Cristina C. Arguedas (CA Bar 87787) John M. O’Quinn (SBN ...Quinn memo.pdf · Cristina C. Arguedas (CA Bar 87787) Ted W. Cassman (CA Bar 98932) Raphael M. Goldman (CA Bar 229261)

Cristina C. Arguedas (CA Bar 87787)Ted W. Cassman (CA Bar 98932)Raphael M. Goldman (CA Bar 229261)Arguedas, Cassman & Headley, LLP803 Hearst AvenueBerkeley, CA 94710Telephone: (510) 845-3000Facsimile: (510) 845-3003

John M. O’Quinn (SBN 15296000)The O’Quinn Law Firm2300 Lyric Centre Building440 LouisianaHouston, Texas 77002Telephone: (713) 223-1000 Facsimile: (713) 223-0103

Lloyd E. Kelley (SBN 11203180)Lloyd E. Kelley & Associates2726 Bissonnet, Suite 240PMB #12Houston, Texas 77005Telephone: (281) 492-7766Facsimile: (281) 652-5973

Tammy Tran (SBN 20186400)Pete Mai (SBN 24029702)Of counsel: David Tang (SBN 24014483)The Tammy Tran Law Firm2915 FanninHouston, Texas 77002Telephone: (713) 655-0737Facsimile: (713) 655-0823

Attorneys for Petitioner Jamie Olis

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF TEXAS

UNITED STATES OF AMERICA

v.

JAMIE OLIS, et al.

H-03-CR-217

MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF JAMIE OLIS’ MOTION

TO SET ASIDE HIS CONVICTION PURSUANT TO 28 U.S.C. § 2255

i

TABLE OF CONTENTS

TABLE OF AUTHORITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v

INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

FACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

1. Project Alpha.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

2. The Indictment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

3. The Trial. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

a. The USAO’s New Prosecution Theory. . . . . . . . . . . . . . . . . . . . . 10

b. Linked Tear-ups and Outside Hedges. . . . . . . . . . . . . . . . . . . . . 12

c. The Alleged Conspiracy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

d. Andersen’s Contingent Fee with ICA. . . . . . . . . . . . . . . . . . . . . . 20

e. The Aftermath.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

f. Government’s Heavy Reliance on Incorrect Loss Testimony. . . . 22

4. Sentencing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

5. The Appeal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

6. Resentencing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

7. The Yates Trial. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

ARGUMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

I. TIMELINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

II. STANDARD OF REVIEW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

III. THE USAO’S INTERFERENCE WITH OLIS’ ACCESS TO FUNDING VIOLATED

HIS FIFTH AND SIXTH AMENDMENT RIGHTS TO PRESENT THE DEFENSE

ii

OF HIS CHOICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

A. Facts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

1. Dynegy Was Legally Obligated – And Intended – To Fund Olis’

Defense to the Criminal Charges. . . . . . . . . . . . . . . . . . . . . . . . . 33

2. The Government’s Pressured Dynegy to Cooperate as Defined in

the Holder and Thompson Memoranda. . . . . . . . . . . . . . . . . . . . 36

3. Dynegy Capitulated to Government Pressure, Reneging on Its

Obligation to Fund Olis’ Defense. . . . . . . . . . . . . . . . . . . . . . . . . 39

B. Due Process Violation.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

1. Strict Scrutiny. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

2. Shocks the Conscience. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

C. Sixth Amendment Right to Use Own Funds for Defense. . . . . . . . . . . . 51

D. Prejudice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

1. Absence of Witnesses to Counter Evidence of Purported Loss. . 54

a. The Government’s Reliance on Heil. . . . . . . . . . . . . . . . . 54

b. Countering Heil’s Testimony Was Vitally Important. . . . . . 55

c. Expert Testimony Would Have Entirely Discredited Heil’s

Conclusions and Refuted the Government’s Arguments. . 58

d. Testimony by a Stock Analyst Would Have Bolstered the

Expert’s Criticism. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

e. Lack of Defense Funding Precluded Raising These

Challenges to Heil’s Testimony. . . . . . . . . . . . . . . . . . . . . 63

iii

2. Absence of an Accounting Expert to Discredit Hecker. . . . . . . . . 63

a. Outside Hedges and Tear-Ups Did Not Violate GAAP. . . 64

b. Andersen Was Not Independent. . . . . . . . . . . . . . . . . . . . 65

3. General Inability to Prepare. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

IV. THE GOVERNMENT CONSTRUCTIVELY AMENDED THE INDICTMENT IN

VIOLATION OF OLIS’ FIFTH AMENDMENT RIGHTS. . . . . . . . . . . . . . . . . . . 69

A. The Indictment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

B. Trial Evidence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

C. The Government Could Not Have Convicted Olis Under the Theory

Alleged in the Indictment.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

D. The Government Worked an Unconstitutional Constructive Amendment.78

E. Ineffective Assistance of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

F. No Procedural Default.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

V. INEFFECTIVE ASSISTANCE OF COUNSEL. . . . . . . . . . . . . . . . . . . . . . . . . . 84

A. Failure to Object to Constructive Amendment of Indictment And to Raise

the Issue on Appeal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86

B. Failure to Object to Biased Juror and Violation of Olis’ Sixth Amendment

Rights To Be Present and to Have Counsel Present and Failure to Raise

The Issue on Appeal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

1. The Facts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

2. The Inclusion of an Admittedly Biased Juror Violated Olis’ Sixth

Amendment Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89

3. Counsel Was Constitutionally Ineffective in Failing to Object to the

iv

Sixth Amendment Violation and For Failure to Raise the Issue on

Appeal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

4. The Court’s Ex Parte Communication with the Juror Violated Olis’

Constitutional Rights to be Present and to Have Counsel Present.93

C. Failure to Object to Erroneous Jury Instructions And to Raise the Issue on

Appeal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

1. Erroneous Instruction Concerning Interstate Commerce Element of

Wire Fraud. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

2. Erroneous Instruction Concerning the “Scheme to Defraud”

Element of Mail and Wire Fraud.. . . . . . . . . . . . . . . . . . . . . . . . . 98

3. The Infirmities Infect the Other Charges.. . . . . . . . . . . . . . . . . . 100

D. Failure to Object to Hecker’s Attempt to Testify as an Expert.. . . . . . . 102

E. Failure to Take Other Necessary Steps. . . . . . . . . . . . . . . . . . . . . . . . 104

IV. RELIEF. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104

CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

v

TABLE OF AUTHORITIES

CASES

Berger v. United States, 295 U.S. 78, 55 S. Ct. 629 (1935). . . . . . . . . . . . . . . . . . 32, 49

Brady v. United States, 397 U.S. 742 (1970). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

Brennan v. Stewart, 834 F.2d 1248 (5th Cir. 1988). . . . . . . . . . . . . . . . . . . . . . . . . . . 46

California v. Trombetta, 467 U.S. 479, 104 S. Ct. 2528 (1984). . . . . . . . . . . . . . . 45, 46

Campbell v. Wood, 18 F.3d 662 (9th Cir. 1994). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

Caplin & Drysdale, Chartered v. United States, 491 U.S. 617, 109 S. Ct. 2646 (1989).51

Carpenter v. United States, 484 U.S. 19, 108 S. Ct. 316 (1987). . . . . . . . . . . . . . . . . 96

Cleveland v. United States, 531 U.S. 12, 121 S. Ct. 365 (2000). . . . . . . . . . . . . . . . . 98

Cohen v. Senkowski, 290 F.3d 485 (2d Cir. 2002). . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

Coppedge v. United States, 369 U.S. 438, 82 S. Ct. 814 (1963). . . . . . . . . . . . . . . . . 45

County of Sacramento v. Lewis, 523 U.S. 833, 118 S. Ct. 1708 (1998).. . . . . . . . . . . 46

Douglas v. California, 372 U.S. 353, 83 S. Ct. 814, (1963). . . . . . . . . . . . . . . . . . . . . 45

Dura Pharmaceuticals, Inc. V. Broudo, 544 U.S. 336, 125 S. Ct. 1627 (2005). . . . . . 60

Faretta v. California, 422 U.S. 806, 95 S. Ct. 2525 (1975). . . . . . . . . . . . . . . . . . . 94, 95

Fisher v. Trainor, 242 F.3d 24 (1st Cir. 2001).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

Gov’t of the Virgin Islands v. Fahie, 419 F.3d 249 (3d. Cir. 2005). . . . . . . . . . . . . . . . 50

Griffin v. United States, 502 U.S. 46, 112 S. Ct. 466 (1991). . . . . . . . . . . . . . . . . . . 100

Griswold v. Connecticut, 381 U.S. 479, 85 S. Ct. 1678 (1965).. . . . . . . . . . . . . . . . . . 46

Herring v. New York, 422 U.S. 853, 95 S. Ct. 2550 (1975). . . . . . . . . . . . . . . . . . 48, 49

vi

Hopt v. Utah, 110 U.S. 574, 4 S. Ct. 202 (1884). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

Hughes v. United States, 258 F.3d 453 (6th Cir. 2001). . . . . . . . . . . . 89, 90, 91, 92, 95

Iowa v. Tovar, 541 U.S. 77 (2004). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

Irvin v. Dowd, 366 U.S. 717, 81 S. Ct. 1639 (1961). . . . . . . . . . . . . . . . . . . . . . . . . . . 89

Johnson v. Zerbst, 304 U.S. 458 (1938).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

Kapral v. United States, 166 F.3d 565 (3d Cir. 1999).. . . . . . . . . . . . . . . . . . . . . . . . . 30

Kentucky v. Stincer, 482 U.S. 730, 107 S. Ct. 2658 (1987). . . . . . . . . . . . . . . . . . . . . 94

Kyles v. Whitley, 514 U.S. 419, 115 S. Ct. 1555 (1995). . . . . . . . . . . . . . . . . . . . . . . . 49

Leebaert v. Harrington, 332 F.3d 134 (2d Cir. 2003). . . . . . . . . . . . . . . . . . . . . . . . . . 46

Lucas v. O’Dea, 179 F.3d 412 (6th Cir. 1999). . . . . . . . . . . . . . . . . . . . . . . . . . . . 83, 84

Malagon de Fuentes v. Gonzales, 462 F.3d 498 (5th Cir. 2006). . . . . . . . . . . . . . . . . 46

McNally v. United States, 483 U.S. 350, 107 S. Ct. 3875 (1987). . . . . . . . . . . . . . . . . 98

Monterey Plaza Hotel Ltd. P’ship v. Local 483 of Hotel Employees, Rest. Employees,

215 F.3d 923 (9th Cir. 2000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

Moshier v. United States, 402 F.3d 116 (2d Cir. 2005). . . . . . . . . . . . . . . . . . . . . . . . 30

Neder v. United States, 527 U.S. 1, 119 S. Ct. 1827 (1999). . . . . . . . . . . . . . . . . . . . 56

Parr v. United States, 363 U.S. 370 (1960). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

Pinkerton v. United States, 328 U.S. 640, 66 S. Ct. 1180 (1946).. . . . . . . . . . . . . . . 101

Pollard v. Delo, 28 F.3d 887 (8th Cir. 1994). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86

Reno v. Flores, 507 U.S. 292, 113 S. Ct. 1439 (1993). . . . . . . . . . . . . . . . . . . . . . . . . 47

Richardson v. Gramley, 998 F.2d 463 (7th Cir. 1993). . . . . . . . . . . . . . . . . . . . . . . . . 30

Rochin v. California, 342 U.S. 165, 72 S. Ct. 205 (1952). . . . . . . . . . . . . . . . . 46, 47, 50

vii

Rushen v. Spain, 464 U.S. 114, 104 S. Ct. 453 (1983). . . . . . . . . . . . . . . . . . . . . . . . 94

Sanchez-Castellano v. United States, 358 F.3d 424 (6 Cir. 2004). . . . . . . . . . . . . . .th 30

SEC v. Guenthner, 395 F. Supp. 2d 835 (D. Neb. 2005). . . . . . . . . . . . . . . . . . . . . . 103

Sitrone v. United States, 361 U.S. 212, 80 S. Ct. 270 (1960).. . . . . . . . . . 78, 79, 80, 81

Snyder v. Massachussetts, 291 U.S. 97, 54 S. Ct. 330 (1934). . . . . . . . . . . . . . . . . . 93

Strickland v. Washington, 466 U.S. 668, 104 S. Ct. 2052 (1984).. . . . 53, 83, 85, 91, 92

United States v. Adams, 778 F.2d 1117 (5th Cir. 1985). . . . . . . . . . . . . . . . . . . . . 79, 81

United States v. Alsugair, 256 F. Supp. 2d 306 (D.N.J. 2003). . . . . . . . . . . . . . . . . . . 99

United States v. Baldinger, 838 F.2d 1796 (6th Cir. 1988). . . . . . . . . . . . . . . . . . . . . . 66

United States v. Castaneda, 16 F.3d 1504 (9th Cir. 1994).. . . . . . . . . . . . . . . . . . . . 101

United States v. Causey, No. CRIM. H-04-025-SS, 2005 WL 2647976 (S.D. Tex. Oct.

17, 2005). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

United States v. Chambers, 408 F.3d 237 (5th Cir. 2005). . . . . . . . . 79, 80, 81, 82, 105

United States v. Chandler, 858 F.2d 254 (5th Cir. 1988). . . . . . . . . . . . . . . . . 78, 80, 81

United Stats v. Chin, 934 F.2d 393 (2d Cir. 1991). . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

United States v. Colvin, 204 F.3d 1221 (9th Cir. 2000). . . . . . . . . . . . . . . . . . . . . . . . 30

United States v. Conley, 349 F.3d 837 (5th Cir. 2003). . . . . . . . . . . . . . . . . . . . . . . . . 84

United States v. Cronic, 466 U.S. 648 (1984).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

United States v. Cross, 128 F.3d 145 (3d Cir. 1997). . . . . . . . . . . . . . . . . . . . . . . . . . 96

United States v. Cruz, 363 F.3d 187 (2d Cir. 2004). . . . . . . . . . . . . . . . . . . . . . . . . . 103

United States v. Cuervelo, 949 F.2d 559 (2d Cir. 1991).. . . . . . . . . . . . . . . . . . . . . . . 50

United States v. Curry, 681 F.2d 406 (5th Cir. 1982). . . . . . . . . . . . . . . . . . . . . . . . . . 96

viii

United States v. Davis, 61 F.3d 291 (5th Cir. 1995). . . . . . . . . . . . . . . . . . . . . . . . . . . 95

United States v. Dodson, 291 F.3d 268 (4th Cir. 2002). . . . . . . . . . . . . . . . . . . . . . . . 30

United States v. Estate of Parsons, 367 F.3d 409 (5th Cir. 2004). . . . . . . . . . . . . . . . 56

United States v. Feola, 420 U.S. 671, 95 S. Ct. 1255 (1975). . . . . . . . . . . . . . . . . . . . 56

United States v. Fletcher, 121 F.3d 187 (5th Cir. 1997). . . . . . . . . . . . . . . . . . . . . . . . 82

United States v. Gagnon, 470 U.S. 522, 105 S. Ct. 1482 (1985). . . . . . . . . . . . . . . . . 93

United States v. Garcia, 413 F.3d 201 (2d Cir. 2005). . . . . . . . . . . . . . . . . . . . . . . . 103

United States v. Gonzalez-Lopez, __ U.S. __, 126 S. Ct. 2557 (2006). . . . . . . . . 52, 53

United States v. Gray, 790 F.2d 1290 (6th Cir.1986). . . . . . . . . . . . . . . . . . . . . . . . . . 96

United States v. Griffin, 324 F.3d 330 (5th Cir. 2003).. . . . . . . . . . . . . . . . . . . . . . . . 103

United States v. Guidry, 456 F.3d 493 (5th Cir. 2006). . . . . . . . . . . . . . . . . . . . . . . . . 46

United States v. Hanno, 21 F.3d 42 (9th Cir. 1994). . . . . . . . . . . . . . . . . . . . . . . . . . . 94

United States v. Harms, 442 F.3d 367 (5th Cir. 2006). . . . . . . . . . . . . . . . . . . . . . . . . 57

United States v. Hoover, 467 F.3d 496 (5th Cir. 2006).. . . . . . . . . . . . . . . . . . . . . . . . 80

United States v. Lake, 472 F.3d 1247 (11th Cir. 2007). . . . . . . . . . . . . . . . . . . . . . . . 96

United States v. Lew, 875 F.2d 219 (9th Cir. 1989). . . . . . . . . . . . . . . . . . . . . . . . . . . 99

United States v. Marshank, 777 F. Supp. 1507 (N.D. Cal. 1991). . . . . . . . . . . . . . . . . 50

United States v. Mills, 199 F.3d 184 (5th Cir. 1999). . . . . . . . . . . . . . . . . . . . . . . . . . . 96

United States v. Mmahat, 106 F.3d 89 (5th Cir. 1997). . . . . . . . . . . . . . . . . . . . . . . . . 56

United States v. Moya-Gomez, 860 F.2d 706 (7th Cir. 1988).. . . . . . . . . . . . . . . . . . . 46

United States v. Nell, 526 F.2d 1223 (5th Cir. 1976). . . . . . . . . . . . . . . . . . . . 89, 90, 91

United States v. Olano, 507 U.S. 725, 113 S. Ct. 1770 (1993). . . . . . . . . . . . . . . . . . 81

ix

United States v. Olis, 429 F.3d 540 (5th Cir. 2005). . . . . . . . . . . . . . . . . . . . . 26, 27, 61

United States v. Olis, Criminal No. H-03-217-01, 2006 WL 2716048 (S.D. Tex. Sept. 22,

2006). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

United States v. Peterson, 101 F.3d 375 (5th Cir. 1996). . . . . . . . . . . . . . . . . . . . . . . 57

United States v. Pettigrew, 77 F.3d 1500 (5th Cir. 1996). . . . . . . . . . . . . . . . . . . . . . 100

United States v. Phillips, 201 F.3d 345 (5th Cir. 2000).. . . . . . . . . . . . . . . . . . . . . . . . 86

United States v. Ratcliff, 488 F.3d 639 (5th Cir. 2007). . . . . . . . . . . . . . . . . . . . . . 57, 73

United States v. Reyes, 102 F.3d 1361 (5th Cir. 1996). . . . . . . . . . . . . . . . . . . . . . . . 82

United States v. Robles-Vertiz, 155 F.3d 725 (5th Cir. 1998).. . . . . . . . . . . . . . . . 78, 79

United States v. Rosas-Fuentes, 970 F.2d 1379 (5th Cir. 1992). . . . . . . . . . . . . . . . 101

United States v. Rosen, 487 F. Supp. 2d 721 (E.D. Va. 2007).. . . . . . . . . . . . 41, 51, 52

United States v. Sabri, 973 F. Supp. 134 (W.D.N.Y. 1996). . . . . . . . . . . . . . . . . . . . . 50

United States v. Salerno, 481 U.S. 739, 107 S. Ct. 2095 (1987). . . . . . . . . . . . . . . . . 46

United States v. Salinas, 601 F.2d 1279 (5th Cir. 1979). . . . . . . . . . . . . . . . . . . . . . . 81

United States v. Sandoval-Espino, Cr. No. C-04-685, 2007 WL 1558608 at *3 (S.D.

Tex. May 29, 2007).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

United States v. Scrushy, 366 F. Supp. 2d 1134 (N.D. Ala. 2005). . . . . . . . . . . . . . . . 50

United States v. Shaid, 937 F.2d 228 (5th Cir. 1991). . . . . . . . . . . . . . . . . . . . . . . . . . 84

United States v. Stein, 435 F. Supp. 2d. (S.D.N.Y.2006). . . 32, 37, 38, 45, 47-49, 51-53

United States v. Stein, 495 F. Supp. 2d. (S.D.N.Y.2007). . . . . . . . . . 32, 46, 47, 51, 105

United Stats v. Stringer, 408 F. Supp. 2d 1083 (D. Ore. 2006). . . . . . . . . . . . . . . . . . 50

United Stats v. Walker, 68 F.3d 931 (5th cir. 1995). . . . . . . . . . . . . . . . . . . . . . . . . . . 84

x

United States v. Walters, 87 F.3d 663 (5th Cir. 1996). . . . . . . . . . . . . . . . . . . . . . . . . 57

United States v. Walters, 997 F.2d 1219 (7th Cir. 1993). . . . . . . . . . . . . . . . . . . . 73, 99

United States v. Williams, 372 F.3d 96 (2d Cir. 2004). . . . . . . . . . . . . . . . . . . . . . . . . 47

United States v. White, 492 F.3d 380 (6th Cir. 2007). . . . . . . . . . . . . . . . . . . . . 103, 104

Via v. Cliff, 470 F.2d 271 (3d Cir. 1972). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Virgil v. Dretke, 446 F.3d 598 (5th Cir. 2006). . . . . . . . . . . . . . 89, 90, 91, 92, 93, 94, 95

Washington v. Glucksberg, 521 U.S. 702, 117 S. Ct. 2258 (1997). . . . . . . . . . . . 45, 47

Williams v. Taylor, 529 U.S. 362, 120 S. Ct. 1495 (2000). . . . . . . . . . . . . . . . . . . . . . 83

Wood v. Quarterman, 491 F.3d 196 (5th Cir. 2007). . . . . . . . . . . . . . . . . . . . . . . . 83, 85

Yates v. Dynegy, Inc., No. 2005-37891 (127th Judicial District, Harris County, Tex2a8s), .33

Yates v. United States, 354 U.S. 298, 77 S. Ct. 1064 (1957).. . . . . . . . . . . . . . . . . . 100

Young v. Dretke, 356 F.3d 616 (5th Cir. 2004).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

STATUTES, AUTHORITIES, CONSTITUTION

18 U.S.C. § 922(g)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

18 U.S.C. § 1341. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

18 U.S.C. § 1343. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

28 U.S.C. § 1346. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

28 U.S.C. § 2254. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

28 U.S.C. § 2255. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 29, 30, 31, 66

28 U.S.C. § 2255 Rule 4.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

xi

28 U.S.C. § 2255 Rule 6(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

28 U.S.C. § 2255 Rule 8(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Fed. R. App. P. 4(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Fed. R. App. P. 26. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Fed. R. Crim. P. 16.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103

Fed. R. Crim. P. 16(a)(1)(G). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104

Fed. R. Crim. P. 43(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

Fifth Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45, 69, 78, 81, 83

Sixth Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51, 52, 86, 94

1

INTRODUCTION

In the radioactive environment following the collapse of Enron, Petitioner Jamie

Olis was the first person to be tried in a criminal case arising from the business

transactions of a Houston gas trading company. For reasons that could not have been

known to the Court, Olis’ was a fundamentally flawed and unfair prosecution. As a

result, an innocent man stands wrongfully convicted. It is time for the Court to remedy

that injustice.

Recent disclosures during a related civil lawsuit establish that Olis’ conviction

was the product of flagrant violations of his Fifth and Sixth Amendment rights to present

the defense of his choosing. The United States Attorney’s Office (“USAO”) acted

purposefully to sabotage Olis’ ability to prepare and defend his case by blocking funding

from his former employer, Dynegy, despite the fact that Dynegy was legally and

contractually obligated to pay the funds. In similarly complex cases, defense costs

commonly run into the tens of millions of dollars. Here, as a result of the USAO’s

misconduct, Olis’ defense team represented him at trial after receiving a total of less

than $14,000. In stark contrast, at the same time the USAO was working to deny Olis

defense funding that would have permitted him to retain crucial defense experts, the

USAO required Dynegy to pay for the government’s own experts and investigation.

