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Before there was Enron, there was Cendant. Cendant, a travel and real estate company, cooked its books for 12 years, in one of the largest accounting frauds ever. When the fraud was discovered, Cendant's stock crashed, with investors losing $19 billion in a single day -- the largest tumble on record, until Enron came around.
It took three trials and over eight years for Walter Forbes, former Cendant chairman, to be convicted of securities fraud for his role in the fraud. He was sentenced to 12 years and ordered to pay $3.275 billion in restitution -- again, the largest restitution award ever, until Bernie Maddof came around.
Forbes won't be getting a fourth trial, as the Second Circuit on Tuesday rejected his request to be retried because of newly discovered evidence. Not only does the case keep Forbes locked up, but it adds a new layer to the Second Circuit's treatment of newly discovered evidence. While known but physically unavailable evidence may be considered newly discovered, that which was withheld because of the Fifth Amendment will not.
The "New" Evidence
After two hung juries, Forbes' third trial saw him convicted for orchestrating the accounting fraud during his time at Cendant and CUC, a predecessor corporation. At trial, U.S. Attorney Chris Christie -- yes, the current New Jersey governor -- relied primarily on a single witness, CUC CFO Cosmo Corigliano. Corigliano testified that Forbes (no relationship to the magazine of the same name) and Stuart Bell, the prior CFO, had been primarily responsible for the fraud.
Bell, however, never testified, invoking his Fifth Amendment right against self-incrimination. Now that the statute of limitations for accounting fraud charges had run, Forbes claims that Bell is willing to testify and to exonerate Forbes.
That's Newly Available, Not Newly Discovered
Based on the new availability of Bell's testimony, Forbes moved for a new trial on the basis of "newly discovered evidence." Under Federal Rule of Criminal Procedure 33, a new trial may be granted due to new evidence -- but does testimony that was withheld at the time constitute newly discovered evidence?
Not in the Second Circuit. The Second Circuit had previously ruled that post-trial testimony does not constitute newly discovered evidence. In U.S. v. Owen, three codefendants had refused to testify when tried for selling weed. At sentencing, one said that Owen was not involved. That was too little, too late, the Second Circuit found, holding that potentially exculpatory testimony that was available at trial but withheld was not "newly discovered" but simply "newly available."
Reconciling Owen With the D.C. Circuit
The Second Circuit declined to read Owen narrowly. Forbes had argued that a recent D.C. Circuit case which limited the meaning of "newly discovered evidence." That case, Bain v. MJJ Productions, held that "mere awareness of evidence at trial, standing alone" cannot preclude evidence from being considered newly discovered later.
Forget that that's a whole separate circuit, the Second said, the fact that the evidence in the case was "presumed destroyed in a natural disaster." While that might make sense, when the defendant was aware of the evidence and there was a "a legal basis for the unavailability," then it cannot be treated as newly discovered.
That adds a new wrinkle to Second Circuit newly discovered evidence jurisprudence. For defendants whose convictions could have been overturned had evidence not been physically unavailable, that is great news. For Forbes, however, it's no good.