to obstruct the investigation, prosecution or sentencing of his crimes. The Court agrees with the district court’s finding with respect to the former because Defendant engaged in a business in the “nature of” a commodities pool and acknowledged accepting investor funds to be part of a forex fund he would trade. It likewise agrees that he met the conditions for the obstruction enhancement when, before surrendering his computer to the CFTC in a parallel enforcement proceeding, he backed up the computer files onto a hard drive that he did not surrender and ran two programs on his computer intended to delete files and make them unrecoverable.