Thus, the USAO brazenly stacked the scales of justice in favor of Olis’ conviction. See

infra, Argument Part III.

Having deprived Olis of the resources to defend himself in this massively

complex case, the USAO compounded its misconduct by engaging in an

2

unconstitutional bait and switch. It constructively amended the indictment, abandoning

the grand jury’s charge that Olis conspired to publish false financial statements and

instead urging the petit jury to convict Olis of a scheme to fool one auditor at Arthur

Anderson, James Hecker, regardless whether Hecker’s opinions about the accounting

treatment for Project Alpha were right or wrong. The USAO repeatedly told the jury that

it mattered not at all whether Hecker’s accounting opinions were correct, inviting the jury

to convict Olis even though the evidence failed to establish that Olis’ conduct rendered

Dynegy’s financial statements false, as the indictment alleged. See infra, Argument

Part IV. This new trial theory — in addition to being different from that charged in the

indictment — failed even to state a cognizable offense under the securities, wire and

mail fraud statutes with which Olis was charged. The result is that Olis was convicted

and sits in prison for conduct which, even under the government’s strained theory, was

not a crime. See infra, Argument Parts IV.B, V.C.

These errors were further exacerbated by the USAO’s presentation of false

testimony on the central issue of market loss and materiality. At trial, the USAO

overcame a defense motion in limine to exclude testimony concerning loss by

convincing the Court that proof of the loss was relevant and material to establish Olis’

intent and motive. The USAO then culminated the presentation of its case with

testimony that Olis’ conduct caused pensioners in the University of California system to

lose millions of dollars. But this highly prejudicial and inflammatory testimony was false.

Newly discovered evidence demonstrates that Olis’ conduct caused no losses to the

University of California system. Thus, Olis’ conviction was based on false and

misleading testimony. See infra, Argument Part III.D.1.

3

The fairness of the proceedings was also compromised by the inadequacy of

defense counsel. Counsel’s inadequacies included:

• failure to object to the USAO’s constructive amendment of the indictment, where

such an objection would have required dismissal of the charges against Olis;

• failure to object to the inclusion of an admittedly biased juror on Olis’ panel;

• permitting the Court to speak to the admittedly biased juror privately and out of

the presence of both Olis and counsel, in violation of Olis’ rights to be present

and have counsel present at critical stages of the proceedings; and

• failure to object to legally erroneous jury instructions that had the effect of

relieving the USAO of its burden to prove each element of charged offenses

beyond a reasonable doubt.

See infra, Argument Part V.

The confluence of these inequities was impossible to overcome. Singly and in

combination, the USAO’s misconduct and the inadequacy of counsel’s representation

deprived Olis of his fundamental right to a fair trial and resulted in the conviction of an

innocent man. Accordingly, as we demonstrate below, Olis’ conviction and sentence

must be set aside pursuant to 28 U.S.C. § 2255.

FACTS

1. Project Alpha

In 2000, Dynegy, based in Houston, was a publicly traded company and one of

the largest oil and gas trading companies in the United States. A large portion of

Dynegy’s business involved trades in long-term gas contracts, including futures and

The trial transcripts are lodged in the record at Docket numbers 97-99, 102-1051

and 122. Each transcript volume represents one of the eight days of trial, and thismemorandum will refer to the transcripts accordingly, as “TTx Day __.”

4

derivatives. One consequence of that business profile (together with the “mark-to-

market” accounting method that Dynegy was required to employ) was that Dynegy’s

earnings reports tended to be out of sync with its cash flow. TTx Day 2, 226:15-22. 1

During 2000, some analysts expressed concern about this cash flow gap. TTx Day 3,

189:19-194:6. Dynegy, with the help of several law firms, banks and the accounting

firm Arthur Andersen (“Andersen”), developed and implemented an extremely

complicated gas trading transaction, which later came to be known as “Project Alpha,”

to address the earnings gap while at the same time lowering Dynegy’s effective tax rate.

TTx Day 4, 127:12-25.

Olis was a mid-level member of a large team that worked on Project Alpha at

Dynegy, which itself was only one company among many involved in developing and

implementing the transaction. TTx Day 2, 43:17-22. Rob Doty, Dynegy’s Chief

Financial Officer, was ultimately responsible for the approval and implementation of

Project Alpha. TTx Day 2, 43:4-10. Mike Mott, Dynegy Senior Vice President and

Controller, was ultimately responsible for accounting issues relating to the transaction.

Other members of the Dynegy team included Rich Gould, Director of Finance (TTx Day

2, 55:14-22); Helen Sharkey, a manager in the accounting department under Mott (TTx

Day 2, 61:23-62:8); Tammy Norman, Vice President of Gas Trading (TTx Day 2, 61:5-

22); David Roth, Vice President and Assistant General Counsel (TTx Day 2, 94:14-25);

Wendy Ho, Associate Counsel under Roth (TTx Day 2, 132:5-13); Gene Foster, Vice

5

President of Tax; and Olis, Director of Tax Planning under Foster (TTx Day 4, 148:11-

151:7). In addition, attorneys at the law firms Vinson & Elkins, Milbank Tweed, Mayer

Brown, Andrews Kurth and Bracewell & Patterson were intimately involved in Project

Alpha. TTx Day 2, 86:14-16, 96:3-15, 131:6-15.

Andersen was Dynegy’s outside auditor. James Hecker was the audit

“engagement partner” for the Dynegy account. TTx Day 2, 30:22-31:14. Among

Hecker’s responsibilities were reviewing Dynegy’s financial statements for accuracy and

approval of the accounting treatment of Dynegy’s operations. TTx Day 2, 31:15-32:7.

He was assisted in these responsibilities by Marshall Dodson, who was the primary

audit manager on the Dynegy account. TTx Day 2, 71:5-13. Partners and managers in

Andersen’s Houston tax department also worked on the Dynegy account and, more

specifically, Project Alpha. These included Ted McElroy, Kelvin Kelm and Sean Muller.

TTx Day 2, 26:15-23, 33:20-35:1. During the development and implementation of

Project Alpha, Hecker and Dodson had little direct contact with members of Dynegy’s

team, and to the extent they did have contact, most of it was with Mott, the Controller.

TTx Day 2, 53:24-54:19, 68:14-21, 72:24-74:12; Day 6, 56:16-22.

Project Alpha originated from a proposal by Andersen. In the Spring of 2000,

Keith Kechik of Andersen’s Chicago tax department (along with McElroy, Kelm and

Muller from the Houston tax department) pitched a structured tax benefit proposal for

Dynegy at a meeting with Doty, Foster and Olis. TTx Day 2, 36:4-42:12. The proposal

was called Commodity Basis Enhancement Strategy (“CBES”) and involved the transfer

of losses from one company to another through a power trading contract. TTx Day 2,

36:10-16. Kechik had a client, Integrated Capital Associates (“ICA”), which had such

6

losses and, as it was later revealed, Andersen had a contingent profit-sharing

arrangement with ICA that would pay Andersen 50% of ICA’s profits if a CBES

transaction was successfully concluded. TTx Day 2, 39:9-17, 44:9-19; Day 3, 73:7-

75:5; Trial Ex. 62.

Meanwhile, Dynegy management remained interested in addressing the

perceived disconnect between cash flow and reported earnings. During the summer of

2000, Patrick Boultinghouse at Citibank pitched Dynegy (represented by Gould, Doty

and Sharkey) a proposal for a “prepaid” gas contract that could help address the

disconnect. TTx Day 3, 198:19-199:9. Dynegy responded that it was interested in the

proposal but wanted essentially to merge the idea of a pre-paid contract with

Andersen’s CBES proposal. TTx Day 3, 208:20-209:7. Boultinghouse and Steve

Wagman from Citibank then attended a meeting at Dynegy with Gould, Foster and Olis

(with Andersen people on the phone) during which the parties explored the idea of

merging the Citibank and Andersen proposals so that Dynegy could enjoy both the cash

flow benefits of a prepaid contract and the tax benefits of the CBES transaction. TTx

Day 3, 209:8-211:4, 211:24-212:16. Citibank approved the idea in principle. TTx Day

3, 212:17-213:3, 224:7-11, 230:18-22.

For the next six months, there followed protracted negotiations between Citibank,

Dynegy and several other parties and banks (including Deutche Bank and Credit

Suisse) over the terms of the transaction. The structure of the transaction continually

morphed over this period, becoming more and more complex. TTx Day 3, 232:9-17.

The final version of Project Alpha, a remarkably complex transaction with two key

provisions, emerged from these negotiations. TTx Day 4, 127:12-128:7, Trial Ex. 679A.

7

The first provision was intended to improve cash flow from operations. TTx Day 2,

78:6-19; Day 3, 212:6-16, 231:10-17. Dynegy would enter into a contract to purchase

gas from a “special purpose entity” (“SPE”), to be known as ABG Gas Supply, for one

year at a discounted price and then for four years at a premium price. TTx Day 2,

88:9-89:17, 211:12-212:16. Throughout the five years of the contract, Dynegy would

re-sell the gas at market price, resulting in a positive cash flow during the first year of

the deal and a negative cash flow during the last four years. TTx Day 2, 227:3-17.

Because, according to mark-to-market accounting principles, the losses in the last four

years offset the gains in the first year, Dynegy reported increased cash flow but no

earnings during the first year of the deal. TTx Day 2, 78:20-81:5.

The second provision was intended to accomplish the tax benefit. TTx Day 3,

211:24-212:5. Dynegy would form a partnership with ICA, the Andersen client that had

large operating losses. Within that partnership, the taxable income during the first year

of Project Alpha would be allocated to ICA, and the tax losses in the last four years

would be allocated to Dynegy. TTx Day 2, 45:1-25, 228:6-17. As a result, Dynegy

would realize positive cash flow and no taxable income in the first year, while realizing

negative cash flow and tax losses in the latter years.

Although Project Alpha was not a traditional prepaid transaction, it was a “mirror”

to a prepaid transaction, and accomplished similar results. TTx Day 6, 11:10-12:1. As

Hecker admitted at trial, at the time of Project Alpha, prepaid transactions were

considered entirely legitimate, and the SEC permitted the cash flows resulting from

prepaid transactions to be accounted for as operating income. TTx Day 6, 12:8-16; see

also TTx Day 3, 182:18-20 (prepaid transactions common in the industry).

8

During the final stages of the Project Alpha negotiations, there was much

discussion concerning whether and how Credit Suisse and Deutsche Bank could hedge

their 3% interest in ABG Gas Supply with “swaps,” and whether Citibank’s hedges with

ABG Gas Supply and Dynegy could be further protected by “tear-up” provisions.

Ultimately, the parties agreed to hedge the banks’ 3% interest in yet another SPE —

ABG Gas Holding — to be the owner of ABG Gas Supply. TTx Day 2, 90:6-91:21,

104:6-111:6; Day 3, 80:15-84:24; Day 4, 15:6-18:16, 19:6-27:12, 32:6-33:21, 54:10-

58:12, 62:17-67:12. Later, to address Citibank’s similar concern about its exposure to

gas trading risk, the parties’ external counsel proposed tear-up agreements between

Dynegy and Citibank. TTx Day 4, 30:3-33:21. All of the parties, together with their

inside attorneys and outside attorneys, were informed of these provisions. Certainly,

the parties understood that the banks would not finance the project unless their

investments were protected — the banks were not, after all, in the volatile gas trading

business. TTx Day 3, 236:2-17; Day 4, 33:22-36:5. The parties believed and

understood that Andersen expected this as well; it was common knowledge. TTx Day

4, 72:22-24.

On April 10, 2001, Alpha was finalized and funded. TTx Day 6, 196:14-15. The

company’s financial statements later in the year reflected Project Alpha’s effects. The

market did not respond to the disclosures, and in two cases the price of Dynegy shares

actually dropped. Declaration of Bala Dharan Ex. C at ¶¶ 22-24.

2. The Indictment

On June 10, 2003, the grand jury issued an indictment charging Foster, Sharkey

and Olis with alleged crimes arising out of the design and implementation of Project

Olis was indicted on six counts: conspiracy (Count One); securities fraud2

(Count Two); mail fraud (Count Three); and wire fraud (Counts Four through Six). SeeIndictment (Docket #1). Count One alleged a conspiracy to commit securities fraud,mail fraud and wire fraud. The other counts were entirely derivative — those countsalleged no new facts, but instead incorporated Count One’s allegations, and chargedthat the same alleged scheme involved substantive violations of the securities, wire andmail fraud statutes. See Indictment (Docket # 1).

9

Alpha. Indictment (Docket # 1). The indictment explicitly alleged that Project Alpha2

was a scheme to falsely report financing activity as operating cash flows:

[T]he Defendants . . . would and did conceive, design and execute a plan toborrow money: that is, to engage in a “financing activity” but make it appearthat the borrowed funds were cash flow from Dynegy’s “risk-managementactivities” to create the false impression and illusion that Dynegy’s cash flowsfrom risk-management activities were much improved and that its earningswere of sufficient quality to justify, maintain and increase Dynegy’s stockprice, and to avoid the potentially adverse effect of a downgrade of Dynegy’scredit rating.

Indictment ¶ 15; see also Indictment ¶ 19 (“the Defendants and their coconspirators

and agents well knew, intended, and believed [that] Project Alpha was, in fact, a loan

structured to appear as a 5-year natural gas contract that should have been disclosed

as cash flows from financing activities”). The indictment alleged that Project Alpha

employed a “100% hedging” strategy to insulate the involved banks from financial risk,

and that reporting such an arrangement as operating income violated Generally

Accepted Accounting Principles (“GAAP”). Indictment ¶ 20. The indictment further

alleged that in reporting the cash flows as operating income, the Defendants

“intentionally concealed from Dynegy’s auditors, the SEC, Rating Agencies, lenders,

market and securities analysts, and the investing public” the fact that Project Alpha

employed hedges and tear-up agreements to ensure that the project would not lose

10

money. Indictment ¶ 21. According to the indictment, the Defendants therefore “falsely

report[ed]” to the “Rating Agencies, lenders, market and securities analysts, and the

investing public” that the cash flows were operating income rather than financing

activities. Indictment ¶ 21. The false reports “caused Dynegy’s cash flow from

operations . . . to be materially overstated” and caused Dynegy’s financial statements to

be misleading. Indictment ¶ 24.

3. The Trial

a. The USAO’s New Prosecution Theory

From the commencement of Olis’ trial, the USAO eschewed the indictment’s

central allegation that Project Alpha was a scheme “to create the false impression and

illusion that Dynegy’s cash flows from risk-management activities were much

improved....” Indictment ¶ 15. From its opening statement through closing argument,

the USAO explicitly stated that it did not matter whether the alleged conspirators’ deceit

had caused revenue from Project Alpha to be mischaracterized as revenue from

operations, as opposed to financing. Instead, as the USAO told the jury in its opening

statement, the only issue was whether Olis and his alleged co-conspirators hid the

outside hedges and tear-up agreements from James Hecker, Andersen’s engagement

partner: “this case is not about accounting, it’s concealment. It doesn’t matter if Jim

Hecker was right or wrong. It just matters that he didn’t have all the information in front

of him when he made the decision.” TTx Day 1, 104:21-24 (emphasis added); see also

TTx Day 7, 77:17-22 (Government’s closing argument: “Now, right or wrong, Mr. Hecker

set the rules. That is at the heart of this case. Mr. Hecker was the gatekeeper. It

11

doesn’t matter whether some other accountant would have set different rules. He was

the gatekeeper. He was the person who had to give his approval.” (emphasis added)).

Thus, the government’s trial theory was that Olis could be guilty of the fraud charges

even if Hecker’s opinions were wrong and the accuracy of Dynegy’s financial

statements were not affected by the outside hedges and linked tear-ups to which

Hecker objected.

The USAO’s strategic shift was compelled by several indisputable facts:

• Mike Mott, Dynegy’s Controller and the man ultimately responsible for Project

Alpha’s accounting treatment, disagreed with Hecker’s opinions and defended

Alpha’s accounting — outside hedges, tear-ups and all — in written and oral

presentations to the SEC. TTx Day 7, 102:22-103:1; Day 5, 168:21-23; see also

Trial Exhibit 57, Mott letter to Robert Herdman, dated April 19, 2002. A copy of

Mott’s letter is attached as Exhibit C to the Declaration of Ted W. Cassman in

Support of Olis’ Motion to Set Aside His Conviction (“Cassman Decl.”) .

• Although the SEC concluded that Dynegy should restate its financials and re-

characterize the revenue from Project Alpha as financing instead of operations, it

did not require the consolidation of ABG Gas Supply with Dynegy — a result that

would necessarily have followed if it shared Hecker’s concern about the tear-ups

and outside hedges. TTx Day 5, 158:22-159:7, 170:2-171:4. The SEC’s action

was not consistent with the position that Hecker had taken on the accounting for

Project Alpha. TTx Day 5, 161:13-23.

• After extensively reviewing the underlying documentation for Project Alpha,

PriceWaterhouseCoopers (“PWC”), the firm that replaced Andersen as Dynegy’s

Hecker suggested at trial that PWC was not up to speed on Project Alpha. TTx3

Day 5, 169:9-15. However, newly discovered evidence establishes that PWC chargedmore than $520,000 to evaluate Project Alpha in March and April 2002,Declaration ofLloyd E. Kelley in Support of Olis’ Motion to Set Aside His Conviction (“Kelley Decl.”)Ex. H), and reached the conclusion that “[a]lthough we have not audited thetransaction, we reviewed the form of the transaction and believe that — in form — it isin accordance with GAAP.” Kelley Decl. Ex. I.

12

outside accountants after Andersen was indicted, notified Dynegy that it was

prepared to defend the accounting of Project Alpha. 3

• Gene Foster, the USAO’s key witness, acknowledged that he knew that Mott

disagreed with Hecker about the accounting for Alpha and that Mott and

Dynegy’s “internal accountants at the end of the day were okay with the

transaction.” TTx Day 7, 102; see also TTx Day 7, 171:12-172:5 (Foster

confirming SEC deposition testimony that he believed Project Alpha was a “good

deal” and that the accounting treatment was proper).

Given these facts, the USAO could not and did not attempt to prove the allegation that

lay at the heart of the indictment — i.e., that Olis understood that Dynegy’s financial

statements were rendered false by the outside hedges and linked tear-ups to which

Hecker objected. Instead, the USAO attempted to prove that Hecker was tricked into

approving a transaction that, right or wrong, he otherwise would not have. Yet even on

this fall-back position, the proof was unconvincing.

b. Linked Tear-ups and Outside Hedges

From its early stages, the participants in Project Alpha envisioned that the SPE,

ABG Gas Supply, would be funded by Citibank or another bank. Everyone participating

directly in the prolonged negotiations knew that banks are not in the gas trading

13

business and that they would insist that their exposure be hedged. TTx Day 3, 236:2-

17; Day 4, 33:22-36:5. The banks’ representatives knew it. Their counsel knew it.

Dynegy’s accountants and inside attorneys knew it. Dynegy’s outside attorneys knew it.

TTx Day 4, 17:7-18:12, 34:13-35:4, 129:3-130:19, 184:2-20. Even Sean Muller, the

Andersen tax senior manager principally responsible for reviewing Project Alpha,

admitted that he knew it. TTx Day 3, 100:23-102:14. It was, in fact, openly discussed

and common knowledge:

Q: Was it ever contemplated by Citibank or Deutsche Bank or CreditSuisse First Boston that they, the equity investors, would face any riskof losing their money that they invested . . . because of changes in theprice of natural gas?

A: No, I don’t think the banks ever contemplated that, or anybody elseon the team contemplated that, because that’s — banks don’t do that,I think everybody knows that. Or everyone — let me rephrase that —everyone who was involved in the transaction knows that banks don’tsign up for commodity risks.

Testimony of Patrick Boultinghouse, TTx Day 4, 17:7-16; see also TTx Day 4, 72:22-24

(“It’s widely known that when banks enter into transactions, they do not enter into

commodity risks. So, you know, we knew it, Dynegy knew it, Arthur Andersen knew it.”).

Andersen personnel were not directly involved in the Project Alpha negotiations,

but did monitor them — primarily through the point persons in its tax department, Kelm

and Muller. TTx Day 3, 77:18-78:6. During the negotiations, Hecker participated

directly in a meeting with “high-level” Dynegy representatives (not including Olis), one or

two “all hands” meetings, and an “all hands” conference call. TTx Day 5, 101:16-

102:14, 114:13-116:9, 133:20-25. Olis attended the “all hands” meetings, but Hecker

never spoke to Olis directly about any aspect of Project Alpha. TTx Day 5, 189:9-190:3.

14

Although Andersen’s primary contacts with Dynegy personnel throughout this process

were Kelm and Muller (and, to a lesser extent, McElroy), Hecker insisted that they did

not represent him in the deal — they were neither his “eyes and ears,” nor his

“mouthpiece.” TTx Day 5, 124:25-125:12, 210:22-212:10.

A continual source of frustration for members of Dynegy’s team and for

representatives of the other parties throughout the negotiations was the fact that

Andersen changed its advice on several key issues, as communicated directly by

Hecker or indirectly through Muller or Kelm. Ttx Day 2, 110:7-111:1; Day 3, 189:16-24;

Day 4, 189:16-24; Day 7, 102:5-17, 107:10-23. Hecker changed his opinion whether

the bank’s funding of ABG Gas Supply could occur gradually over the first year or must

occur completely at the inception of the deal. TTx Day 2, 111:2-18. He also changed

his advice whether the bank’s 3% interest in ABG Gas Supply could be held as

common stock, as opposed to preferred stock. TTx Day 2, 120:7-22. Finally, and most

relevant here, Andersen provided the Dynegy team with confusing and conflicting

advice concerning (1) the requirements for maintaining the independence of an SPE,

and (2) more generally, the requirements for accounting of Project Alpha as cash flow

from operations, not from financing. Gould, Puleo and others became fed up and

angry. TTx Day 2, 165:16-20; Day 3, 143:6-144:7; Day 7,110:1-111:4. As a result of

Andersen’s changed positions and inconsistencies, Dynegy’s project Alpha team was

compelled to rely on Dynegy’s internal accountants and its external attorneys for advice

concerning the legitimacy of the transaction. TTx Day 7, 102:12-103:1, 107:10-23.

Hecker nevertheless testified that he always took the position that the 3%

investment in ABG Gas Supply could not be hedged and had to be at risk in order for

15

him to recognize ABG Gas Supply as an SPE. TTx Day 5, 110:21-111:21. Further,

Hecker testified that he insisted that there should be no tear-ups between Dynegy and

Citibank because that provided “linkage.” TTx Day 5, 120:23-121:5, 133:30-134:19.

He testified that the transaction, as it ultimately evolved, had three features that he

would not have approved and that, in his opinion, killed the accounting of the

transaction:

Q: So, now we have a third requirement that has to be met in order forthis transaction to generate the operating cash flow benefit. We’vegot to have a gas SPV that meets the three percent minimum equityrequirement, right?

A: Yes.

Q: You’ve got to have a gas contract that’s a qualifying gas contract,right?

A: Yes.

Q: And to the extent that ICA has a special purpose vehicle for their partof this transaction, that has to meet the three percent minimum?

A: That’s correct.

TTx Day 5, 107:6-17. According to Hecker, this meant that a minimum of 3% of the

equity investment in both ABG Gas Supply and ICA had to remain at risk (i.e., without a

swap or floor) and that there could not be linked tear-up agreements for the Dynegy

and Citibank swaps at the ABG Gas Supply level. TTx Day 5, 92:18-93:14, 98:12-99:5,

116:1-19, 121:1-10. However, Hecker conceded that the GAAP rules were not always

clear, TTx Day 5, 31:3-7, and that at the time of Project Alpha’s negotiation and

implementation, he was not sure whether the outside hedging was appropriate, TTx

Day 5, 191:17-192:13.

At trial, Foster described a similar incident, though he had previously accused4

Hecker of drawing the circle. Foster also testified that Olis was present during the circleincident and did not include Kelm in the group. TTx Day 6, 159:24-161:22.

16

There is no doubt that members of the Dynegy team perceived Hecker’s position

on these issues to be shifting and inconsistent. TTx Day 2, 136:15-137:17, 145:15-19,

165:19-166:23. Just as clearly, other members of Andersen’s team — primarily those

in the tax department — were sending the Dynegy team different messages.

Muller admitted at trial that on February 17, 2001, he told Olis that ICA could

hedge the last 3% equity interest with a floor at NGAI LAR, LLC outside of the SPV,

precisely as eventually occurred. TTx Day 3, 83:21-85:12. Muller further testified at

trial that in the context of a meeting where the 3% minimum risk requirement for the

SPE was being discussed, Foster, Kelm, Muller, Ted McElroy (of Andersen’s tax

department) and possibly Olis had a short side discussion during which McElroy drew a

circle on a schematic drawing of Project Alpha. The circle was intended to show the

entities and transactions for which Andersen would need to review documents before

issuing its opinion. TTx Day 2, 96:16-100:25. According to Foster, the circle included4

within it ABG Gas Supply, but not the entities “below” it or “above” it in the transaction,

including those referred to as the “CLN and CitiGroup support.” TTx Day 6, 159:24-25,

162:24-164:25. Foster was comfortable with the belief that Andersen did not need to

know about or review documents relating to agreements outside the circle. TTx Day 7,

91:10-20.

On March 20, 2001, after a question arose whether the banks’ risk against price

Muller testified that on the morning of the 20th, he essentially stumbled upon5

documents reflecting the tear-up agreements, and was surprised to see them. ButMuller’s story is false and his surprise was completely feigned. The evidenceestablished that Muller was aware of the tear-ups and sent Dodson an email inquiringabout them at least two days earlier. TTx Day 3, 117:18-181:8.

17

fluctuations in gas prices could be protected by “tear-up” provisions, Marshall Dodson5

suggested in an email that they could “if somehow the provisions are worded and they

are not linked to the gas contract.” TTx Day 3, 129:12-131:17; Trial Ex. 381. Hecker

testified that he followed that email by convening a telephone conference with Dynegy’s

team in New York, including Olis, during which he made it clear that there could be no

tear-ups period, directly or indirectly linked to the gas contract. TTx Day 5, 133:20-

134:19. But Muller, Hecker’s associate and tax senior manager, evidently did not hear

such a clear, definitive message; and two days later he sent Olis and Foster an email

stating that Andersen would only have to review documents referred to in the principal

agreements. TTx Day 2, 176:20-177:22, 184:1-186:1; Day 3, 136:22-137:5, 142:6-9.

The express text of Andersen’s SAS 50 opinion was ultimately consistent with Dodson’s

suggestion in that email. TTx Day 3, 149:12-150:3; Trial Ex. 660A-6 at 4 (SAS 50

opinion letter stating “Any sales or hedges transacted by DHI will not be with ABG or its

owner or directly linked to the natural gas purchase arrangement . . . .” (emphasis

added)). Thus, with input from Dynegy’s accountants, inside attorneys and outside

attorneys, and from the banks, Dynegy and Dynegy’s Project Alpha team followed

Dodson’s advice. TTx Day 3, 141.

c. The Alleged Conspiracy

Foster testified that at some undefined point in time he, Helen Sharkey, Tammy

In his statements to the government, Foster had also identified Mike Mott,6

Steve Wagman and Amanda Angelina (another Citibank representative) as co-conspirators. TTx Day 7, 74: 10-17, 76:1-4; 77:21-78:4. Of these twelve persons, onlyFoster, Sharkey and Olis were charged with a crime. Foster and Sharkey pleadedguilty with cooperation agreements, but Sharkey did not testify at trial. She did,however, write a letter to the Court in support of Olis at the time of the re-sentencing, inwhich she asserted that with regard to implementation of the tear-ups and outsidehedges, Olis relied upon the accounting expertise of Mike Mott and others in Dynegy’sfinancing department, as well as upon the advice of outside counsel. Docket # 270 Ex.4.

18

Norman, Richard Gould, Wendy Ho, Robert Doty, Mark Spradling, Cliff Rankin and

Jamie Olis agreed to keep relevant documents and information concerning certain

aspects of Project Alpha from Andersen. TTx Day 6, 91:5-12; 93:21-94:4. With regard6

to Olis’ involvement, specifically, Foster described a telephone call with Dynegy CFO

Doty, during which Foster said that he and Olis informed Doty of the need to hide

documents relating to the tear-ups from Andersen. TTx Day 6, 190:18-193:14. Doty

was not a witness a trial. But he has since flatly contradicted Foster’s testimony.

According to Doty, no such conversation ever occurred. Transcript of Doty Testimony

in Yates v. Dynegy, Inc. (Kelley Decl. Ex. E) 26:20-27:15. At any rate, Hecker testified

that he (and Andersen) did not learn about Project Alpha’s outside hedges and linked

tear-up agreements until April 2002 — a year after the transaction closed.

However, Olis did not behave consistently with an agreement to hide the outside

hedges and tear-ups from Andersen. To the contrary, it was undisputed that on April

24, 2001, Olis sent Kelvin Kelm, who was responsible for creating Andersen’s detailed

financial models of Project Alpha, an email with a schedule that expressly listed both

the ICA and ABG Gas Holding outside hedges. Day 3, 125:13-126:20, Trial Ex. 21.

Kelm, in fact, relied upon that email and another from Olis to create a model of Project

Helen Sharkey did not testify at trial, but FBI notes of her interviews reflect that7

when asked by the USAO to review and comment on an electronic version of Kelm’smodels for Project Alpha as part of her cooperation agreement, Sharkey recognizedthat Kelm had included the “outside hedges” in his calculations. Cassman Decl. Ex. B.

This email was provided by the government in discovery prior to trial, but8

counsel with their limited resources never found it.

19

Alpha that accounted for the presence of the outside hedges. TTx Day 3, 109:6-

109:17, 112:1-6; Trial Ex. 20. So the evidence established that Olis notified an7

Andersen accountant of both outside hedges that Hecker claimed would kill the

accounting. In other words, Olis did not hide the outside hedges from Andersen, and

as Hecker himself admitted, it was Andersen’s opinion, not Hecker’s, that mattered:

“Dynegy or any other company doesn’t care what my opinion on accounting is

individually. They want to know what Arthur Andersen opinion is and Arthur Andersen’s

interpretation of generally accepted accounting principles.” TTx Day 5, 10:6-12.

Moreover, newly discovered evidence establishes that on April 6, 2001, Debbie

Ramirez of Vinson & Elkins sent numerous people — including Kelm, Muller and

Dodson — an email that expressly documented the ICA hedge. Cassman Decl. Ex. A. 8

This email establishes that, contrary to Hecker’s express testimony, Andersen knew

about the ICA hedge. Moreover, the email was sent not only to Kelm and Muller in

Andersen’s tax department, but also to Marshall Dodson — the individual who Hecker

himself identified as his right-hand man. Thus, the suggestion that Olis was trying to

hide the hedges from Andersen was contradicted by the evidence at trial; and the

assertion that Andersen’s audit team in particular was not aware of the outside hedges

or that Andersen as an entity did not know about those hedges is contradicted by the

20

new evidence.

d. Andersen’s Contingent Fee with ICA

The reason for Andersen’s schizophrenia and mixed messages is now clear.

Andersen had a contingent fee arrangement with ICA that entitled Andersen to 50% of

the net proceeds that ICA received from Dynegy on Project Alpha. ICA received total

proceeds of approximately $21 million. After deductions for expenses, the net

proceeds to ICA were approximately $15.6 million. TTx Day 3, 73:7-75:5; Trial Ex. 62.

Thus, Andersen realized a fee of more than $7.8 million as a result of Alpha. That fee

was directly tied to the funding of NGAI LAR, LLC, which was only possible because the

banks negotiated a floor (or outside hedge) for the transaction, precisely as Muller had

advised. TTx Day 3, 81:12-85:21, 167:13-168:8.

These facts were generally developed during the trial. However, because of the

government’s interference with Dynegy’s funding, Olis’ defense team was unable to

retain experts to assist them in the cross-examination of Hecker and Muller, and in the

presentation of expert testimony concerning the impropriety of the contingent fee

arrangement, the disabling conflict of interest such a fee created and the powerful

motivation it created in Andersen’s tax department, and hence Andersen as an

institution, to see that Project Alpha was realized. In addition, this evidence would have

undermined Hecker’s credibility as a key government witness.

e. The Aftermath

Hecker, of course, asserted that his accounting opinions for Project Alpha, as

articulated to the jury, were correct. But, as noted above, the government never tried to

prove that they were in fact correct and repeatedly argued to the jury that the

21

correctness or incorrectness of Hecker’s opinions was neither important nor an issue

that they need decide. According to the government, it did not matter whether Hecker’s

opinions were right or wrong. Thus, the government did not seek to prove that

Dynegy’s financial statements were in fact false.

Although the jury heard little about them, there were many reasons for Olis to

believe that the accounting treatment for Project Alpha was proper. Mike Mott, who as

Controller was ultimately responsible for the accuracy of Dynegy’s financial statements,

disagreed with Hecker’s opinions. In April 2002, after the Wall Street Journal had

questioned the propriety of Project Alpha and the SEC had inquired, Mott defended

Alpha’s accounting — outside hedges, tear-ups and all — in written and oral

presentations to the SEC. TTx Day 7, 102:22-103:1; Day 5, 168:21-23; Trial Ex. 21.

Mott was the primary accounting expert upon whom Olis relied, and he always took the

position that the revenues from Alpha were properly accounted as operations. TTx Day

7, 102:12-103:1.

Mott’s position before the SEC was supported by Dynegy’s new outside auditors,

PriceWaterhouseCoopers (“PWC”). On April 4, 2002, Michael O’Shea, an accountant

at PWC, sent an email to Mott with the subject matter “Dynegy Statement on Alpha.”

The email stated that “[a]lthough we have not audited the transaction, we reviewed the

form of the transaction and believe — in form — it is in accordance with GAAP.” Yates

Ex. 68 (Kelley Decl. Ex. I). Subsequent discovery in the Yates trial established that

PWC’s April 2002 opinion was the result of an evaluation of Alpha for which PWC

charged in excess of $520,000. Yates Ex. 155 (Kelley Decl. Ex. H). Thus, after an

extensive analysis, PWC differed with Hecker’s opinion as to the “form” of the

22

transaction; and none of this information was available to Olis or his counsel at the time

of trial in this case.

Finally, the SEC’s decision was also inconsistent with Hecker’s opinion that the

outside hedges and the Citibank/Dynegy linked tear-ups destroyed the desired

accounting. The SEC found that Dynegy should have characterized the revenues from

Project Alpha as financing, not operations. But that decision was premised on the

similarities of Project Alpha to a prepaid transaction, not on the existence of the

Citibank/Dynegy tear-ups or the outside swaps that Hecker found objectionable. Had

the SEC agreed with Hecker’s position, it would have required consolidation of the

financials of ABG Gas Supply and Dynegy.

Given these facts, the government’s decision to abandon the indictment’s charge

that Olis and the co-conspirators intended to file false financial statements was certainly

understandable. The indictment’s charge was contrary to the evidence and could not

be proven, and the government did not even try.

f. Government’s Heavy Reliance on Incorrect Loss Testimony

During the government’s opening statement, AUSA Beek — after reciting the

facts the government believed it could show about Project Alpha — stated:

Did it matter? You bet it did, because by the close of business the nextday [after Project Alpha’s disclosure] on April 26th, Dynegy’s stock hadfallen 52 percent, and investors lost billions of dollars. Billions with a B.

You’re going to hear from a witness later in the trial named Jeff Heil. Hewas the chief investment analyst for the Regents of the University ofCalifornia school system. They run — and this money that they manageruns the university system . . . . They lost over a hundred million dollarsjust in their investment in Dynegy.

Did it matter? You bet it did.

23

TTx Day 1, 104:7-18 (emphasis added).

Olis’ attorneys sought to exclude Heil’s testimony, but the Court reversed an

earlier provisional decision and permitted the government to call Heil in order to show

“loss resulting from the defendant’s scheme” as “circumstantial evidence of intent.” TTx

Day 7, 128:29-134:17. Indeed, the government contended that Heil’s testimony was

vital to its case, arguing that evidence of stock loss “is absolutely relevant to motive

here, because the effect was so big and so important. That shows why it was so critical

to do this deal. I mean, it is — without the size of that effect, we can’t get across why

they did this.” TTx, Day 6, 237:11-15.

Heil testified generally that an investor deciding whether to buy a particular stock

would be interested in the company’s credit rating and growth rate. TTx Day 7, 204:5-

211:6. Heil then stated that in his “professional opinion,” an investor would be very

concerned that a company had to reclassify $300 million in cash flow from operations

as cash flow from financing. Id. 211:8-212:9. He testified that cash flow from

operations “is sort of the final and ultimate number that investors are looking at.” Id.

213:14-21. He specifically testified that “cash flow was our primary approach to valuing

stocks,” and was the primary factor that caused him to recommend purchasing Dynegy

stock. Id. 215:5-24, 218:7-16. Heil also stated, however, that he recommended buying

Dynegy stock because one of his analysts was excited about the newly deregulated

energy market and the broadband market. Id. 216:19-218:6.

Heil testified that he had recommended that the University of California system

purchase a total of about $100 million worth of Dynegy shares during 2001, id. 215:25-

AUSA Lewis’s reference to Dynegy’s September 2000 stock price was9

misleading. It is true that Dynegy’s stock price reached a peak of approximately $55 atthat time. But Project Alpha was not implemented until April 2001, at which time thestock price was still about $55 — and it declined steadily thereafter. Thus, ProjectAlpha was clearly not responsible for the inflation of the stock price to $55.

24

216:18, but sold the stock in May 2002 after Dynegy announced it would reclassify

$300 million in operating cash flows as financing on April 25, 2002, id. 220:18-221:6.

Heil stated that he recommended selling the stock largely because of the

reclassification of cash flows. Id. 220:18-221:6. Heil testified that the University system

decided to sell its Dynegy shares after the company’s 8K announcement and lost “a

little over $100 million” when it sold its stock. Id. 222:10-20.

During closing arguments, the government again relied heavily on Heil’s

testimony. AUSA Lewis argued:

if you look at that stock chart, you will see that back in 1998 a share ofDynegy cost about $5. By the end of ‘99, it was about $10. And bySeptember 2000, it had shot up to $55 a share. And people were buying it.Pension funds were buying it.

. . . .

[The alleged conspirators] created a picture of the company that was notreal, and the end result of that — and you can see from the stock chart — iswhere we are now, $5, $55 to $5.

TTx Day 8, 41:7-24. Lewis later continued:9

This was a huge deal, Project Alpha. And probably the best way tounderstand that is to think back to the testimony of the gentleman from theUniversity of California Regents . . . who put over a hundred million dollarsof Pension money into Dynegy.

Id. 43:17-23.

Thus, the government presented Heil for the express purpose of showing losses

25

caused by the allegedly fraudulent Project Alpha. Heil testified that the University of

California system lost over $100 million when it sold its Dynegy stock in May 2002. And

the government relied upon Heil’s testimony to argue to the jury that Project Alpha had

caused the University of California system to lose over $100 million, and that other

investors — including pension funds — presumably lost huge sums, as well.

Yet a properly-funded defense would have easily demonstrated that Heil’s

testimony was incorrect and entirely unreliable, and that the government’s arguments

derived from Heil’s testimony were conceptually bankrupt too. As set forth in detail in

Part III.D, infra, Heil’s assertion that the University of California system sold its Dynegy

stock because of the April 25, 2002 disclosures related to Project Alpha was simply

false. The University of California system in fact purchased an additional 900,000

Dynegy shares on May 6 and 7, 2002, and did not begin selling Dynegy shares until

May 21, 2002 — almost a month after the negative revelations of April 25.

Furthermore, Heil’s testimony that he made his investment decisions based almost

solely upon Dynegy’s cash flows was directly contradicted by the University of California

system’s transaction records, which demonstrate no reaction to the news about Project

Alpha and cash flows that was disseminated to the market at various points in April

2002. Most fundamentally, the conclusions about loss that the government rested upon

Heil’s testimony were conceptually bankrupt. Heil testified that his employer lost over

$100 million when Dynegy’s stock price declined after Project Alpha was disclosed to

the investing public. The government strongly implied to the jury that the decline in

stock price, and thus the University of California system’s purported loss, was

attributable to Project Alpha. But an analysis that attributes all of the declines in

26

Dynegy’s stock price to Project Alpha improperly ignores numerous other factors that

contributed to the decline. In fact, the price declines were not entirely due to Project

Alpha — and, indeed, Project Alpha did not cause any statistically significant decline in

the stock price.

4. Sentencing

After Olis’ conviction, the parties submitted substantial briefing concerning

sentencing. Olis filed, among other items, a declaration by Professor Bala Dharan that

demonstrated that Dynegy’s stock declined in tandem with the stock of the other

companies in the industry, that these declines were caused by numerous factors

unrelated to Project Alpha, and that it is impossible to isolate any decline in Dynegy’s

stock price caused solely by Project Alpha. Docket # 130 & 132. Nonetheless, over

Olis’ objection, the Court calculated the loss caused by Olis’ conduct based entirely on

Jeffrey Heil’s testimony that the University of California system lost over $100 million

when Dynegy’s stock fell after the disclosure of Project Alpha. Sentencing Transcript

(Docket # 145) 4:1-5:1, 5:17-22, 8:3-12, 8:22-9:2. The Court found that Heil’s

“uncontroverted testimony” about his former employer’s losses was “a reasonable

estimate of the loss” cause by Olis’ conduct. Id. 8:3-12, 8:22-9:2. Accordingly, the

Court sentenced Olis to 292 months in prison. Id. 20:2-23:19; Docket # 133.

5. The Appeal

Olis appealed his conviction and sentence. The Fifth Circuit affirmed Olis’

conviction but reversed his sentence. United States v. Olis, 429 F.3d 540 (5th Cir.

2005). Discussing the District Court’s calculation of loss for sentencing purposes, the

27

Court of Appeals found that the District Court had “overemphasized [its] discretion as

factfinder at the expense of economic analysis. Thus, the court elected to rely solely on

the Heil testimony concerning the purchase and sale of UCRS stock as a measure of

the loss caused by Olis’ offense,” even though “a substantial portion of the entire loss

on the UCRS investment in Dynegy, over $100 million, could not have been caused by

Olis’ work on Project Alpha.” Id. at 548. The Court of Appeals further held:

During sentencing, moreover, Olis offered the expert report of a RiceUniversity expert, Professor Bala Dharan, which explored numerous forcesat work on the Dynegy stock price during the relevant periods . . . . ProfessorDharan’s report demonstrates that Dynegy stock declined during the periodcovering Project Alpha in tandem with the stocks of other publicly tradedcompanies in the energy marketing and trading business. Further, Dynegy’sstock was negatively affected, even before the restatement of Project Alpha’scash flow impact, by the company’s failed bid to acquire the faltering Enron.These factors and others cited in the report suggested that attributing to Olisthe entire stock market decline suffered by one large or multiple smallshareholders of Dynegy would greatly overstate his personal criminalculpability.

Id. The Court of Appeals therefore remanded the case to the District Court for

resentencing. Id. at 548-49.

6. Resentencing

During the resentencing proceedings before this Court, Olis presented further

declarations by two notable experts who offered their services pro bono: Professor

Dharan and Professor Joseph Grundfest. See Supplemental Report of Bala Dharan

(Docket # 197 Ex. 1); Declaration of Professor Joseph A. Grundfest (Docket # 270 Ex.

6); Declaration of Professor Bala G. Dharan (Docket # 270 Ex. 7). Dharan and

Grundfest demonstrated that the USAO had failed to prove that Project Alpha caused

any decline in Dynegy’s stock price: although Dynegy’s stock indisputably declined,

28

numerous factors other than the disclosure of Project Alpha contributed to this decline,

and the data showed that Project Alpha did not have any statistically significant effect

either in inflating Dynegy’s stock price before its disclosure or in deflating the price after

its disclosure. See, e.g., Declaration of Professor Bala G. Dharan (Docket # 270 Ex. 7)

¶ 11; Declaration of Professor Joseph A. Grundfest (Docket # 270 Ex. 6) ¶ 13. This

Court concluded that “it is not possible to estimate with reasonable certainty the actual

loss to shareholders attributable to corrective disclosures about Project Alpha.” 2006

WL 2716048 at *9. The Court sentenced Olis to a term of 72 months. Id. at *13.

7. The Yates Trial

In April and May 2007, the case of Yates v. Dynegy, Inc., No. 2005-37892 (127th

Judicial District, Harris County, Texas) (“Yates”), proceeded to trial. In Yates, Olis’

defense attorney, Terry Yates, sued Dynegy for breach of its obligation to pay Yates’s

attorney fees in connection with Olis’ criminal trial. Yates Complaint, attached as

Exhibit A to the Declaration of Lloyd E. Kelley (“Kelley Decl.”). As discussed in detail in

Part III of the Argument section of this memorandum, the evidence presented in Yates

demonstrated for the first time that although Dynegy had been contractually obligated to

fund Olis’ defense to the criminal charges, and originally intended to comply with its

obligation, the USAO interfered with that funding. More specifically, the USAO coerced

Dynegy into reneging on its obligations to Olis by making it clear to Dynegy’s

management that the USAO’s decision whether to indict Dynegy itself would be

determined in part by Dynegy’s willingness to block defense funding to any of its

employees who were indicted. This group, as it turned out, included Olis. Finding that

Olis learned of the facts underlying the claims raised in Part III, infra,10

concerning the USAO’s interference with Olis’ fundamental right to present his defenseusing funds lawfully available to him, only recently, in April 2007. Declaration of JamieOlis in Support of His Motion to Set Aside His Conviction at ¶ 3. Because the factssupporting those claims could not have been discovered earlier, even through theexercise of due diligence, § 2255’s statute of limitations with respect to those claims willnot expire until April 2008. § 2255 ¶ 6(4). Nonetheless, in an abundance of caution andfor ease of resolution by the Court, Olis has raised the claims now. Olis’ investigation ofthe facts underlying this motion continues, and Olis reserves the right to supplement hisclaims in a timely fashion.

29

Dynegy had breached its contractual obligations and had acted in bad faith, the jury in

the civil lawsuit awarded Yates approximately $2.5 million, including $2 million in

exemplary damages. Kelley Decl. ¶ 3.

ARGUMENT

I. TIMELINESS

28 U.S.C. § 2255 ¶ 6 provides, in pertinent part:

A 1-year period of limitation shall apply to a motion under this section. Thelimitation period shall run from the latest of —

(1) the date on which the judgment of conviction becomes final; [or]

. . .

(4) the date on which the facts supporting the claim or claimspresented could have been discovered through the exercise of duediligence.

Olis has filed this motion in compliance with the time limit established in § 2255 ¶

6(1). Olis was resentenced after remand from the Fifth Circuit Court of Appeals, 10

United States v. Olis, Criminal No. H-03-217-01, 2006 WL 2716048 (S.D. Tex. Sept. 22,

2006) (Docket # 293), and the Court entered its amended judgment on September 27,

2006. Docket # 294. Olis did not appeal the new sentence, and his judgment therefore

Although the Court of Appeals affirmed the conviction and remanded only for11

reconsideration of Olis’ sentence, the conviction did not become final until after theDistrict Court accomplished its mandate because the case was remanded for a non-ministerial purpose. United States v. Dodson, 291 F.3d 268, 275-76 (4th Cir. 2002)(holding that remand for resentencing “may supply a defendant with the basis for anonfrivolous appeal. In such cases, the one-year statute of limitations in § 2255 doesnot begin to run until” the new sentence is imposed); see also United States v. Colvin,204 F.3d 1221, 1222-25 (9th Cir. 2000) (holding that a remand even for a purelyministerial purpose tolls the finality of conviction until the ministerial act is completed);Richardson v. Gramley, 998 F.2d 463, 465 (7th Cir. 1993) (“A judgment is not final if theappellate court has remanded the case to the lower court for further proceedings,unless the remand is for a purely ‘ministerial’ purpose, involving no discretion, such asrecomputing prejudgment interest according to a set formula.”).

30

became “final” for purposes of § 2255 ¶ 6(1) when his time for appeal expired. Moshier

v. United States, 402 F.3d 116, 118 (2d Cir. 2005); Sanchez-Castellano v. United

States, 358 F.3d 424, 428 (6th Cir. 2004); Kapral v. United States, 166 F.3d 565, 577

(3d Cir. 1999); United States v. Sandoval-Espino, Cr. No. C-04-685, 2007 WL 1558608

at *3 (S.D. Tex. May 29, 2007). Under the Federal Rules of Appellate Procedure, the11

time for appeal of a district court judgment expires ten days after it is entered, excluding

Saturdays, Sundays and legal holidays. Fed. R. App. P. 4(b) & 26; see also Moshier,

402 F.3d at 118 n.1; Sandoval-Espino, 2007 WL 1558608 at *3 & n.5. Thus, the

judgment against Olis became final on October 12, 2006.

II. STANDARD OF REVIEW

A prisoner in federal custody may move to set aside his conviction under § 2255

on the grounds that it “was imposed in violation of the Constitution or laws of the United

States . . . or is otherwise subject to collateral attack.” 28 U.S.C. § 2255 ¶ 1. “Unless

the [§ 2255] motion and the files and records of the case conclusively show that the

prisoner is entitled to no relief, the court shall cause notice thereof to be served upon

31

the United States attorney, grant a prompt hearing thereon, determine the issues and

make findings of fact and conclusions of law with respect thereto.” § 2255 ¶ 2.

Thus, when a prisoner files a motion pursuant to § 2255, the court must “order

the United States attorney to file an answer, motion, or other response within a fixed

time, or to take action the judge may order,” unless “it plainly appears from the motion,

any attached exhibits, and the record of prior proceedings that the moving party is not

entitled to relief.” Rule 4, Rules Governing Section 2255 Cases in the United States

District Courts (“§ 2255 Rules”). Furthermore, “[a] judge may, for good cause, authorize

a party to conduct discovery under the Federal Rules of Criminal Procedure or Civil

Procedure, or in accordance with the practices and principles of law.” § 2255 Rule 6(a).

And “[i]f the motion is not dismissed, the judge must review the answer, any transcripts

and records of prior proceedings, and any [other] materials submitted . . . to determine

whether an evidentiary hearing is warranted.” § 2255 Rule 8(a).

III. THE USAO’S INTERFERENCE WITH OLIS’ ACCESS TO FUNDINGVIOLATED HIS FIFTH AND SIXTH AMENDMENT RIGHTS TO PRESENT THEDEFENSE OF HIS CHOICE

The USAO’s ethical and professional obligations extend far beyond those of other

members of the bar:

The United States Attorney is the representative not of an ordinary party toa controversy, but of a sovereignty whose obligation to govern impartially isas compelling as its obligation to govern at all; and whose interest, therefore,in a criminal prosecution is not that it shall win a case, but that justice shallbe done. As such, he is in a peculiar and very definite sense the servant ofthe law, the twofold aim of which is that guilt shall not escape or innocencesuffer. He may prosecute with earnestness and vigor — indeed, he shoulddo so. But, while he may strike hard blows, he is not at liberty to strike foulones. It is as much his duty to refrain from improper methods calculated toproduce a wrongful conviction as it is to use every legitimate means to bring

32

about a just one.

Berger v. United States, 295 U.S. 78, 88, 55 S. Ct. 629, 633 (1935). Here, the USAO

violated its duty of fairness by using the deadly threat of indictment to force Dynegy to

cut off Olis’ access to defense funds. As discussed in the recent United States v. Stein

case, such interference with a defendant’s ability to mount a defense deprives the

defendant of his due process right to fairness in criminal proceedings and of his Sixth

Amendment right to prepare his defense with funds lawfully available to him.

Stein concerned the prosecution of eighteen defendants, most of them former

employees or partners of the accounting giant KPMG, on conspiracy and tax evasion

charges. The court found that KPMG would have paid the KPMG defendants’ legal

fees, but that the USAO employed the threat of indicting KPMG to coerce the company

into cutting off funding. United States v. Stein, 435 F. Supp. 2d 330, 336-53 (S.D.N.Y.

2006) (“Stein I”); United States v. Stein, 495 F. Supp. 2d 390, 393-409 (S.D.N.Y. 2007)

(“Stein IV”). The court held that the USAO’s conduct violated the KPMG defendants’

substantive due process and Sixth Amendment rights, and dismissed the indictment

against the defendants who suffered the violations. Stein IV, 495 F. Supp. 2d at 427-

28. Like the indictment in Stein, Olis’ conviction must be set aside. It was obtained in

violation of his due process and Sixth Amendment rights.

A. Facts

The USAO in the Southern District of Texas obstructed Olis’ access to defense

funding to which he was lawfully entitled, apparently in an effort to force Olis to plead

guilty or cripple his ability to defend himself at trial. Dynegy was obligated to advance

33

Olis funds for his defense, but the USAO used the threat of indictment to coerce

Dynegy into breaching its obligation, thereby depriving Olis of the means to present the

defense of his choice. Testimonial and documentary evidence produced in the recent

civil case Yates v. Dynegy, Inc., discussed below, conclusively establishes the

government’s wrongdoing.

1. Dynegy Was Legally Obligated — And Intended — To Fund Olis’Defense to the Criminal Charges

Dynegy incurred legal obligations to advance defense funds to Olis in numerous

separate and independently-operative ways: (1) Dynegy Inc.’s and Dynegy Holdings

Inc.’s articles of incorporation each required advancement; (2) Dynegy’s Board of

Directors resolved to provide advancement; (3) Dynegy and Olis entered into an

“undertaking agreement” pursuant to that resolution requiring Dynegy to advance

defense funds; (4) two later written agreements reconfirmed Dynegy’s advancement

obligation; and (5) Dynegy’s general counsel’s office orally promised to advance

defense funds. It is therefore abundantly clear that Dynegy was obligated, and

intended, to advance defense funds to Olis.

At the time of the DOJ investigation into Project Alpha, Olis was an officer of

both Dynegy Inc., an Illinois corporation, and its subsidiary corporation Dynegy Holdings

Inc., a Delaware corporation. Transcript of Testimony of Bruce Williamson in Yates v.

Dynegy, Inc. (“Williamson Tx”) (Kelley Decl. Ex. B), Vol I, 8:11-19; Transcript of

Testimony of Jamie Olis in Yates v. Dynegy, Inc. (“Olis Tx”) (Kelley Decl. Ex. C) 9:14-

23. Each entity’s articles of incorporation contained both standard indemnity provisions

and advancement provisions. Yates Exhibit 2 (Kelley Decl. Ex. J); Yates Exhibit 3

34

(Kelley Decl. Ex. K). Article X, § 10.2 of Dynegy Holdings Inc.’s articles of incorporation

provided:

Prepayment of Expenses. The corporation shall pay the expenses (includingattorneys’ fees) incurred by [an officer subject by virtue of his office to a civilor criminal legal proceeding] in advance of its final disposition, provided,however, that, to the extent required by law, such payment of expenses inadvance of the final disposition of the proceeding shall be made only uponreceipt of an undertaking . . . to repay all amounts advanced if it shouldultimately be determined that the [officer] is not entitled to be indemnified.

Kelley Decl. Ex. J (emphasis added). Likewise, Article 7.1.D of Dynegy Inc.’s articles of

incorporation provided:

(1) Reasonable expenses incurred in defending a civil or criminal action, suitor proceeding shall be paid by the Corporation in advance of the finaldeposition of such action, suit or proceeding, upon receipt of (I) a statementsigned by such director or officer to the effect that such director or officeracted in good faith and in a manner which he believed to be in, or notopposed to the best interests of the Corporation and (ii) an undertaking byor on behalf of the director or officer to repay such amount, if it shallultimately be determined that he is not entitled to be indemnified by theCorporation as authorized in this Article.

(2) The board of directors may, by separate resolution adopted under andreferring to this Article of the by-laws, provide for securing the payment ofauthorized advances by the creation of escrow accounts, the establishmentof letters of credit or such other means as the board deems appropriate andwith such restrictions, limitations and qualifications with respect thereto asthe board deems appropriate in the circumstances.

Kelley Decl. Ex. K (emphasis added).

As the government began investigating Project Alpha, Dynegy affirmed its

already clear advancement obligation to Olis. On October 18, 2002, Dynegy’s Board of

Directors “ratifie[d], approve[d], adopt[ed] and confirm[ed] the advancement of

expenses to” Olis and several other Dynegy officers and employees “with respect to

reasonable expenses incurred by any such person in defending a civil or criminal

35

action, suit or proceeding relating to his or her actions on behalf of Dynegy in

connection with Project Alpha, in advance of the final disposition of such action.” Yates

Ex. 6 (Kelley Decl. Ex. L). In accordance with Dynegy’s articles of incorporation, the

advancement was conditioned on Olis providing a statement “to the effect that [he]

acted in good faith” and in the interests of Dynegy, and an undertaking to repay

advanced funds if the company later determined that he did not meet the requirements

for indemnification. Id. Olis executed an undertaking agreement and statement of

good faith on January 24, 2003. Yates Ex. 11 (Kelley Decl. Ex. M).

Dynegy later further acknowledged and reaffirmed its contractual duty to fund

Olis’ Alpha-related defense pursuant to the undertaking agreement. On March 5, 2003,

Dynegy and Olis entered into a severance agreement and claims release that

recognized the undertaking agreement and excluded from the release “the payment of

attorneys’ fees related to investigations and/or litigation of Project Alpha. The payment

of such fees is governed by the undertaking agreement executed by [Olis] on January

24, 2003, and Dynegy agrees to abide by the terms of that undertaking agreement.”

Yates Ex. 16 (Kelley Decl. Ex. N) at 3 (emphasis added). On March 6, 2003, Dynegy

executed yet another agreement with Olis that provided, “This Letter Agreement sets

forth the entire agreement between the parties hereto and supersedes any and all prior

agreements or understandings, written or oral, between the parties pertaining to the

subject matter of this Letter Agreement, except as to the terms and conditions of the

undertaking agreement executed by you on January 24, 2003.” Yates Ex. 14 (Kelley

Decl. Ex. O) at 2 (emphasis added).

36

Finally, when Olis hired criminal counsel after his indictment in June 2003,

Dynegy expressly promised to pay Olis’ attorney fees. Transcript of Testimony of Terry

Yates in Yates (“Yates Tx”), attached as Kelley Decl. Ex. D, at 18:4-21:24, 28:15-33:16

(describing faxing Olis retainer agreement to Dynegy attorney Cristin Cracraft and her

subsequent promises to pay Olis’ fees through trial. According to Yates, Cracraft “said

Dynegy was paying the bill. I confirmed that with her.”); see also Transcript of

Testimony of Mark Clark in Yates (“Clark Tx”), attached as Kelley Decl. Ex. F, at 15:5-

17:4 (describing similar conversation with Cracraft).

2. The Government Pressured Dynegy to Cooperate as Defined in the Holder and Thompson Memoranda

Meanwhile, the USAO began to apply extreme pressure to Dynegy. The

government sought Dynegy’s cooperation in investigating its own employees — and the

government wielded an all-powerful weapon: the threat of indictment.

Dynegy was extremely anxious to cooperate with the government investigation in

the hope of avoiding indictment. Bruce Williamson, Dynegy’s new CEO, believed that

an indictment would destroy the company. Williamson Tx (Kelley Decl. Ex. B) Vol. I,

151:16-152:4, 156:25-157:2. Thus, when AUSA Jimmy Sledge sent Williamson a letter

on January 9, 2003, complaining that Dynegy employees were not fully cooperating,

Williamson was worried. Id.; see also Yates Ex. 141 (Kelley Decl. Ex. P) (1/9/03 Sledge

letter to Williamson). Williamson immediately called the United States Attorney for the

Southern District of Texas, Michael Shelby, and set up a meeting for the next day.

Williamson Tx (Kelley Decl. Ex. B) Vol. I, 142:1-15.

At the meeting, Shelby presented Williamson with the “Holder Memorandum,” a

37

Department of Justice policy document setting forth guidelines for determining when to

indict a company. Id. at 107:5-108:17, 145:12-146:10, 148:7-149:20, 155:23-156:16.

The Holder Memorandum, officially titled Federal Prosecution of Corporations, advised

that companies that paid for their employees’ legal defenses should be deemed

uncooperative. The memorandum set forth considerations for making the charging

decision, including “the corporation’s timely and voluntary disclosure of wrongdoing and

its willingness to cooperate in the investigation of its agents.” Stein I, 435 F. Supp. 2d

at 337 (quoting Holder Memorandum; emphasis in original). In a later provision, the

memorandum stated:

Another factor to be weighed by the prosecutor is whether the corporationappears to be protecting its culpable employees and agents. Thus, whilecases will differ depending upon the circumstances, a corporation's promiseof support to culpable employees and agents, either through the advancingof attorneys fees, through retaining the employees without sanction for theirmisconduct, or through providing information to the employees about thegovernment’s investigation pursuant to a joint defense agreement, may beconsidered by the prosecutor in weighing the extent and value of acorporation’s cooperation.

Id. (quoting Holder Memorandum; emphasis in original). The memorandum also

emphasized the importance of the corporation’s willingness to waive its attorney-client

privilege and work product protections. Id.; Williamson Tx (Kelley Decl. Ex. B) Vol. I,

148:7-149:20.

At the January 10 meeting, Shelby “didn’t serve much up except the Holder

memo,” and it was “served pretty cold.” Williamson Tx (Kelley Decl. Ex. B) Vol. I,

155:23-156:3. Shelby essentially told Williamson, “If you don't cooperate, we are going

to get your company.” Id. at 156:4-10. Williamson got the message: he promised to

Indeed, Williamson was so intent that the government view Dynegy as entirely12

cooperative that he fired Dynegy’s outside counsel, Baker Botts, LLP, because Shelbycomplained about the firm. Williamson Tx (Kelley Decl. Ex. B) Vol. II, 157:19-158:13.

38

fully cooperate, as that term is used in the Holder Memorandum, including waiving the

company’s attorney-client and work product privileges. Id. at 117:3-11, 148:7-149:20,

162:23-163:8, 172:2-7; Yates Ex. 142 (Kelley Decl. Ex. Q) (1/17/03 Shelby letter

confirming Williamson’s pledge of cooperation). Williamson even promised to “make

available, on any topic with which [the government] need[ed] assistance, a consulting

expert from the company.” Yates Ex. 142 (Kelley Decl. Ex. Q). Williamson walked out

of the meeting “a few pounds lighter.” Williamson Tx (Kelley Decl. Ex. B) Vol. I,

156:13. 12

On January 20, 2003, the Department of Justice released the “Thompson

Memorandum,” a policy document superseding the Holder Memorandum. Stein I, 435

F. Supp. 2d at 338; Yates Ex. 143 (Kelley Decl. Ex. R). The Holder Memorandum’s

“language concerning cooperation and advancing of legal fees by business entities was

carried forward without change.” Stein I, 435 F. Supp. 2d at 338. “Unlike its

predecessor, however, the Thompson Memorandum was binding on all federal

prosecutors.” Id. Apparently to reinforce the pressure he applied on January 10,

Shelby sent a copy of the Thompson Memorandum to Williamson. Williamson Tx

(Kelley Decl. Ex. B) Vol. I, 145:25-146:10.

The government’s oppressive tactics quickly produced the desired results.

Despite the Board of Directors’ resolution authorizing payment of Alpha-related legal

fees to finance director, Richard Gould, Dynegy sent Gould and his attorney a letter on

The letter to Sharkey promised continued payment of Sharkey’s costs13

associated with an SEC investigation, Yates Ex. 140 (Kelley Decl. Ex. T), presumablybecause the USAO had no interest in such fees.

39

March 6, 2003, advising them that Dynegy would cease paying such fees as of March

31. Yates Ex. 138 (Kelley Decl. Ex. S). On May 5, 2003, Dynegy sent a similar letter to

Helen Sharkey — who also had been promised funding by the Board — informing

Sharkey and her attorney that Dynegy would no longer reimburse costs and fees

associated with the criminal investigation. Yates Ex. 140 (Kelley Decl. Ex. T). 13

Williamson testified that Dynegy probably cut off Sharkey’s reimbursement because the

USAO discovered that Dynegy was still paying her fees and put pressure on Dynegy.

Williamson Tx (Kelley Decl. Ex. B) Vol. I, 175:16-176:22.

3. Dynegy Capitulated to Government Pressure, Reneging on ItsObligation to Fund Olis’ Defense

The USAO’s pressure eventually coerced Dynegy to breach its contractual

obligation to Olis. Despite its clear legal obligations, Dynegy did not advance Olis funds

to defend against the indictment in this case. Instead, responding to demands by the

USAO, Dynegy adopted the baseless position that it was entitled to “advance” the funds

into an escrow account, where the funds remained until after trial.

Olis, Sharkey and Gene Foster were indicted on June 10, 2003. See Indictment

(Docket # 1). Olis hired criminal counsel Terry Yates on June 20, 2003. Yates Tx

(Kelley Decl. Ex. D) at 18:4-21:24, 28:15-33:16.

In July 2003, USAO attorneys called Dynegy’s outside criminal counsel, Larry

Finder. The government had learned that Dynegy was paying Olis’ defense costs, and

demanded to know why. Transcript of Testimony of Larry Finder in Yates (“Finder Tx”),

Dynegy was in no rush: the Board did not make its “determination” about Olis’14

good faith until March 7, 2007. Yates Ex. 59 (Kelley Decl. Ex. Y).

40

attached as Kelley Decl. Ex. G, at 137:4-138:17. Finder informed the government that

Dynegy had reached an undertaking agreement with Olis. Id. at 138:19-25. The

government attorneys were not impressed by this contractual obligation. They asked

whether state law required Dynegy to advance fees to Olis. Id. at 139:1-9. They told

Finder to get them the operative Illinois statute, and he faxed it to them. Id. at 139:1-17;

Yates Ex. 106 (Kelley Decl. Ex. U). A few days later, the government attorneys called

Finder back and told him they did not believe Illinois law required Dynegy Inc. to

reimburse Olis’ fees. Finder Tx (Kelley Decl. Ex. G) at 151:21-152:5, 156:10-16.

Finder reported this conversation to Williamson. Id. at 156:10-16.

The government and Dynegy together hatched a plan to cut off Olis’ fees,

concocting a patently frivolous rationalization — that under the advancement provisions

in the articles of incorporation, Dynegy was entitled to “advance” Olis’ fees into an

escrow account and leave the money there until the Board determined whether Olis met

the standards for indemnification — in other words, until after Olis’ trial. Williamson Tx

(Kelley Decl. Ex. B) Vol. I, 180:3-24 (“We can put the money in escrow, and then

determine if they meet the standards of indemnification and disburse it afterwards if

they do.”); id. at 24:19-25:5.14

This bogus interpretation of Dynegy Inc.’s articles of incorporation ignored the

fact that the articles of both Dynegy Inc. and Dynegy Holdings Inc. specifically required

payment of funds “in advance” of the disposition of the legal action — not mere

indemnification. Yates Ex. 2 (Kelley Decl. Ex. J) at Article X, § 10.2 (emphasis added);

41

Yates Ex. 3 (Kelley Decl. Ex. K) at Article 7.1.D. “[A]dvancement and indemnification

are generally recognized as distinct and separate legal rights,” United States v. Rosen,

487 F. Supp. 2d 721, 726 (E.D. Va. 2007), and the provisions at issue here clearly call

for advancement. Indeed, the advancement provisions’ clear meaning is corroborated

by the fact that the provisions in both sets of articles of incorporation supplement

separate indemnity clauses. Yates Ex. 2 (Kelley Decl. Ex. J) at Article 10, § 10.1; Yates

Ex. 3 (Kelley Decl. Ex. K) at Article 7.1.A. The company’s contrived interpretation

nullified the advancement requirement. In any event, even leaving aside the articles of

incorporation, Dynegy’s decision to escrow funds breached the company’s independent

contractual obligations arising from the undertaking agreement, the March 2003

severance agreement, and Cristin Cracraft’s oral promises.

The true reason for Dynegy’s legally unsupportable decision to escrow Olis’

funds had nothing to do with its interpretation of contracts. Rather, the decision was

designed to appease the government. At the civil trial, Williamson testified:

there was communications going on between the litigation team at Dynegyand the investigative team of the FBI and Department of Justice, and theywere not happy that we were continuing to provide financial support whenthe Thompson memo said the companies cooperating should not providefinancial support. So the decision was made to escrow the funds becausethat was the most that we could do to get as close to the standard ofcooperation under the Thompson memo, which was provided by theDepartment of Justice. It was the standards of cooperation.

Williamson Tx (Kelley Decl. Ex. B) Vol. II, 105:20-106:9 (emphasis added).

In fact, the government worked directly with Dynegy to cause this result. A

series of emails between Williamson and Shelby demonstrates the extent of the

government’s interference:

42

• On July 18, 2003, Williamson wrote to Shelby: “Larry [Finder] and I talked and I

wanted to let you know directly that I am totally supportive of trying to modify our

legal support posture. I have wanted to do so for some time. Larry can get you

more details but I think we have a workable game plan to further support your

efforts.” Yates Ex. 160 (Kelley Decl. Ex. V). Williamson testified that “modify our

legal support posture” meant putting Olis’ defense funds into escrow. Williamson

Tx (Kelley Decl. Ex. B) Vol. I, 73:2-7.

• Shelby replied on July 19: “Thanks for looking into this. I think it in neither of our

interests to have the company pay for the defense of individuals whose actions

were so egregious.” Yates Ex. 160 (Kelley Decl. Ex. V).

• Later on July 19, Williamson wrote Shelby: “I just reviewed and approved a

board resolution to change the process. Seems odd to me it takes a bOD

resolution but oh well, I have a telephonic BOD meeting this week for some of

the financing matters so we will add this to the agenda (s/b Wednesday) and

then notify Olis and Foster Attorneys. I am no paying for Sharkey as it is so this

impact is to Foster and Olis.” Yates Ex. 161 (Kelley Decl. Ex. W).

On July 23, 2003, Dynegy’s Board of Directors adopted the resolution approved

by Williamson. Yates Ex. 144 (Kelley Decl. Ex. X). The resolution stated, in part:

the Board directs all future advancements of authorized reasonableexpenses (including attorney’s fees) incurred by Foster and Olis in defendingthe [Project Alpha indictment] be remitted by Dynegy to [an] escrow accountor accounts upon the establishment of said account(s); and

IT IS FURTHER RESOLVED, that funds deposited in said escrow accountor accounts established in accordance with this Resolution shall remain ondeposit in said account(s) until the Board makes its determination, pursuant

Williamson attempted to rationalize Dynegy’s dereliction of its contractual15

duties to Olis by arguing that Olis had himself somehow breached the undertakingagreement by failing to cooperate with the USAO. Williamson Tx (Kelley Decl. Ex. B)Vol I, 100:6-102:15, 117:3-19. This argument is an obvious post hoc fabrication: theundertaking agreement contains no requirement that Olis cooperate with the USAO orany government agency. See Yates Ex. 11 (Kelley Decl. Ex. M).

Williamson also advanced a second rationalization, that “evidence from theinvestigation was coming to the surface that was clearly pointing out that Mr. Olisprobably understood while Project Alpha was going on that he was breaking the law.” Williamson Tx (Kelley Decl. Ex. B) Vol I, 117:19-23. Again, however, that argumentmisses the mark. Neither the undertaking agreement nor the articles of incorporationpermitted Dynegy to withhold advancement based on its judgment that Olis was guilty. See Yates Ex. 2 (Kelley Decl. Ex. J) at Article X, § 10.2; Yates Ex. 3 (Kelley Decl. Ex. K)at Article 7.1.D.; Yates Ex. 11 (Kelley Decl. Ex. M).

43

to ISCA Section 8.75(a), whether or not Olis and Foster, respectively, actedin good faith and in a manner he reasonably believed to be in, or notopposed to, the best interests of Dynegy and had no reasonable cause tobelieve that his conduct was unlawful.

Id. at 3-4. Finder emailed a copy of the resolution to Shelby, copying Williamson, and

Williamson replied: “Larry: thanks for sending. [¶] Michael: hope this helps.” Id.

Williamson testified that he directed Finder to share the resolution with the USAO “[a]s

a show of good faith that we were trying to get as close to the standard of cooperation

under the Thompson memo as we could.” Williamson Tx (Kelley Decl. Ex. B) Vol. I,

107:8-11.15

On August 13, 2003, Dynegy notified Olis of its plan to escrow funds until the

Board of Directors could make its determination to continue advancements. Yates Ex.

32 (Kelley Decl. Ex. BB); Yates Tx (Kelley Decl. Ex. D) 63:11-64:18. Dynegy stated that

it would pay Olis’ costs through August 18, 2003. Yates Ex. 32 (Kelley Decl. Ex. BB).

However, after paying an initial $14,000 bill for Yates’s June work, Yates Ex. 33 (Kelley

Decl. Ex. CC), Dynegy paid no more funds before trial. Yates Tx (Kelley Decl. Ex. D)

44

76:4-77:16, 127:17-20. Dynegy next paid a bill a week after the trial concluded, Yates

Ex. 40 (Kelley Decl. Ex. DD); Yates Tx (Kelley Decl. Ex. D) 77:17-78:7, and never paid

almost $450,000 in attorney fees and expenses incurred after August 18, 2003. Yates

Tx (Kelley Decl. Ex. D) 118:1-120:16.

In short, the USAO wielded the threat of indictment, and the extreme definition of

“cooperation” enshrined in the Holder and Thompson Memoranda, to coerce Dynegy

into complete capitulation. See, e.g., Williamson Tx (Kelley Decl. Ex. B) Vol I, 117:3-5

(“Our standards of cooperation is that we would fully cooperate with the government per

the Thompson memo”); 172:2-7 (“We wanted to fully cooperate with the government.

They were investigating, and this [the Holder/Thompson Memoranda] is a guideline

from our government that says what a corporation needed to do to cooperate. We fully

complied with this. And not paying attorney’s fees is a factor that they can weigh in.”);

Finder Tx (Kelley Decl. Ex. G) 181:22-182:13 (Finder believed it was his job to ensure

that Dynegy was in full compliance with the Thompson Memorandum so that Dynegy

could hope to avoid indictment). Accordingly, Dynegy waived its attorney-client and

work-product privileges, fired attorneys the government disliked, agreed to pay for

experts to support the government’s investigation, and completely cut off defense fees

to Dynegy employees who had no advancement rights under the articles of

incorporation. But Dynegy was contractually bound to advance Olis defense funds, so

Dynegy responded to government pressure to stop paying his fees by concocting —

with government input — a ridiculous machination. Williamson Tx (Kelley Decl. Ex. B)

In fact, the escrow mechanism had advantages not offered by completely16

ending the funding arrangement. Under the escrow regime, although Dynegy did notpay for Olis’ defense, it continued to seek bills from Olis’ attorneys. The governmentused this fact to gain an improper insight into Olis’ defense strategy. When Olis’attorneys met with USAO attorneys at the government’s offices on August 13, 2003, theattorneys were shocked to see a copy of their latest bill to Dynegy in the governmentoffices. Yates Tx (Kelley Decl. Ex. D) 60:13-63:3; Clark Tx (Kelley Decl. Ex. F) 40:14-41:16. The government violated Olis’ right to prepare his defense by monitoring hisattorneys’ activities by reviewing their bills.

45

Vol. II, 105:20-106:9; Finder Tx (Kelley Decl. Ex. G) at 151:21-152:5, 156:10-16.16

B. Due Process Violation

The Fifth Amendment’s Due Process Clause provides “substantive protection for

fundamental rights — those that are so essential to individual liberty that they cannot be

infringed by the government unless the infringement is narrowly tailored to serve a

compelling government interest.” Stein I, 435 F. Supp. 2d at 360 (citing Washington v.

Glucksberg, 521 U.S. 702, 721, 117 S. Ct. 2258, 2268 (1997)). Here the government

unjustifiably impeded Olis’ fundamental right to use resources lawfully available to him

to conduct his defense to criminal charges.

“[D]efendants have the right, under the Due Process Clause, to fundamental

fairness throughout the criminal process.” Id. at 356-60.

No general respect for, nor adherence to, the law as a whole can well beexpected without judicial recognition of the paramount need for prompt,eminently fair and sober criminal law procedures. The methods weemploy in the enforcement of our criminal law have aptly been called themeasures by which the quality of our civilization may be judged.

Douglas v. California, 372 U.S. 353, 358 n. 2, 83 S. Ct. 814, 816 n.2 (1963) (quoting

Coppedge v. United States, 369 U.S. 438, 449, 82 S. Ct. 917, 923 (1962); emphasis

added). “Under the Due Process Clause . . ., criminal prosecutions must comport with

46

prevailing notions of fundamental fairness.” California v. Trombetta, 467 U.S. 479, 485,

104 S. Ct. 2528, 2532 (1984). Thus, due process principles protect a defendant’s “right

to obtain and use in order to prepare a defense resources lawfully available to him or

her, free from knowing or reckless government interference” — that right is “basic to our

concepts of justice and fair play. It is fundamental.” Id. at 361-62; see also United

States v. Moya-Gomez, 860 F.2d 706, 729 (7th Cir. 1988) (finding a due process

violation where the government restrained a defendant’s funds without opportunity to

challenge the forfeiture.”).

The USAO violated Olis’ fundamental due process right under two alternative

tests. “‘[S]ubstantive due process’ prevents the government from engaging in conduct

that ‘shocks the conscience,’ or ‘interferes with rights implicit in the concept of ordered

liberty.’” United States v. Salerno, 481 U.S. 739, 746, 107 S. Ct. 2095, 2101 (1987).

Legislation that infringes a fundamental liberty interest is usually subject to the familiar

strict scrutiny test. County of Sacramento v. Lewis, 523 U.S. 833, 845-46, 118 S. Ct.

1708, 1716 (1998); Griswold v. Connecticut, 381 U.S. 479, 504, 85 S. Ct. 1678, 1692

(1965); Stein IV, 495 F. Supp. 2d at 411-12; see also Malagon de Fuentes v. Gonzales,

462 F.3d 498, 505-06 (5th Cir. 2006); Brennan v. Stewart, 834 F.2d 1248, 1256-57 (5th

Cir. 1988). Courts construe the term “legislation” broadly to include all “government

regulation,” Leebaert v. Harrington, 332 F.3d 134, 140 n.2 (2d Cir. 2003), and thus the

Holder and Thompson Memoranda may properly be considered “legislation” subject to

the strict scrutiny test. Stein IV, 495 F. Supp. 2d at 412.

By contrast, acts by particular government employees violate substantive due

47

process when the acts are so outrageous as to “shock the conscience.” County of

Sacramento, 523 U.S. at 846-47, 118 S. Ct. at 1716; Rochin v. California, 342 U.S.

165, 172-73, 72 S. Ct. 205, 209-10 (1952); United States v. Guidry, 456 F.3d 493, 506-

07 (5th Cir. 2006). “A defendant has a due process defense to prosecution where (1)

the government violates a protected right of the defendant and (2) the government’s

conduct is sufficiently outrageous.” United States v. Williams, 372 F.3d 96, 111 (2d Cir.

2004); see also Rochin, 342 U.S. at 172-74, 72 S. Ct. at 209-11. Because the

government misconduct here involved acts by individual USAO attorneys, the “shocks

the conscience” test is also applicable. Stein IV, 495 F. Supp. 2d at 412.

1. Strict Scrutiny

Under the strict scrutiny test, the government may not infringe a fundamental

liberty interest unless the government action is “narrowly tailored to meet a compelling

government interest.” Glucksberg, 521 U.S. at 721, 117 S. Ct. at 2268 (quoting Reno v.

Flores, 507 U.S. 292, 302, 113 S. Ct. 1439, 1447 (1993)). No such compelling

government interest justifies the Holder and Thompson Memoranda’s mandate that

indictment decisions turn on companies’ willingness to withhold defense funding from

their employees.

The Stein court recognized several possible justifications for the defense-funding

provisions, but rightly rejected each as inadequate. First, the Thompson and Holder

Memoranda arguably serve to help the USAO punish wrongdoers by withholding

defense funds from them. Stein I, 435 F. Supp. 2d at 363. But the USAO has no

compelling interest in punishment — that is the task of juries and courts. Id. Rather,

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“[t]he job of prosecutors is to make the government’s best case to a jury and to let the

jury decide guilt or innocence . . . . The imposition of economic punishment by

prosecutors, before anyone has been found guilty of anything, is not a legitimate

government interest — it is an abuse of power.” Id.

Second, the USAO policies might arguably serve the government interests in

investigating and fairly prosecuting crime. Id. But even if those ends could be

considered compelling, the Holder and Thompson Memoranda are not narrowly tailored

to accomplish them. Id. As an initial matter, it is difficult to fathom how the

government’s interest in investigating and fairly prosecuting crime is served by denying

accused persons access to defense funds. “The very premise of our adversary system

of criminal justice is that partisan advocacy on both sides of a case will best promote

the ultimate objective that the guilty be convicted and the innocent go free.” Herring v.

New York, 422 U.S. 853, 862, 95 S. Ct. 2550, 2555 (1975). Impeding a defendant’s

ability to proffer rigorous partisan advocacy undermines that “ultimate objective.”

Moreover, the defense-funding provisions are not even well tailored to the

express purpose of the Holder and Thompson Memoranda: determining whether a

company is cooperating with a government investigation. Because a company may

pay, or obligate itself to pay, defense funds “out of a judgment that extending this

benefit will aid it in keeping and hiring competent employees,” the fact of payment is not

a good barometer of the level of a company’s cooperation. Stein I, 435 F. Supp. 2d at

364.

Finally, the government might argue that the memoranda’s defense-funding

49

provisions were intended to tackle the circumstance where a company purports to

cooperate with the government but uses defense funding to impede an investigation.

But even if defense funding might in some cases impede a government investigation,

the memoranda’s attempts to remedy such impediments are overbroad. Their

provisions are not narrowly drawn to discourage payment of defense funds only where

the funding is somehow used to impede or obstruct an investigation, but instead apply

broadly to any payment of defense funds. Id. at 363. The memoranda therefore impact

many defendants’ exercise of their rights even when the exercise does not impede the

government in any way.

Thus, without any close nexus to a compelling government interest, the Holder

and Thompson Memoranda fail the strict scrutiny test; and the USAO’s implementation

of those policy documents was unconstitutional.

2. Shocks the Conscience

The government’s misconduct also violated Olis’ substantive due process rights

because it shocks the conscience. The USAO forced Dynegy to breach its contracts

with Olis, thereby depriving Olis of lawfully-available means to defend himself. This

effort to cripple its adversary’s ability to raise a defense runs counter to the most basic

principles of our adversarial system of criminal justice. Kyles v. Whitley, 514 U.S. 419,

429, 115 S. Ct. 1555, 1563 (1995) (“the adversary system of prosecution [should not]

descend to a gladiatorial level unmitigated by any prosecutorial obligation for the sake

of truth”); Herring, 422 U.S. at 862, 95 S. Ct. at 2555 (“The very premise of our

adversary system of criminal justice is that partisan advocacy on both sides of a case

will best promote the ultimate objective that the guilty be convicted and the innocent go

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free.”); Berger, 295 U.S. at 88, 55 S. Ct. at 633 (USAO’s interest “in a criminal

prosecution is not that it shall win a case, but that justice shall be done”).

Although some recognized conscience-shocking conduct involves physical injury

to the defendant, see Rochin, 342 U.S. at 172, 72 S. Ct. at 209-10; United States v.

Chin, 934 F.2d 393, 399 & n.4 (2d Cir. 1991), physical injury is not necessary.

Improper government investigatory techniques and interference with a criminal

defendant’s ability to defend himself can be sufficiently outrageous to “shock the

conscience.” See Gov’t of the Virgin Islands v. Fahie, 419 F.3d 249, 253-54 (3d Cir.

2005) (recognizing that intentional Brady violations may constitute conduct so

egregious as to warrant dismissal of an indictment); United States v. Cuervelo, 949

F.2d 559, 565-68 (2d Cir. 1991) (opining that a federal agent establishing and using a

sexual relationship to further the government’s investigation may be sufficiently

outrageous to warrant relief); United States v. Stringer, 408 F. Supp. 2d 1083, 1089 (D.

Ore. 2006) (finding that the government’s surreptitious conduct of a secret criminal

investigation under the guise of an SEC proceeding shocked the conscience, and

dismissing indictment); United States v. Scrushy, 366 F. Supp. 2d 1134, 1137-40 (N.D.

Ala. 2005) (suppressing evidence improperly gathered by the USAO using SEC

proceedings); United States v. Sabri, 973 F. Supp. 134, 146-47 (W.D.N.Y. 1996)

(holding that the government’s active collaboration with a defendant’s attorney was

conscience-shocking and warranted dismissal); United States v. Marshank, 777 F.

Supp. 1507, 1518-25 (N.D. Cal. 1991) (finding that government’s exploitation of

conflicted defense counsel shocked the conscience and warranted dismissal).

The government obviously intended that Dynegy withhold defense funds from17

Olis, but even if the government’s conduct was merely recklessly indifferent to Olis’ability to marshal funds lawfully available to him, the conduct still shocked theconscience. Stein IV, 495 F. Supp. 2d at 414-15.

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This case fits comfortably among the above-cited cases finding conscience-

shocking misconduct. Indeed, the Stein court found that almost identical conduct

shocked the conscience. Stein IV, 495 F. Supp. 2d at 412-15. The USAO directly

pressured Dynegy to breach its contractual obligations to Olis, deliberately undermining

Olis’ ability to mount a well-funded defense to the indictment. The apparent reason17

for the USAO’s course of action was to ensure that Olis either pled guilty or entered trial

as a severely underprepared contestant. Such conduct is “outrageous and shocking in

the constitutional sense because it [i]s fundamentally at odds with two of our most basic

constitutional values — the right to counsel and the right to fair criminal proceedings.”

Stein IV, 495 F. Supp. 2d at 414.

C. Sixth Amendment Right to Use Own Funds for Defense

The USAO’s conduct also violated Olis’ Sixth Amendment rights. The Sixth

Amendment “guarantees more than the mere presence of a lawyer at a criminal trial. It

protects, among other things, an individual’s right to . . . use one’s own funds to mount

a defense that one wishes to present.” Stein I, 435 F. Supp. 2d at 366; see also Caplin

& Drysdale, Chartered v. United States, 491 U.S. 617, 626, 109 S. Ct. 2646, 2652

(1989) (recognizing that an individual has the “right to spend his own money to obtain

the advice and assistance of . . . counsel.”); United States v. Rosen, 487 F. Supp. 2d

721, 727-30 (E.D. Va. 2007) (same). The USAO’s conduct infringed on Olis’ exercise

of that right by depriving him of funds that were lawfully available to him.

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The government’s interference with Olis’ Sixth Amendment right to mount a

defense using his own funds was “wrongfully motivated or without adequate

justification.” Stein I, 435 F. Supp. 2d at 367 (quoting Via v. Cliff, 470 F.2d 271, 274-75

(3d Cir. 1972)); see also Rosen, 487 F. Supp. 2d at 730-31. “[W]hen the government’s

interests are weighed against [Olis’] the result is thoroughly one-sided: the government

has no legitimate interest in arrangements for third parties to advance . . . attorney fees

unless, as is not true here, the advancement is alleged to be part of an actual

obstruction of justice scheme.” Rosen, 487 F. Supp. 2d at 731. “In contrast, [Olis has]

an undeniably strong interest — indeed, one protected by the Constitution — in . . .

obtaining, without government interference, the contractually guaranteed fee

advances.” Id. The USAO unjustifiably violated Olis’ Sixth Amendment rights.

D. Prejudice

The USAO’s interference with Olis’ Sixth Amendment rights was presumptively

prejudicial. As the Stein court observed, the Sixth Amendment violation at issue here is

analogous to that at issue in United States v. Gonzalez-Lopez, __ U.S. __, 126 S. Ct.

2557 (2006), where the Court considered a violation of the defendant’s right to counsel

of choice. Stein I, 435 F. Supp. 2d at 369. The Gonzalez-Lopez Court held:

Deprivation of the right is “complete” when the defendant is erroneouslyprevented from being represented by the lawyer he wants, regardless of thequality of the representation he received. To argue otherwise is to confusethe right to counsel of choice — which is the right to a particular lawyerregardless of comparative effectiveness — with the right to effective counsel— which imposes a baseline requirement of competence on whatever lawyeris chosen or appointed.

126 S. Ct. at 2563. “The government has interfered with [Olis’] right to be represented

53

as [he] choose[s], subject to the constraints imposed by the resources lawfully available

to [hi]m. This violation, like a deprivation of the right to counsel of [his] choice, is

complete irrespective of the quality of the representation” Olis received. Stein I, 435 F.

Supp. 2d at 369.

Put differently, the due process and Sixth Amendment errors that infected Olis’

trial were “structural errors.” Id. at 370-72. Structural errors have “consequences that

are necessarily unquantifiable and indeterminate” and “defy analysis by harmless-error

standards because they affect the framework within which the trial proceeds, and are

not simply an error in the trial process itself.” Gonzalez-Lopez, 126 S. Ct. at 2564

(quotation marks and alterations omitted). For such errors, prejudice “is so likely that

case-by-case inquiry into prejudice is not worth the cost.” Strickland v. Washington,

466 U.S. 668, 692, 104 S. Ct. 2052, 2067 (1984). The USAO’s misconduct here

worked a structural error because it is impossible to precisely reconstruct how Olis

might have conducted his defense had he received full funding from Dynegy. It is

certain, however, that the funds would have helped him better prepare for the unusually

complex trial. The due process and Sixth Amendment violations affected the

“framework within which the trial proceed[ed].” Gonzalez-Lopez, 126 S. Ct. at 2564.

In any event, even if Olis was required to show specific prejudice, it readily

appears. If Olis had access to full funding, he would have retained experts to counter

the prosecution’s theories, investigators to investigate the facts and potential witnesses,

and a jury consultant; he would have purchased a searchable database to better enable

review of the enormous volume of discovery; and his attorneys would have been better

54

prepared to meet the charges against him. Below we present several specific and

obvious lacking resources that would have earned Olis an acquittal.

1. Absence of Witnesses to Counter Evidence of Purported Loss

At trial the government relied heavily on the testimony of Jeffrey Heil, who

testified about the losses purportedly suffered by his former employer, the Regents of

the University of California, as a result of Project Alpha. The government used Heil’s

testimony to demonstrate the motive for and materiality of the alleged fraud scheme.

But the testimony, and the government’s arguments based thereon, were factually

incorrect and conceptually flawed in fundamental respects. Expert testimony would

have completely discredited Heil and refuted the government’s arguments concerning

the losses purportedly caused by Project Alpha. Yet because Olis’ defense was not

funded by Dynegy, Olis lacked the capacity to retain an expert and crucial conclusions

about loss went unchallenged at trial.

a. The Government’s Reliance on Heil

As set forth in the Facts section, supra, the government relied extensively on

Heil’s testimony about stock loss. Indeed, the government contended that Heil’s

testimony was vital to its case, arguing that evidence of stock loss “is absolutely

relevant to motive here, because the effect was so big and so important. That shows

why it was so critical to do this deal. I mean, it is — without the size of that effect, we

can’t get across why they did this.” TTx, Day 6, 237:11-15.

During the government’s opening statement, AUSA Beek declared that Project

Alpha “matter[ed]” because “by the close of business the next day [after Project Alpha’s

disclosure] on April 26th, Dynegy’s stock had fallen 52 percent, and investors lost

55

billions of dollars. Billions with a B.” In particular, she asserted that the University of

California system lost “over a hundred million dollars just in their investment in Dynegy.”

TTx Day 1, 104:7-18 (emphasis added).

Then — after presenting Heil as its final witness to testify that the University of

California system and its pensioners lost over $100 million because of Project Alpha —

the government relied again on his testimony during its closing argument. AUSA Lewis

argued:

This was a huge deal, Project Alpha. And probably the best way tounderstand that is to think back to the testimony of the gentleman fromthe University of California Regents . . . who put over a hundred milliondollars of Pension money into Dynegy.

Id. 43:17-23.

Thus, the government presented Heil for the express purpose of showing motive

and intent by demonstrating the losses caused by the purported fraud. Heil testified

that the University of California system lost over $100 million when it sold its Dynegy

stock in May 2002. And the government relied upon Heil’s testimony to argue to the

jury that Project Alpha had caused the University of California system to lose over $100

million, and that other investors — including pension funds — presumably lost huge

sums, as well.

b. Countering Heil’s Testimony Was Vitally Important

For several reasons, it was vitally important for the defense to counter Heil’s

testimony and the conclusions the government drew therefrom concerning the loss

caused by the alleged crime.

Countering Motive Evidence: As discussed, the government itself acknowledged

56

the importance of showing motive through stock-loss testimony, and it placed

considerable reliance on Heil’s testimony during arguments. Countering this evidence

of motive would have severely undermined the government’s case.

Countering Materiality Evidence: Heil’s testimony was the only true evidence of

materiality, a required element under all of the substantive charges against Olis. If Olis

had been able to discredit Heil’s testimony and present his own evidence that Project

Alpha was unimportant to investors, he would have negated that element and would

have been acquitted of the securities, mail and wire fraud charges.

Wire, mail and securities fraud charges each require proof of materiality. Neder

v. United States, 527 U.S. 1, 4, 119 S. Ct. 1827, 1831 (1999) (holding that “materiality

is an element of the federal mail fraud, wire fraud, and bank fraud statutes”); Peterson,

101 F.3d at 380 (holding that securities fraud conviction requires proof of materiality);

see also TTx Day 8, 28:16-25 (Court instructing jury that conviction on Count Two

required proof that “the fact misstated or fact omitted was of such importance that it

could reasonably be expected to cause or induce a reasonable person to invest or

cause or induce a person not to invest”), 30:5-19 (Court instructing jury about

materiality requirement for mail fraud conviction), 32:6-20 (Court instructing jury about

materiality requirement for wire fraud conviction). Likewise, the government must prove

materiality to warrant a conviction for conspiracy to commit wire, mail or securities

fraud. See United States v. Mmahat, 106 F.3d 89, 95 & n.2 (5th Cir. 1997) (citing

United States v. Feola, 420 U.S. 671, 686, 95 S. Ct. 1255, 1264-65 (1975)), overruled

on other grounds by United States v. Estate of Parsons, 367 F.3d 409 (5th Cir. 2004).

Although the indictment charged a scheme to defraud the SEC, Dynegy's18

auditors, rating agencies, lenders, market and securities analysts, and the investingpublic, Indictment (Docket # 1) ¶ 21, the only even arguably cognizable victim under themail and wire fraud charges was the investing public. As the indictment did not chargea violation of 28 U.S.C. § 1346, the government was required to prove that the allegedwire and mail fraud schemes were intended to obtain money or property from the victim. United States v. Ratcliff, 488 F.3d 639, 643-44 (5th Cir. 2007); United States v. Walters,87 F.3d 663, 667 (5th Cir. 1996); see also TTx Day 8, 30:7-9, 32:8-10 (Court’sinstructions that mail and wire fraud “scheme to defraud” is a plan to “deprive another ofmoney or property”); Part V.C, infra (mere deprivation is insufficient to support mail andwire fraud convictions; government was required to prove that Olis sought to obtainmoney or property). The evidence provided no support whatsoever for the notion thatthe alleged conspirators sought to obtain money or property from the SEC, ArthurAndersen, rating agencies, lenders or market analysts.

Likewise, the securities fraud statute prohibits only schemes to defraud “inconnection with the purchase or sale of a security.” United States v. Peterson, 101F.3d 375, 379 (5th Cir. 1996). Thus, the securities fraud conviction required proof thatthe alleged conspirators contemplated affecting the investing public. See United Statesv. Causey, No. CRIM. H-04-025-SS, 2005 WL 2647976 at *2-3 (S.D. Tex. Oct. 17,2005); see also TTx Day 8, 28:16-29:13 (Court’s instructions regarding securities fraud,including admonition that a “scheme to defraud” is a plan to “obtain money or

57

In the mail and wire fraud context, “[a] statement is material if its has a natural

tendency to influence, or is capable of influencing, the decision of the decision-making

body to which it was addressed.” United States v. Harms, 442 F.3d 367, 372 (5th Cir.

2006). In the securities fraud context, “[a] statement of fact is material if there is a

substantial likelihood that a reasonable shareholder would consider it important in

making an investment decision” and “[a]n omission is material if there is a substantial

likelihood that the disclosure of the omitted fact would have been viewed by the

reasonable investor as having significantly altered the total mix of information made

available." Causey, 2005 WL 2647976 at *3 (citations and quotation marks omitted).

Thus, Olis’ convictions depended on proof that the purported scheme was likely to

influence the investing public to purchase Dynegy shares.18

something of value”).

AUSA Lewis further invoked this prejudice by referring in his closing to a jury19

venireperson who had been struck, asserting to the jury that “he can never retirebecause his money went into a mutual fund and it was full of stocks of companies likeDynegy that cratered because of scandals like this.” TTx Day 8, 39:23-40:3.

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Yet the only evidence of materiality presented at trial was Heil’s testimony that

institutional investors like his employer were induced to buy Dynegy shares by the

supposedly artificial cash flow numbers.

Countering Prejudicial Arguments: Perhaps most importantly, Heil’s testimony

introduced — and the government expanded upon — concepts likely to inflame the

jury’s prejudices. Olis’ was the first energy and accounting trial in Houston’s hostile

post-Enron environment. Ordinary people had lost their retirement savings. And the

government produced Heil to testify that Olis, too, had caused pensioners to lose

millions of dollars. Indeed, the government expressly tied this testimony to losses

suffered by pensions. Without effective rebuttal and impeachment of Heil, his19

testimony was devastating to Olis’ defense.

c. Expert Testimony Would Have Entirely Discredited Heil’s Conclusions and Refuted the Government’s Arguments

It should have been easy to attack these centrally-important contentions about

the losses caused by Project Alpha. Heil’s testimony, and the government’s arguments

derived therefrom, were factually incorrect and conceptually defective. Professor Bala

Dharan, an expert who provided analysis of the purported loss caused by Project Alpha

during the sentencing and resentencing phases of Olis’ trial, has submitted a

declaration herewith demonstrating how an expert retained during trial could have

59

entirely discredited Heil’s testimony and the conclusions the government sought to

draw. See Declaration of Bala Dharan (“Dharan Decl.”):

First: Heil’s testimony that the University of California system sold its Dynegy

stock immediately after the negative revelations on April 25, 2002 was false. Instead,

the UC system bought 900,000 additional shares on May 6 and 7, 2002, and did not

even begin selling Dynegy shares until May 21, 2002 — almost a month after the

negative revelations. Dharan Decl. ¶¶ 11-12 & Ex. D. This error completely

undermines Heil’s conclusions about the losses the University of California system

suffered. And an expert preparing to meet Heil’s testimony about losses would

unquestionably have known about the error. Id. ¶¶ 5 n.2, 11-17. Thus, had Olis been

able to retain an expert on stock loss at trial, his attorneys could have easily and simply

eviscerated Heil’s conclusion about losses.

Second: Heil testified that he made his investment decisions based almost

solely upon Dynegy’s cash flows, and thus implied that (a) Project Alpha lulled him into

purchasing Dynegy stock, and (b) when Dynegy restated its cash flows, he advised

selling its stock. But Dharan observes that the University of California system’s

transaction records are inconsistent with this purported motivation for purchasing and

selling the stock. Id. ¶¶ 14-18. A Wall Street Journal article disclosed sufficient

information on April 3, 2002, to enable traders to understand the pertinent facts about

Project Alpha and Dynegy’s cash flows. Id. ¶ 15. Yet the University of California

system did not sell its Dynegy holdings then. Nor did it sell its holdings immediately

after Dynegy’s official disclosures on April 25, 2002. Id. ¶ 16. It did not begin selling its

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Dynegy stock until May 21, 2002 — and even then, it sold the stock only incrementally

over the course of five weeks. Id. ¶ 17. If the University of California system truly

wished to unload its stock because of the cash flow revelations, the stock was liquid

enough that it could have done so in two or three days. Id..

Third: Most fundamentally, the conclusions about loss that the government

rested upon Heil’s testimony were conceptually bankrupt. Heil testified that his

employer lost over $100 million when Dynegy’s stock price declined after Project Alpha

was disclosed to the investing public. The government strongly implied to the jury that

the decline in stock price, and thus the University of California system’s purported loss,

was attributable to Project Alpha. Indeed, the very purpose for Heil’s testimony was to

establish the “loss resulting from the defendant’s scheme.” But an analysis that

attributes all of the declines in Dynegy’s stock price to Project Alpha improperly ignores

numerous other factors that contributed to the decline. As the Supreme Court recently

observed,

When [a] purchaser subsequently resells . . . shares [purchased after amisrepresentation], even at a lower price, that lower price may reflect, notthe earlier misrepresentation, but changed economic circumstances,changed investor expectations, new industry-specific or firm-specific facts,conditions, or other events, which taken separately or together account forsome or all of that lower price.

Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 343-44, 125 S. Ct. 1627, 1632

(2005). As demonstrated by Professor Dharan’s declaration, an expert would have

testified that decline in Dynegy’s stock price was not entirely due to Project Alpha —

and, indeed, that Project Alpha did not cause any statistically significant decline in the

price. Dharan Decl. ¶¶ 4-9.

As set forth in Olson’s declaration, Olson Decl. ¶ 3, Mr. Olson previously20

submitted a letter to the Court during the resentencing proceedings reaching thesesame conclusions. See Mr. Olis’ (1) Memorandum on Loss Causation and (2)

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In fact, the Fifth Circuit has already recognized that Heil’s testimony could not

properly form the basis for determining loss even for sentencing purposes, United

States v. Olis, 429 F.3d 540, 548 (5th Cir. 2005), and found that Professor Dharan’s

critique in papers filed during the sentencing phase of Olis’ trial persuasively “suggested

that attributing to Olis the entire stock market decline suffered by one large or multiple

small shareholders of Dynegy would greatly overstate his personal criminal culpability.”

Id. And this Court found that “it is not possible to estimate with reasonable certainty the

actual loss to shareholders attributable to corrective disclosures about Project Alpha.”

2006 WL 2716048 at *9. Furthermore, Heil himself admitted — after the conclusion of

the trial — that “he couldn’t place a dollar value on the UC losses tied specifically to

Project Alpha . . . . ‘To be truthful,’ he said, ‘I wouldn't have known the figure.’”

Jonathan Peterson, “White-Collar Prison Terms Under Debate,” Los Angeles Times,

July 11, 2004 (Dharan Decl. Ex. E). A defense expert would have brought these crucial

facts to light at trial.

d. Testimony by a Stock Analyst Would Have Bolstered theExpert’s Criticism

The conclusions of an expert like Dharan could also have been supported by

testimony by a stock analyst that traded in Dynegy’s stock. John Olson is such an

analyst, and has submitted a declaration setting forth how he could have testified at

trial. See Declaration of John Olson in Support of Olis’ Motion to Set Aside His

Conviction (“Olson Decl.”). Olson has been a securities analyst for 40 years, and20

Response to Government’s Sentencing Memorandum (Docket # 197) Ex. 3.

62

followed and analyzed Dynegy’s stock since the company was formed in 1993. Olson

Decl. ¶¶ 1-2.

According to Olson, Dynegy and other “Merchant Energy” companies were

considered by Wall Street to be Enron imitators — that is, the Merchant Energy

companies’ stock was influenced heavily by Enron’s outlook, and tended to trade at

valuations “parallel” to Enron’s stock, but at varying discounts. Id. ¶ 7. Enron’s collapse

sent shockwaves through the entire industry because the other Merchant Energy

companies lost their largest trading partner and market maker, and also because the

entire industry suffered a loss of credibility on Wall Street. Id. ¶ 8. The stock of all

Merchant Energy companies crashed as Enron collapsed, and Dynegy’s stock suffered

an especially large decline because of Dynegy’s disastrous attempt to acquire Enron in

November 2001. Id. ¶ 9.

From Olson’s position “on the front lines” as an equity analyst watching Dynegy,

he did not discern that Project Alpha was an “identifiable factor” of the decline in

Dynegy’s market value. Id. ¶ 10. Rather, at the time, it appeared that all Merchant

Energy companies were “sucked down by the Enron undertow.” Id.

Indeed, Olson echoes Dharan’s point that Project Alpha was disclosed to the

market by the April 3, 2002 Wall Street Journal article questioning the transaction’s

accounting treatment, and notes that the article did not precipitate any decline in

Dynegy’s stock price. Id. ¶ 11. Furthermore, Dynegy’s April 25, 2002, disclosure of

Project Alpha was accompanied by other disclosures of negative information that Olson

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describes as “more traditionally tied to stock valuation,” such as decreased earnings

projections and a write-down of over $300 million in assets. Id. ¶ 12.

Thus, Dharan’s academic exploration of Project Alpha’s effect on the market

finds support on the real-life experience of a stock analyst: the market simply did not

care about Project Alpha. The alleged fraud, even if it had occurred, was not material

and did not cause the losses for pension funds and other investors.

e. Lack of Defense Funding Precluded Raising TheseChallenges to Heil’s Testimony

Although witnesses like Dharan and Olson could have entirely discredited Heil’s

testimony and the conclusions the government sought to draw therefrom, the defense

team retained no such expert. No expert discovered and demonstrated that the

University of California system bought, rather than sold, Dynegy stock after the

disclosure of Project Alpha. No expert demonstrated that the drop in Dynegy’s stock

price could not be blindly attributed to Project Alpha without careful analysis. And no

expert testified that such careful analysis in fact shows no statistically significant effect

from Project Alpha on the stock price. The reason for the absence of such critical

testimony is simple: Olis could not afford it. Declaration of Jamie Olis in Support of His

Motion to Set Aside His Conviction (“Olis Decl.”) ¶ 4.

On the other hand, had Dynegy funded Olis’ defense as it was contractually

obligated to do, Olis would have been able to present this expert testimony to cripple

the government’s proof of motive and materiality. The expenditure on such an expert

would clearly have qualified as a “reasonable expense” under Olis’ various

advancement contracts with Dynegy.

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2. Absence of an Accounting Expert to Discredit Hecker

The government’s theory at trial was that Olis and his alleged coconspirators hid

crucial facts — the existence of the outside hedges and tear-up agreements — from

Jim Hecker, the so-called “gatekeeper.” See, e.g., TTx Day 1, 87:24-88:2, 97:22-98:11,

104:21-24; Day 8, 38:22-24, 77:17-21. Hecker testified that he felt the outside hedges

and tear-up agreements were improper. Yet, as discussed, the government expressly

abandoned the contention in the indictment that Dynegy’s accounting treatment was

false or improper, choosing instead to argue that the alleged scheme was simply to fool

Hecker.

Hecker was therefore a central government witness. He should have been

entirely discredited — and would have been, if Dynegy had funded Olis’ defense. With

such funding, Olis would have retained an accounting and audit expert such as Michael

Jayson, who has submitted a declaration demonstrating the testimony and analysis he

could have provided.

a. Outside Hedges and Tear-Ups Did Not Violate GAAP

Most importantly, an expert would have demonstrated that the outside hedges

and tear-up agreements did not render Dynegy’s accounting treatment for Project Alpha

improper. Jayson Decl. ¶¶ 20-21. GAAP principles in effect at the time Project Alpha

was consummated permitted the types of outside hedges and tear-up agreements the

parties employed here. Id. Indeed, even Hecker admitted that the GAAP rules were

not always clear, TTx Day 5, 31:3-7, and that at the time of Project Alpha’s negotiation

and implementation, he was unsure whether the outside hedging was appropriate, TTx

Day 5, 191:17-192:13; see also TTx Day 5, 79:13-16 (Hecker describing the rules for

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accounting for SPEs: “the rules get very complicated, very esoteric, and in many cases

counter-intuitive, and some of them just don’t make any darn sense.”). Even under the

government’s fraud-on-Hecker trial theory, this fact is extremely important: by

demonstrating that Hecker was simply wrong about the GAAP rules, the expert would

have showed that the supposed deception of Hecker was entirely immaterial. As

materiality is an element of the offenses charged against Olis, see Part III.D.1.b, supra,

raising such doubt about materiality would have resulted in acquittal. The expert

testimony concerning GAAP would likewise have been vital if the government had tried

to convict Olis of the charge in the indictment: because the indictment charged that the

alleged conspirators joined a scheme to publish false financial statements and

improperly account for Project Alpha, testimony that demonstrated that the accounting

was proper would have required acquittal.

b. Andersen Was Not Independent

Expert testimony would also greatly have aided counsel’s ability to impeach the

testimony of Hecker and the other Andersen witnesses at trial. The expert would have

persuasively demonstrated that Arthur Andersen was not independent with respect to

Project Alpha and that the contingent-fee arrangement rendered both Arthur

Andersen’s SAS 50 opinion and Dynegy’s Forms 10-K and 10-Q, the documents that

were the foundation for all of the charges, void and violated Texas’s accounting rules of

professional ethics. Jayson Decl. ¶¶ 4-7.

Although trial counsel attempted to raise this conflict of interest in cross-

examination, the impeachment was weak because expert testimony was needed. For

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instance, Hecker professed to have had no previous knowledge of the contingent fee,

although he conceded that it posed “a very significant potential question that would

need to be answered.” TTx Day 5, 174:4-178:21. Counsel was unable to follow up on

this concession. An expert would have testified that Andersen and Hecker suffered

from a disabling conflict of interest. even in the unlikely event that Hecker was

personally unaware of his firm’s fee arrangement. Jayson Decl. ¶ 6. Such testimony

would have permitted much stronger impeachment of the supposed victim in the

government’s trial theory.

3. General Inability to Prepare

Perhaps the most fundamental prejudice caused by the government’s

interference was the impairment of counsel’s ability to properly prepare to defend the

case.

Project Alpha was, by all accounts, a tremendously complicated and

sophisticated transaction. Simply understanding the fundamental facts of the case

therefore required substantial effort. Declaration of Terry Yates in Support of Olis’

Motion to Set Aside Conviction Pursuant to 28 U.S.C. § 2255 (“Yates Decl.”) ¶ 3.

The difficulty of understanding the facts was compounded by the government’s

production of millions of pages of discovery just a few months before the trial

commenced. Olis’ trial team did not receive its Brady and Jencks Act discovery until

August 8, 2003 — less than three months before trial commenced on November 3,

2003. Yates Tx (Kelley Decl. Ex. D) 55:5-56:23. The discovery consisted of over a

million documents, which amounted to over millions of total pages. Clark Tx (Kelley

Decl. Ex. F) 22:16-22; Yates Tx (Kelley Decl. Ex. D) 202:3-15, 269:10-12; Yates Decl. ¶

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4.

Olis’ trial team — consisting of only Terry Yates and Mark Clark — was

overwhelmed. Yates Decl. ¶¶ 5, 9. Dynegy paid the team less than $14,000 before

trial. The trial team was simply too small and underfunded to take all the steps

necessary to properly prepare Olis’ defense. Yates testified about the impact of

Dynegy’s refusal to pay his fees:

The fact that they held up payment for the fees that were due to us in Julyand August, it hurt us substantially . . . . I run a small office. I’ve gotdecent size overhead. My overhead runs about 35 to 42,000 a monthback then. And we were hurting in a big way, because most of my timewas being spent on this Olis case, and we weren’t getting paid for it.

. . . .

[The work load associated with the Olis case] was just tremendous. Andwe are trying to do this without — limited resources. We didn’t have themoney coming in. We were doing the work, but the money wasn’t comingin.

Q I think you had even started missing rent payments?

A Yes. I still — Oh, my landlord is a good guy and I owe him about$25,000 from that period . . . .

Q I guess from your bills, almost every weekend you were gettingready for trial?

A We were there every weekend, almost every [ ]weekend. I meanthe amount of work that we had to do and that compressed period of time,the amount of witnesses, SEC testimony, depositions, amount of documentsto go through . . . . It was tedious hard work, but we did it.

Q Now, I guess at this point in time, you also lost or because of thisimpact, Mr. Clark had to make other arrangements?

A Not only Mr. Clark. Almost everybody. We almost lost everybody.

Q Did this almost cause your business to fold?

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A Almost, yeah . . . . It was tough for a long period of time, but webuilt the thing back up. We are going again.

Yates Tx (Kelley Decl. Ex. D) 120:22-124:5.

Without Dynegy’s funding, the team had no ability to meet (over a few short

months) the government’s years-long, well-funded investigation. As discussed, the

team could not hire experts to help analyze the facts and present the truth to the jury.

Nor could it afford to staff the team with enough attorneys to properly review the

evidence, an investigator to investigate facts and witnesses, a jury consultant to help

with jury selection, or a database to store and use in searching the voluminous

discovery materials. This inability to fully prepare is reflected in the numerous

deficiencies discussed throughout this brief, including:

• counsel’s failure to contest Heil’s incorrect and conceptually bankrupt testimony

as discussed in subpart III.D.1, supra;

• counsel’s failure to fully impeach Hecker as discussed in subpart III.D.2, supra;

• counsel’s failure to object to the government’s unconstitutional constructive

amendment of the indictment, as discussed in part IV, infra;

• counsel’s failure to object to the Court speaking to a juror privately and out of the

presence of both counsel and Olis, in violation of Olis’ rights to be present and

have counsel present at critical stages of the proceedings, as discussed in Part

V, supra; and

• counsel’s failure to object to legally incorrect jury instructions that had the effect

of relieving the government of its burden to prove each element of charged

offenses beyond a reasonable doubt.

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All of this prejudice led to a conviction where it should not have been obtained.

Had the government not interfered with Olis’ ability to fund his own defense, it would not

have prevailed at trial.

IV. THE GOVERNMENT CONSTRUCTIVELY AMENDED THE INDICTMENT INVIOLATION OF OLIS’ FIFTH AMENDMENT RIGHTS

The Fifth Amendment guarantees that a criminal defendant will be tried only on

charges presented in a grand jury indictment. U.S. Const. amend. V. Olis’ Fifth

Amendment rights were violated when the government tried him — without objection

from Olis’ trial counsel — on a charge fundamentally different from the one contained in

the indictment.

A. The Indictment

The indictment alleged six counts against Olis. Count One alleged a conspiracy

to commit securities fraud, mail fraud and wire fraud. The other counts were entirely

derivative — those counts alleged no new facts, but instead incorporated Count One’s

allegations, and charged that the same alleged scheme involved substantive violations

of the securities, wire and mail fraud statutes. See Indictment (Docket # 1).

The indictment explicitly alleged that Project Alpha was a scheme to falsely

report financing activity as operating cash flows. Indictment ¶ 15; see also id. ¶ 19 (“the

Defendants and their coconspirators and agents well knew, intended, and believed

[that] Project Alpha was, in fact, a loan structured to appear as a 5-year natural gas

contract that should have been disclosed as cash flows from financing activities”

(emphasis added)). The indictment alleged that Project Alpha employed a “100%

hedging” strategy to insulate the involved banks from financial risk, and that reporting

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such an arrangement as operating income violated Generally Accepted Accounting

Principles (“GAAP”). Indictment ¶ 20. The indictment further alleged that in reporting

the cash flows as operating income, the Defendants “intentionally concealed from

Dynegy’s auditors, the SEC, Rating Agencies, lenders, market and securities analysts,

and the investing public” the fact that Project Alpha employed hedges and tear-up

agreements to ensure that the project would not lose money. Indictment ¶ 21.

According to the indictment, the Defendants therefore “falsely report[ed]” to the “Rating

Agencies, lenders, market and securities analysts, and the investing public” that the

cash flows were operating income rather than financing activities. Indictment ¶ 21. The

false reports “caused Dynegy’s cash flow from operations . . . to be materially

overstated” and caused Dynegy’s financial statements to be misleading. Indictment ¶

24.

B. Trial Evidence

The scheme asserted by the government at trial was not the same one alleged in

the indictment. At trial, the government eschewed any allegation that the purpose of

Project Alpha was falsely to characterize loan proceeds as cash flow from operations.

Instead, the government insisted that it mattered not at all whether the conspirators

believed that the accounting for Project Alpha was correct. Nor did it matter whether

Olis and his alleged co-conspirators intended falsely to characterize loan proceeds as

cash flow from operations. Instead, the government told the jury, the only question was

whether Olis and his alleged co-conspirators concealed the outside hedges and tear-

The government’s new theory conflicted with Hecker’s own testimony: “Dynegy21

or any other company doesn’t care what my opinion on accounting is individually. Theywant to know what Arthur Andersen opinion is and Arthur Andersen’s interpretation ofgenerally accepted accounting principles.” TTx Day 5, 10:6-12.

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ups from Hecker, Andersen’s engagement partner. Thus, the government’s entire21

prosecution rested on the contention that Olis and his coconspirators hid facts from the

“gatekeeper,” Hecker, in order that he provide an accounting opinion that would form

the basis of other entities’ conclusions about Project Alpha.

The government’s shift in strategy was evident from the opening statement.

AUSA Belinda Beek told the jurors that Hecker was Dynegy’s outside auditor, and that

he told Dynegy that “the banks could not eliminate all of their risk related to the buying

and selling of gas. If they eliminated 100 percent of their risk, with insurance or

guarantees, it was just a loan.” TTx Day 1, 86:7-87:23. Then she continued, “We’re

not saying that the rules were right or even commonly agreed upon, but these were Mr.

Hecker’s rules, and he’s the man they had to get through to put the label on it that they

needed to call it cash from operations.” Id. 87:24-88:2 (emphasis added); see also id.

94:19-20 (“Hecker may have been right, he may have been wrong, but he’s the guy

certifying it and he said you can’t do it.”). Beek stated that the evidence would show

that Dynegy filed reports with the SEC that “Mr. Hecker looked at and issued

accounting opinions that they were okay, but of course he did it without all the

information . . . . The accounting opinion that [the conspirators] caused Mr. Hecker to

issue that was wrong, or at least wrong in his opinion — again, whether it was right or

wrong was not the issue. He just didn’t go forward with all the information.” Id. 97:22-

98:11 (emphasis added). Finally, Beek summed up the case: “The evidence will show

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this case is not about accounting, it’s concealment. It doesn’t matter if Jim Hecker was

right or wrong. It just matters that he didn’t have all the information in front of him when

he made the decision.” Id. 104:21-24. Thus, the government commenced its

presentation to the jury by affirmatively modifying the nature and purpose of the alleged

scheme.

The government then hewed to its new fraud-on-Hecker theory of the case in

presenting evidence. Aside from Hecker’s own opinions, it presented no evidence that

the outside hedges and tear-up agreements violated GAAP or were otherwise

substantively improper. And even Hecker admitted that the GAAP rules were not

always clear, TTx Day 5, 31:3-7, and that at the time of Project Alpha’s negotiation and

implementation, he was unsure whether the outside hedging was appropriate, TTx Day

5, 191:17-192:13; see also TTx Day 5, 79:13-16 (Hecker describing the rules for

accounting for SPEs: “the rules get very complicated, very esoteric, and in many cases

counter-intuitive, and some of them just don’t make any darn sense.”). The government

likewise presented no evidence that Olis or his supposed coconspirators made or

intended to make any false representations to the SEC or investors — the government

neglected to demonstrate that the outside hedges and tear-ups rendered the

accounting result incorrect, and thereby abandoned any effort to show that Dynegy’s

public filings or statements were false because of the alleged fraud. Indeed, the

government could not even show that Olis hid the outside hedges from Arthur Andersen

(the “auditors” referred to in the indictment) because the evidence demonstrated that

Olis emailed a schedule containing the outside hedges to Kelvin Kelm, and Kelm

incorporated the hedges into a model he created. Rather, the government solely

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attempted to show that Olis agreed to hide the outside hedges and tear-ups from

Hecker — a man with whom Olis had no correspondence or interaction.

Finally, the government’s closing arguments cemented its constructive

amendment of the charges. AUSA Lewis argued, for instance, that “this whole case

was focused on what did the conspirators do to keep Hecker from knowing what the

facts were.” TTx Day 8, 38:22-24. He argued that “right or wrong, Mr. Hecker set the

rules. That is at the heart of this case. Mr. Hecker was the gatekeeper. He set the

rules. It doesn’t matter that some other accountant would have set different rules. He

was the gatekeeper.” Id. 77:17-21 (emphasis added).

Thus, the proof at trial and the government’s theory of guilt were fundamentally

different from the charges in the indictment. The gravamen of the indictment was Olis’

participation in a scheme to achieve an incorrect and false accounting result, and

thereby to defraud not just Hecker, but “Dynegy’s auditors, the SEC, Rating Agencies,

lenders, market and securities analysts, and investing public.” Indictment ¶ 21. But at

trial the government expressly eschewed any attempt to demonstrate that the

accounting result was improper because of the outside hedges and tear-ups, and

instead focused the jury’s attention exclusively on the question whether Olis hid facts

from Jim Hecker. The government thereby impermissibly amended the indictment.

Even more egregiously, the government’s constructive amendment eliminated

the concept of victim from the alleged fraud. There was simply no proof that Olis and

his alleged coconspirators sought either to obtain money from or deprive any victim of

money or property. None of the charges in the indictment specified an intended victim,

The Court’s mail and wire fraud instructions permitted the jury to convict upon22

finding that the alleged conspirators joined a scheme to “deprive” someone of money orproperty, TTx Day 8, 30:7-9, 32:8-10, but, as discussed in detail in Part V.C., infra,those instructions were erroneous. Mail and wire fraud convictions require proof thatthe defendant sought to obtain money or property from someone.

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even though conduct constitutes an illegal “scheme to defraud” only where the

defendant seeks to obtain money from a victim. See Part V.C.2, infra; United States v.

Walters, 997 F.2d 1219, 1227 (7th Cir. 1993); United States v. Ratcliff, 488 F.3d 639,

645 (5th Cir. 2007) (while “the misrepresentations in a mail fraud scheme need not be

made directly to the scheme’s victim, the alleged scheme to defraud must nevertheless

be one to defraud the victim” (citation omitted)). Count One came the closest to22

identifying a victim: it alleged that Olis intended to mislead the “Ratings Agencies,

lenders, market and securities analysts, and the investing public.” Indictment (Docket #

1) ¶ 24. But there was no suggestion at trial that the ratings agencies, lenders, or

market and securities analysts parted with any money or property, let alone that Olis

and his alleged accomplices obtained it from them. That leaves the investing public.

However, there are three fundamental problems with the theory that the alleged

conspirators sought to obtain money from the investing public.

First, there was no proof at trial that Dynegy or any of the alleged coconspirators

issued, bought, or sold Dynegy stock during the purported conspiracy. Absent such

proof, there was no showing that the alleged conspirators sought to obtain any money

or property under the so-called “scheme to defraud” investors.

Second, the government never proved that Hecker’s opinions were correct and

that the outside hedges and linked tear-ups to which he objected were in fact violative

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of GAAP. Instead, the government urged that it did not matter whether Hecker’s

opinions were right or wrong. Under this theory, it also did not matter whether the

outside hedges and linked tear-ups caused Dynegy’s financials to overstate cash flow

from operations. But investors who purchase stock after reviewing accurate financial

statements lose no money. Absent a GAAP violation or other falsehood, investors lost

nothing and the alleged deception was immaterial.

Third, Foster testified that he and the alleged coconspirators intended to

circumvent Hecker, but believed that the accounting was nevertheless correct. TTx Day

7, 102; see also TTx Day 7, 171:12-172:5. Absent a showing that Olis knew and

intended that the outside hedges and linked tear-ups would destroy the desired

accounting treatment, there was no proof that he intended and agreed to deprive

someone of money or property, let alone obtain it from them. Thus, even if the

government proved an intent to fool Hecker, its evidence failed to establish that

someone (i.e. the investing public) parted with money or property or that Olis intended

to obtain money or property as a result of that deceit. In other words, there was no

victim and, hence, no crime.

C. The Government Could Not Have Convicted Olis Under the TheoryAlleged in the Indictment

The evidence at trial did not prove the allegations in the indictment. There was

no proof that Dynegy’s accounting treatment violated GAAP or was improper because

of the outside hedges or tear-ups, that Olis intended to violate GAAP, or that Olis

agreed to deceive Andersen — Dynegy’s “auditors.”

As discussed, the government did not even attempt to argue that the outside

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hedges and linked tear-ups — to which Hecker objected — rendered Dynegy’s

accounting for Project Alpha wrong, or meant that the cash flows derived from Project

Alpha should properly have been classified as income from financing. In fact, the

evidence demonstrated the opposite:

• Gene Foster, the USAO’s key witness, acknowledged that he knew that Mike

Mott, Dynegy’s Controller — the person ultimately responsible for Project Alpha’s

accounting — disagreed with Hecker about the accounting and that Mott and

Dynegy’s “internal accountants at the end of the day were okay with the

transaction.” TTx Day 7, 102; see also TTx Day 7, 171:12-172:5 (Foster

confirming SEC deposition testimony that he believed Project Alpha was a “good

deal” and that the accounting treatment was proper).

• Mott disagreed with Hecker’s opinions and defended Alpha’s accounting —

outside hedges, tear-ups and all — in written and oral presentations to the SEC.

TTx Day 7, 102:22-103:1; Day 5, 168:21-23. See also Trial Exhibit 57, Mott

letter to Robert Herdman, dated April 19, 2002. A copy of Mott’s letter is

appended the Declaration of Ted W. Cassman as Exhibit C.

• After extensively reviewing the underlying documentation for Project Alpha,

PWC, the firm that replaced Andersen as Dynegy’s outside accountants after

Andersen was indicted, notified Dynegy that it was prepared to defend the

accounting of Project Alpha. Kelley Decl. Ex. I.

• Although the SEC concluded that Dynegy should restate its financials and re-

characterize the revenue from Project Alpha as financing instead of operations, it

did not require the consolidation of ABG Gas Supply with Dynegy — a result that

This email was provided by the government in discovery prior to trial, but23

counsel with their limited resources never found it.

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would necessarily have followed if it shared Hecker’s concern about the tear-ups

and outside hedges. TTx Day 5, 158:22-159:7, 170:2-171:4. The SEC’s action

was not consistent with the position that Hecker had taken on the accounting for

Project Alpha. TTx Day 5, 161:13-23.

Indeed, the expert analysis prepared by Mike Jayson and discussed in Part III, supra,

reveals that Dynegy’s accounting for the outside hedges and tear-ups was proper under

GAAP principles applicable at the time. Jayson Decl. ¶¶ 8-22. Thus, no jury could

have found that Olis, whose responsibilities related to Project Alpha’s tax treatment,

intended to reach an incorrect accounting result.

Furthermore, the evidence conclusively established that Andersen (the “auditors”

referred to in the indictment) knew about the outside hedges and tear-ups — and that

Olis was the one who provided the firm with much of its information. On April 24, 2001,

Olis sent Kelvin Kelm in Andersen’s tax department an email with a schedule that

expressly listed both the ICA and ABG Gas Holding outside hedges. Day 3, 125:13-

126:20, Trial Ex. 21. Kelm, in fact, relied upon that email and another from Olis to

create a model of Project Alpha that accounted for the presence of the outside hedges.

TTx Day 3, 109:6-109:17, 112:1-6; Trial Ex. 20.

Newly-discovered evidence similarly establishes that on April 6, 2001, Debbie

Ramirez of Vinson & Elkins sent numerous people — including Kelm, Muller and

Dodson, each an Andersen partner — an email that expressly documented the ICA

hedge. Cassman Decl. Ex. B. The email establishes that, regardless of Olis’ conduct,23

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and contrary to Hecker’s express testimony, Andersen knew about the ICA hedge.

Moreover, the email was sent not only to Kelm and Muller in Andersen’s tax

department, but also to Marshall Dodson — the individual who Hecker himself identified

as his right-hand man.

Indeed, as discussed in the Facts section and Part III.D.2, supra, Andersen and

ICA had a 50% profit-sharing agreement. ICA was well aware of the outside hedges

and tear-ups. And as Andersen and ICA were partners in a joint venture, Andersen had

constructive — if not actual — knowledge of the outside hedges and tear-ups. Cf.

Fisher v. Trainor, 242 F.3d 24, 32 n.7 (1st Cir. 2001).

Thus, the indictment’s charges that Olis agreed to hide the outside hedges and

tear-ups from Andersen as an institution and to disseminate false financial statements

is contradicted by the evidence. The government could not have convicted Olis of the

charges in the indictment.

D. The Government Worked an Unconstitutional ConstructiveAmendment

By fundamentally shifting its theory of prosecution, the government tried Olis on

a charge that was never presented to the grand jury. Such a trial constitutes a per se

violation of Olis’ Fifth Amendment right to avoid charges not presented by a grand jury,

and requires reversal.

“[T]he charges contained in an indictment may not be broadened or altered

through amendment, except by the grand jury itself.” United States v. Chandler, 858

F.2d 254, 256 (5th Cir. 1988) (citing Stirone v. United States, 361 U.S. 212, 215-17, 80

S. Ct. 270, 272-73 (1960)). “Such amendments need not be explicit. An implied or

79

constructive amendment also constitutes reversible error.” Id. at 256.

A constructive amendment occurs when the government changes its theoryduring trial so as to urge the jury to convict on a basis broader than thatcharged in the indictment, or when the government is allowed to prove anessential element of the crime on an alternative basis permitted by thestatute but not charged in the indictment.

United States v. Robles-Vertiz, 155 F.3d 725, 728 (5th Cir. 1998) (quotation marks

omitted). In short, “the government may not obtain an indictment alleging certain

material elements or facts of a crime, then seek a conviction on the basis of a different

set of elements or facts.” Id. This is so regardless of whether the alternative facts

presented at trial could constitute a crime under the statute charged, or even whether

the indictment could have been couched in general terms encompassing both the

particular facts alleged in the indictment and those proved at trial. When only one

particular set of material facts is charged, the conviction must rest on proof of those

facts. Stirone, 361 U.S. at 218-19, 80 S. Ct. at 274; United States v. Chambers, 408

F.3d 237, 242-44 (5th Cir. 2005); United States v. Adams, 778 F.2d 1117, 1125 (5th

Cir. 1985).

When the proof deviates from the charge in such a manner as to constitute a

constructive amendment, the conviction is “reversible per se.” Chambers, 408 F.3d at

241 (quoting Adams, 778 F.2d at 1123). A constructive amendment

destroy[s] the defendant’s substantial right to be tried only on chargespresented in an indictment returned by a grand jury. Deprivation of such abasic right is far too serious to be treated as nothing more than a varianceand then dismissed as harmless error. The very purpose of the requirementthat a man be indicted by grand jury is to limit his jeopardy to offensescharged by a group of his fellow citizens acting independently of eitherprosecuting attorney or judge. Thus the basic protection the grand jury wasdesigned to afford is defeated by a device or method which subjects the

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defendant to prosecution for [conduct] which the grand jury did not charge.

Stirone, 361 U.S. at 217-18, 80 S. Ct. at 273-74 (citation and footnote omitted).

The Supreme Court in Stirone reversed a conviction where the indictment

charged the defendant with violating the Hobbs Act by interfering with interstate

commerce in concrete, but at trial the government presented evidence of interference

with both interstate commerce in concrete and prospective steel shipments. 361 U.S.

at 213-15, 80 S. Ct. at 271-72. The court assumed that interference with either type of

commerce could be a violation of the Hobbs Act, but observed that the indictment did

not charge interference with prospective steel shipments. Id., 361 U.S. at 217, 80 S.

Ct. at 273. The prospective steel shipments could have formed the basis for the jury’s

conviction, and reversal was therefore required since the conviction may have rested on

a charge not issued by the grand jury. Id., 361 U.S. at 218-19, 80 S. Ct. at 274.

Following Stirone, the Fifth Circuit has reversed numerous convictions based

upon impermissible constructive amendments. For example, in United States v.

Hoover, 467 F.3d 496 (5th Cir. 2006), the court reversed the conviction at issue

because “the indictment charged Hoover with making one false statement, and the jury

instructions allowed the jury to convict him for making a different false statement, [so]

the trial court constructively amended Hoover’s indictment.” Id. at 502. In Chambers

the court reversed a conviction where the indictment charging a violation of 18 U.S.C. §

922(g)(1) (felon in possession of ammunition) alleged that the interstate commerce

element of the crime was satisfied because the ammunition at issue had moved in

interstate commerce, whereas the trial evidence showed only that constituent

81

components of the ammunition moved in interstate commerce. 408 F.3d 239-40, 245-

47. The government had impermissibly proved its case “on the basis of a set of facts

different from the particular facts alleged in the indictment.” Id. at 241. In United States

v. Chandler, 858 F.2d 254 (5th Cir. 1988), the court reversed a conviction where the

indictment charged that the defendant embezzled $20,858 using a false entry in a bank

record, but the trial evidence constructively amended the pleading by showing that the

defendant had taken smaller sums totaling $20,858. Id. at 257. In Adams the court

found a constructive amendment where the indictment charged the defendant with

purchasing a handgun using a driver’s license with a false name, but the jury was

permitted to convict on the theory that the defendant used a driver’s license bearing a

false address. 778 F.2d at 1124-25 (“when only one kind of falsity is charged to have

been made in furnishing a license, a conviction must rest on that charge and not

another, even though a conviction might have rested on a more general indictment”).

And in United States v. Salinas, 601 F.2d 1279 (5 Cir. 1979), the court reversedth

because the indictment charged aiding and abetting a certain bank officer in

misapplying funds, but the evidence showed aiding and abetting a different officer. Id.

at 1287-91. See also Chambers, 408 F.3d at 242-44 (reviewing cases).

Likewise here, the government sought to convict Olis based upon a theory

fundamentally different from the one presented in the grand jury’s indictment. The

grand jury charged Olis with seeking to obtain an incorrect accounting result and cause

Dynegy to submit false information to its “auditors,” the SEC and investors. At trial, the

government abandoned this theory altogether, and made no effort to prove that Olis

We recognize that the Fifth Circuit has held in rare circumstances that the24

discretionary “plain error” rule described in United States v. Olano, 507 U.S. 725, 731-34, 113 S. Ct. 1770, 1776-77 (1993), permits a reviewing court to leave undisturbed aconviction on constructively amended charges when trial counsel failed to object. United States v. Fletcher, 121 F.3d 187, 191-93 (5th Cir. 1997); United States v. Reyes,102 F.3d 1361, 1364-55 (5th Cir. 1996). Those cases are not apposite here becausethey did not call into question the precept on which Olis relies: a trial objection to theconstructive amendment would have required acquittal, see Chambers, 408 F.3d at 247n.6, and thus trial counsel was ineffective for failing to proffer such an objection.

In any case, the special circumstances present in Fletcher and Reyes are notpresent here, and no sound principle would permit the Court to ignore the previousdecisions that “emphasized that a constructive amendment is so pernicious as torequire reversal per se.” Fletcher, 121 F.3d at 193 n.6. In Fletcher and Reyes, theCourt of Appeals found that the evidence presented at trial was sufficient to supportconviction on the charges presented in the indictment or the amended chargespresented at trial. Fletcher, 121 F.3d at 193 & n.6; Reyes, 102 F.3d at 1365. Thus, theFletcher and Reyes courts found no violation of the defendants’ “substantial rights”arising out of the constructive amendments. Fletcher, 121 F.3d at 193; Reyes, 102F.3d at 1365-66. Furthermore, the Fletcher and Reyes courts worried that, because theevidence was sufficient to prove the charges in the indictments, the defendants in thosecases would have gained nothing by objecting at trial, and therefore had an incentive to“sandbag” by purposely foregoing a fruitless objection in order to earn a reversal onappeal. Fletcher, 121 F.3d at 193; Reyes, 102 F.3d at 1366. Here, by contrast, Olis’substantial rights were prejudiced because the government expressly declined to provethe charges in the indictment. Thus, this case is a “typical case, [in which] theconstructive amendment broaden[ed] the indictment such that a defendant might beconvicted for a crime not charged therein.” Fletcher, 121 F.3d at 193 n.6 (emphasis inoriginal). Moreover, unlike the “unusual” situations in Fletcher and Reyes, Olisobviously “would have gained something by objecting” to the constructive amendment. Reyes, 102 F.3d at 1366. An objection would have required acquittal because thegovernment did not prove the charges in the indictment. Chambers, 408 F.3d at 247n.6. Reversal is warranted even under the plain error standard.

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intended to submit or did in fact submit false information to the SEC and investors.

Under Stirone, Chambers, Adams and the other constructive amendment cases cited

above, the government’s bait-and-switch cannot stand — it violated Olis’ Fifth

Amendment rights, and requires reversal per se.24

In Lucas, the court considered a petition by a state prisoner under 28 U.S.C. §25

2254. 179 F.3d at 419. As the Lucas court noted, states are not subject to the strictFifth Amendment requirement that felony charges be presented to a grand jury. Id. at417. Nonetheless, a variance between a charge and trial evidence may beunconstitutional where it deprives a state defendant of notice of the nature of theaccusations against him. Id. The court considered the effectiveness question in thiscontext, but noted that in federal cases, constructive amendments are per seprejudicial, and suggested that counsel’s failure to object to a constructive amendment

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E. Ineffective Assistance of Counsel

Despite the obvious constitutional violation discussed above, Olis’ trial counsel

failed to object to the government’s constructive amendment of the indictment. That

failure constituted ineffective assistance of counsel.

Defense counsel is constitutionally ineffective, and reversal of the conviction is

required, when “counsel’s performance was objectively deficient and . . . the defendant

was prejudiced by counsel’s deficient performance.” Wood v. Quarterman, 491 F.3d

196, 202 (5th Cir. 2007) (citing Strickland v. Washington, 466 U.S. 668, 687, 104 S. Ct.

at 2064 (1984)). “Counsel’s performance is evaluated against an objective standard of

reasonable performance based on accepted professional norms.” Id. “To show

prejudice, a petitioner must establish that but for counsel’s performance, there is a

reasonable probability that the outcome of the proceeding would have been different.”

Id. at 202-03.

Counsel’s failure to object to an unconstitutional constructive amendment

constitutes ineffective assistance. Lucas v. O’Dea, 179 F.3d 412, 418-19 (6th Cir.

1999). Such a failure both falls below the level of competence required by Strickland

and prejudices the defendant because the objection would have necessitated dismissal.

Id. Counsel can have no objectively reasonable reason to forego dismissal of criminal25

in federal court is even more obviously ineffective in federal court than in state. Id. at419.

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charges, and failure to seek such dismissal where it is warranted obviously prejudices a

defendant who is later convicted. See Young v. Dretke, 356 F.3d 616, 629-30 (5th Cir.

2004) (finding that counsel’s failure to make a motion that would have led to dismissal

of a murder charge clearly constituted ineffective assistance under Strickland and its

progeny); see also Williams v. Taylor, 529 U.S. 362, 393, 120 S. Ct. 1495, 1513 (2000)

(holding that Strickland’s prejudice prong is satisfied when “the ineffectiveness of

counsel . . . deprive[s] the defendant of a substantive or procedural right to which the

law entitles him”). Thus, counsel’s failure to object to the constructive amendment in

the case at bar — an objection that would have required dismissal per se — was

constitutionally ineffective.

F. No Procedural Default

As noted, Olis did not raise the constructive amendment objection at trial or on

direct review. But the issue is not defaulted. In addition to constituting its own

constitutional violation, counsel’s ineffective failure to raise the constructive amendment

objection provides a proper justification for Olis to raise the issue on collateral review.

Although generally a petitioner “may not raise an issue for the first time on

collateral review without showing both ‘cause’ for his procedural default, and ‘actual

prejudice’ resulting from the error,” United States v. Shaid, 937 F.2d 228, 232 (5th Cir.

1991) (en banc), “ineffective assistance of counsel, if shown, is sufficient to establish

the cause and prejudice necessary to overcome a procedural default,” United States v.

Walker, 68 F.3d 931, 934 (5th Cir. 1995); see also United States v. Conley, 349 F.3d

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837, 839 n.1 (5th Cir. 2003). As discussed above, Olis received ineffective assistance

when counsel failed to object to the constructive amendment, and therefore Olis is not

barred from raising the issue on collateral review. See Lucas, 179 F.3d at 418-19.

V. INEFFECTIVE ASSISTANCE OF COUNSEL

Olis’ conviction must be set aside because his trial counsel was constitutionally

ineffective. As discussed, defense counsel is constitutionally ineffective, and reversal

of the conviction is required, when “counsel’s performance was objectively deficient and

. . . the defendant was prejudiced by counsel’s deficient performance.” Wood, 491 F.3d

at 202; Strickland, 466 U.S. at 687, 104 S. Ct. at 2064. “Counsel’s performance is

evaluated against an objective standard of reasonable performance based on accepted

professional norms.” Wood, 491 F.3d at 202. “To show prejudice, a petitioner must

establish that but for counsel’s performance, there is a reasonable probability that the

outcome of the proceeding would have been different.” Id. at 202-03.

Counsel’s failures in the case at bar were manifold. Counsel:

• failed to object to the government’s constructive amendment of the indictment,

where such an objection would have required dismissal of the charges against

Olis;

• agreed to permit the Court to speak to a juror privately and out of the presence

of both counsel and Olis, in violation of Olis’ rights to be present and have

counsel present at critical stages of the proceedings;

• failed to object to legally incorrect jury instructions that had the effect of relieving

the government of its burden to prove each element of charged offenses beyond

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a reasonable doubt;

• failed to object when the government elicited expert testimony from an

unqualified witness; and

• to the extent the Court finds that the deficiencies discussed in Part III, supra,

were not caused by government misconduct, Olis submits that his counsel

unreasonably failed to hire necessary experts or otherwise fully challenge the

government’s vulnerable case.

In each of these instances, trial counsel’s performance was fundamentally inadequate.

Olis’ conviction must be vacated.

Further, to the extent that appellate counsel could have raised any of these trial

errors on appeal — under the “plain error” standard or otherwise — Olis submits that

appellate counsel was also constitutionally ineffective. See United States v. Phillips,

210 F.3d 345, 348-52 (5th Cir. 2000) (“A criminal defendant has a constitutional right to

receive effective assistance of counsel on direct appeal”); Pollard v. Delo, 28 F.3d 887,

889 (8th Cir. 1994) (recognizing that, even if trial counsel failed to preserve an

objection, a habeas petitioner may show that appellate counsel was ineffective “by

showing that reasonable professional performance could not have omitted the [errors]

from review under a plain error standard”). Here, as we demonstrate, the record

established several grounds for reversal of Olis’ conviction that were not raised on

appeal. Accordingly, Olis was also deprived of his sixth amendment right to the

effective assistance of counsel at the appellate stage.

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A. Failure to Object to Constructive Amendment of Indictment And toRaise the Issue on Appeal

As discussed in Part IV, supra, the government sought to convict Olis based upon

a theory fundamentally different from the one presented in the grand jury’s indictment.

The grand jury charged Olis with seeking to conduct a transaction that did not comply

with GAAP, to deceive Dynegy’s auditors and to cause Dynegy to submit false

information to the SEC and investors. At trial, however, the government jettisoned all of

those allegations. Instead, the government expressly argued that it need not show that

Project Alpha did not comply with GAAP, that the accounting treatment was “false,” or

that Arthur Andersen was deceived. Rather, the government asserted only that Olis

agreed to hide facts from Hecker, the so-called “gatekeeper.” That bait-and-switch

violated Olis’ Fifth Amendment rights, and required reversal per se.

Nonetheless, Olis’ counsel permitted the constructive amendment to pass without

objection. As discussed in Part IV, that failure constituted ineffective assistance of

counsel.

B. Failure to Object to Biased Juror and Violation of Olis’ SixthAmendment Rights To Be Present and to Have Counsel Present andFailure to Raise The Issue on Appeal

After the jury was empaneled, one of the jurors told the Court, “I will not be able to

judge this case fairly.” In response, at a side bar and out of Olis’ presence, the Court

suggested that it speak to the juror privately about this issue. Counsel for both parties

concurred. However, no inquiry was made of Olis, and no waiver was taken on the

record or otherwise. Despite the express statement of bias and without Olis’ agreement,

defense counsel permitted the juror to remain on the panel. Under the Fifth Circuit’s

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binding precedents, these circumstances violated Olis’ constitutional rights and

constituted ineffective assistance of counsel.

1. Facts

At the end of the first day of trial, after the prosecution’s opening statement, a

juror informed the judge that the trial schedule could pose an obstacle to the juror’s

obligation to pick up her daughter after school. TTx Day 1, 111:3-9. The Court told

counsel that he had discussed the issue with the juror and “I think I’ve calmed her down

and got it worked out.” Id. 111:10-16.

However, the next day, after testimony had commenced, the Court informed

counsel during a sidebar conference, out of Olis’ presence, that the juror had sent the

Court a note, which read:

I am sorry to inform you that I will not be able to judge this case fairly,knowing that my boss will not pay me for missed days and how my child willbe getting home from school, because my income is the main source for myhousehold. So, it is not fair for all that I remain on the jury. So, I’m askingyou to please dismiss me from the case.

TTx Day 2, 121:22-122:4 (emphasis added). The Court proposed to counsel that the

juror be paid weekly — and suggested that the $40 per day stipend was likely in the

range of her daily income from work — but that the juror remain on the panel. Id. 122:5-

12. Olis’ trial counsel stated that this arrangement “is acceptable with the defense.” Id.

122:13.

Later that day, during another sidebar, all counsel and the Court agreed that the

Court should communicate with the juror ex parte and explain the Court’s decision. Id.

223:19-224:16. After that ex parte communication, the Court informed counsel that the

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juror had stated that her income was $80 per day, and that the Court had suggested that

the juror ask her boss to “make up the difference.” The Court reported that the juror

“was not happy with that outcome, but I told her basically we could not excuse her . . . . I

told her it was just too late.” Id. 224:20-225:7. The juror remained on the panel through

verdict.

2. The Inclusion of an Admittedly Biased Juror Violated Olis’ Sixth Amendment Rights

A trio of cases demonstrate that trial counsel was constitutionally deficient in

failing to object to the inclusion of the biased juror on Olis’ panel, and that this deficiency

requires collateral relief from the conviction. In Virgil v. Dretke, 446 F.3d 598 (5th Cir.

2006), the court granted a state habeas petition alleging ineffective assistance of

counsel on facts very similar to those at bench. The Virgil court relied heavily on a Sixth

Circuit case, Hughes v. United States, 258 F.3d 453 (6th Cir. 2001), which granted a §

2255 motion on analogous facts. And Hughes in turn relied heavily on an earlier Fifth

Circuit case, United States v. Nell, 526 F.2d 1223 (5th Cir. 1976). Those cases set forth

the applicable framework for analyzing counsel’s deficient performance here.

Our criminal justice system rests firmly on the proposition that before aperson’s liberty can be deprived, guilt must be found, beyond a reasonabledoubt, by an impartial decisionmaker. The Sixth Amendment provides in part:“In all criminal prosecutions, the accused shall enjoy the right to a speedy andpublic trial, by an impartial jury of the State and district wherein the crime shallhave been committed.”

Virgil, 446 F.3d at 605 (emphasis in original). “Put simply, ‘[T]he right to jury trial

guarantees to the criminally accused a fair trial by a panel of impartial, indifferent

jurors.’” Id. (quoting Irvin v. Dowd, 366 U.S. 717, 722, 81 S. Ct. 1639, 1642 (1961)).

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The Supreme Court teaches that “the mere existence of any preconceived notion

as to the guilt or innocence of the accused” is not sufficient to rebut the usual

presumption of impartiality, so long as “the juror can lay aside his impression or opinion

and render a verdict based on the evidence presented in court.” Irvin, 366 U.S. at 723,

81 S. Ct. at 1642-43. But where a juror makes an “open declaration of her inability to be

fair,” and neither the court nor counsel makes “any attempt at clarification or

rehabilitation, there is no ambiguity in the record as to her bias; [the juror’s] express

admission is the only evidence available to review.” Hughes, 258 F.3d at 459; see also

Virgil, 446 F.3d at 607, 610 & n.52, 613; Nell, 526 F.2d at 1230. “[W]ithout more, juror

bias can always be presumed from such unequivocal statements.” Hughes, 258 F.3d at

460.

The Virgil, Hughes, and Nell courts each reversed convictions by juries that

included one or more people who had expressly confessed bias. In Virgil, one juror

stated that “his relationship with law-enforcement officers would preclude him from

serving as an impartial juror,” and another stated that because his mother had been

mugged, he could not be “fair and impartial.” 446 F.3d at 609-10. In Hughes, a juror

stated that because her nephew was a police officer and she knew other officers, “I don’t

think I could be fair.” 258 F.2d at 456. In Nell, one juror stated that he was biased

because he disliked unions, and another generally disclosed a possible association with

the defendant. 526 F.2d at 1227-29. Crucially, in each case neither counsel nor the trial

court rehabilitated the jurors or otherwise made any substantial efforts to assure that the

jurors could set aside their biases and judge the case fairly. Virgil, 446 F.3d at 604, 613;

It appears overwhelmingly likely that Olis would have been the target of the26

juror’s bias. The juror expressly mentioned her meager income in requesting to bereleased. At trial, the government unnecessarily presented evidence of Olis’ substantialincome in the years 1999-2002. TTx Day 7, 180:10-183:6, 191:14-193:8.

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Hughes, 258 F.3d at 456, 458-60; Nell, 526 F.2d at 1230. On such records, the

inclusion of the jurors on the respective jury panels was improper.

So here, the juror directly stated that she could not “judge this case fairly.” And

while the record reflects that the trial judge spoke to the juror ex parte, it does not reflect

any determination that the juror could set aside her expressed bias and judge the case

fairly. Under Virgil, Hughes, and Nell, the Court must give dispositive credence to the

juror’s unchallenged and unrehabilitated expression of bias.

Further, it is irrelevant that the juror’s statement of bias was somewhat

ambiguous, such that it cannot be known for certain whether the juror was biased

against the defendant or the government. So long as the “prejudicial fallout existed,” it26

was immaterial “on which side the prejudice would fall.” Hughes, 258 F.3d at 460

(quoting Nell, 526 F.2d at 1228).

Thus, the cases make clear that the inclusion of the admittedly biased juror on

Olis’ panel violated his Sixth Amendment right to an impartial jury.

3. Counsel Was Constitutionally Ineffective in Failing to Object to the Sixth Amendment Violation and For Failure to Raise the Issue on Appeal

The cases likewise firmly establish that counsel’s failure to object to the inclusion

of an admittedly biased juror constitutes ineffective assistance. Such a failure is clearly

both objectively deficient and prejudicial.

Virgil and Hughes each directly hold that failing to seek to exclude, or at least

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rehabilitate, an admittedly biased juror is deficient performance under Strickland. Virgil,

446 F.3d at 610 (“We hold that [the jurors’] unchallenged statements during voir dire that

they could not be ‘fair and impartial’ obligated Virgil’s counsel to use a peremptory or

for-cause challenge on these jurors. Not doing so was deficient performance under

Strickland.”); Hughes, 258 F.3d at 463 (“The question whether to seat a biased juror is

not a discretionary or strategic decision. The seating of a biased juror who should have

been dismissed for cause requires reversal of the conviction.”).

The prejudice prong of the Strickland inquiry is likewise easily established. The

Virgil court observed that “Strickland’s prejudice inquiry is process-based: Given

counsel’s deficient performance, do we have confidence in the process afforded the

criminally accused?” 446 F.3d at 612. “Our criminal justice system is predicated on the

notion that those accused of criminal offenses are innocent until proven guilty and are

entitled to a jury of persons willing and able to consider fairly the evidence presented in

order to reach a determination of guilt or innocence.” Id. at 613. Olis “was denied these

basic principles when two jurors expressed their inability to serve fairly and impartially in

his case.” Id. “Had [Olis’] counsel challenged for cause [the biased juror], the trial judge

would have been forced to rule, a ruling that counsel could have objected to and

pursued as error on direct appeal. There is little doubt that such an error would have

been sustained.” Id. Thus, “[g]iven the fundamental nature of the impartial jury and the

consistent line of Supreme Court precedent enforcing it,” the Court “must conclude that

‘the result of [Olis’ trial] is unreliable because of a breakdown in the adversarial process

that our system counts on to produce just results.’” Id. (quoting Strickland, 466 U.S. at

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696, 104 S. Ct. at 2069). “Such an unreliable result dictates the conclusion that Olis’

defense was prejudiced under Strickland.” Id.

Moreover, as in Virgil, “[t]he process-failure in this case stems as much from the

unknown as from the known.” Id. “No effort was made to explore the depth or intensity

of [the juror’s] bias toward [Olis].” Id. So far as the record reflects, “[n]o question was

put to [the juror] as to whether [she] would be able to set aside [her] preconceived

notions and adjudicate [Olis’] matter with an open mind, honestly and competently

considering all the relevant evidence.” Id.

In sum, the Court cannot have “confidence in the adversarial process that

resulted in” Olis’ conviction. “By law, [Olis] was prejudiced by the presence” of a partial

juror. Id. at 613-14. Counsel’s failure to object to this fundamental violation was

deficient and resulted in constitutionally ineffective assistance of counsel. Id. at 614;

Hughes, 258 F.3d at 463-64.

4. The Court’s Ex Parte Communication with the Juror Violated Olis’Constitutional Rights to be Present and to Have Counsel Present

Counsel’s response to the biased juror issue was deficient for another reason:

without seeking an informed waiver from Olis, counsel permitted the Court to conduct a

critical stage of the proceedings out of the presence of both Olis and his counsel. Such

ex parte conduct of critical proceedings violated Olis’ due process and Sixth Amendment

rights to be personally present and to have assistance of counsel, and counsel’s

acquiescence was therefore constitutionally ineffective.

The Sixth Amendment guarantees assistance of counsel, a guarantee that is

violated when counsel is absent, and thus “a trial is unfair if the accused is denied

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counsel at a critical stage of his trial.” United States v. Cronic, 466 U.S. 648, 659

(1984). Likewise, the criminal defendant himself has a due process right to be present

when his presence has a “relation, reasonably substantial, to the fulness of his

opportunity to defend against the charge.” United States v. Gagnon, 470 U.S. 522, 526,

105 S. Ct. 1482, 1484 (1985) (quoting Snyder v. Massachusetts, 291 U.S. 97, 105-06,

108, 54 S. Ct. 330, 332, 333 (1934)); see also Kentucky v. Stincer, 482 U.S. 730, 745,

107 S. Ct. 2658, 2667 (1987) (“a defendant is guaranteed the right to be present at any

stage of the criminal proceeding that is critical to its outcome if his presence would

contribute to the fairness of the procedure”); Rushen v. Spain, 464 U.S. 114, 117, 104 S.

Ct. 453, 455 (1983) (“Our cases recognize that the right to personal presence at all

critical stages of the trial and the right to counsel are fundamental rights of each criminal

defendant”); Faretta v. California, 422 U.S. 806, 819 n.15, 95 S. Ct. 2525, 2533 n.15

(1975) (“an accused has a right to be present at all stages of the trial where his absence

might frustrate the fairness of the proceedings”).

A conference with a juror who has directly expressed bias bears a substantial

relation to a defendant’s opportunity to defend against the charge, Hopt v. Utah, 110

U.S. 574, 578, 4 S. Ct. 202, 204 (1884); United States v. Hanno, 21 F.3d 42, 47 (9th Cir.

1994); cf. also Fed. R. Crim. P. 43(a)(2) (defendant’s right to be present at jury

impanelment), and such a conference is indisputably a critical stage in criminal

proceedings because a defendant has a constitutional right to be tried by an impartial

jury, see U.S. Const. amend. VI; Virgil, 446 F.3d at 605. Thus, Olis had constitutional

rights to be present and to have his counsel present at the Court’s conferences with the

Counsel was not entitled to unilaterally waive Olis’ rights to be present and27

have counsel present at a critical stage. The right to be present during critical stages ofa trial may only be waived by “voluntary, knowing, and intelligent” abandonment. Campbell v. Wood, 18 F.3d 662, 671-72 (9th Cir. 1994) (citing Johnson v. Zerbst, 304U.S. 458, 464 (1938)); see also Cohen v. Senkowski, 290 F.3d 485, 491 (2d Cir. 2002);United States v. Davis, 61 F.3d 291, 301-02 (5th Cir. 1995). Likewise, a defendant maywaive the right to counsel only through a “knowing, intelligent ac[t] done with sufficientawareness of the relevant circumstances.” Iowa v. Tovar, 541 U.S. 77, 81 (2004)(quoting Brady v. United States, 397 U.S. 742, 748 (1970)); Faretta, 422 U.S. at 835. As neither counsel nor the Court informed Olis that the juror had admitted bias, Oliscould not knowingly and intelligently waive his rights to be present and to have counselpresent at proceedings related to that expressed bias.

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confessedly biased juror. Yet Olis’ counsel abandoned these rights without consulting

Olis or informing him of the potential bias problem. Olis Decl. ¶ 5 (Olis did not learn

about the juror’s expression of bias until he reviewed the trial transcripts after his

conviction). 27

Under the Virgil and Hughes cases discussed above, trial and appellate counsel’s

failure to vindicate Olis’ rights by objecting to the ex parte nature of the Court’s

communications with the juror and by raising the issue on appeal was objectively

unreasonable. The cases teach that “juror bias can always be presumed from . . .

unequivocal statements” such as that at issue here. Hughes, 258 F.3d at 460; see also

Virgil, 446 F.3d at 607, 610 & n.52, 613. If, as discussed above, counsel had a duty to

seek to exclude the biased juror from Olis’ panel, then counsel must also have been

required to take the step of protecting Olis’ constitutional rights by demanding that

defendant and counsel be present during conferences with the juror.

C. Failure to Object to Erroneous Jury Instructions And to Raise theIssue on Appeal

Olis’ trial and appellate counsel were also ineffective for failing to object to

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erroneous jury instructions concerning the wire and mail fraud statutes and for failing to

raise this issue on appeal. These failures prejudiced Olis because the government’s

course of proof was not sufficient to demonstrate guilt under the proper legal standards.

Moreover, the legal infirmities in the mail and wire fraud convictions infects the other

counts as well, and reversal is required on all counts.

1. Erroneous Instruction Concerning Interstate Commerce Element of Wire Fraud

With respect to the wire fraud counts, the Court instructed the jury, “It is not

necessary for the government to prove . . . that the material transmitted by wire was

itself false or fraudulent.” TTx Day 8, 32:21-24. Olis’ counsel made no objection to this

instruction. Nor was the issue raised on appeal. But the instruction was incorrect as a

matter of law.

The wire fraud counts charged a scheme involving the filing with the SEC of two

Form 10-Qs and one Form 10-K. Indictment Counts 4-6. Such filings are required by

law. See TTx Day 5, 48:4-15; Day 6, 72:10-16; 15 U.S.C. § 15m(a), 17 C.F.R. §§

240.13a-13, 249.308a, 249.310. But where a wired statement is required by law, it

cannot form the basis of a wire fraud conviction unless the statement itself is false or

fraudulent. United States v. Curry, 681 F.2d 406, 412 (5th Cir. 1982) (“mailings of

documents which are required by law to be mailed, and which are not themselves false

and fraudulent, cannot be regarded as mailed for the purpose of executing a fraudulent

scheme”) (citing Parr v. United States, 363 U.S. 370, 390-91 (1960)); United States v.

Lake, 472 F.3d 1247, 1256 (11th Cir. 2007) (following Parr and Curry in the wire fraud

context); see also United States v. Cross, 128 F.3d 145, 149-52 (3d Cir.1997); United

Although Parr and Curry analyzed the mail fraud statute, “[t]he Supreme Court28

has said that because the mail and wire fraud statutes share the same language inrelevant part, the same analysis applies to each.” United States v. Mills, 199 F.3d 184,188 (5th Cir. 1999) (citing Carpenter v. United States, 484 U.S. 19, 25 n. 6, 108 S. Ct.316, 320 n.6 (1987)).

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States v. Gray, 790 F.2d 1290, 1298 (6th Cir.1986). Thus, it was “necessary for the28

government to prove . . . that the material transmitted by wire was itself false or

fraudulent,” and the instruction to the contrary was incorrect.

The instructional error was vitally important. As discussed in Part IV, supra, the

government’s proof at trial diverged from the allegations in the indictment. The

government made no effort to demonstrate that Dynegy’s accounting treatment for

Project Alpha was substantively incorrect because of the outside hedges and tear-ups.

Thus, it made no showing that Dynegy’s Forms 10-Q and 10-K were themselves false as

a result of the alleged fraud and, more important, no showing that Olis intended for the

financials to be false. If the jury had understood that it could not convict without proof of

the falsity of the material transmitted by wire, it almost certainly would not have

convicted Olis on Counts Four through Six.

Olis’ trial counsel was therefore constitutionally ineffective in defending against

the wire fraud counts. As discussed, counsel first blundered by permitting the

government to constructively amend the indictment by proving a different crime (fraud on

Hecker) than the one pled (false accounting and fraud on the public). Counsel

compounded that error by failing to demand a jury instruction that would have required

acquittal under the government’s new theory of wire fraud.

Counsel’s failure to object to the jury instruction was objectively deficient because

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the instruction was contrary to established Supreme Court and Circuit precedent. There

could be no discretionary or strategic reason for permitting an incorrect instruction that

effectively eliminated a winning defense — that the government was required to prove

beyond a reasonable doubt that the wired material was false or fraudulent as a result of

Olis’ scheme. Likewise, counsel’s failure was prejudicial because it permitted the jury to

convict Olis despite a glaring absence of proof.

Counts Four, Five and Six must be reversed because Olis’ counsel was

constitutionally deficient in defending against them.

2. Erroneous Instruction Concerning the “Scheme to Defraud” Elementof Mail and Wire Fraud

The instructions related to the mail and wire fraud charges, Counts Three through

Six, also suffered from a separate impropriety. The mail and wire fraud statutes

proscribe “any scheme or artifice to defraud, or for obtaining money or property by

means of false or fraudulent pretenses, representations, or promises.” 18 U.S.C. §§

1341, 1343 (emphasis added). In instructing the jury on the mail and wire fraud charges

against Olis, however, the Court defined “scheme to defraud” as “any scheme to deprive

another of money or property.” TTx Day 8, 30:7-9, 32:8-10 (emphasis added). This

instruction was incorrect, and highly prejudicial to Olis because no evidence was

presented at trial that Olis or his alleged coconspirators intended to obtain money or

property. Rather, the government attempted simply to show that investors were harmed

when they purchased Dynegy stock. Olis’ counsel should have objected to jury

instructions that improperly expanded the scope of the statutes with which Olis was

charged in a manner that better encompassed the government’s theory.

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Despite the disjunctive “or” between the phrases “scheme or artifice to defraud”

and “for obtaining money or property by means of false or fraudulent pretenses,

representations, or promises,” the Supreme Court twice has held — based on the history

of the mail and wire fraud statutes and the meaning of the term “defraud” — that those

phrases are to be read together as defining a single offense. Cleveland v. United

States, 531 U.S. 12, 25-26, 121 S. Ct. 365, 374 (2000); McNally v. United States, 483

U.S. 350, 358-359, 107 S. Ct. 3875, 2881 (1987). Yet in this case, the jury instructions

improperly deleted the “obtaining” element and permitted the jury to convict by finding a

scheme simply to deprive another of property. A “deprivation is a necessary but not a

sufficient condition” of mail or wire fraud because “only a scheme to obtain money or

other property from the victim by fraud violates” those statutes. United States v.

Walters, 997 F.2d 1219, 1227 (7th Cir. 1993); see also Monterey Plaza Hotel Ltd. P’ship

v. Local 483 of Hotel Employees, Rest. Employees, 215 F.3d 923, 926-27 (9th Cir.

2000) (“The purpose of the mail and wire fraud proscriptions is to punish wrongful

transfers of property from the victim to the wrongdoer”); United States v. Lew, 875 F.2d

219, 221 (9th Cir. 1989) (“after McNally the elements of mail fraud remain unchanged

except that the intent of the scheme must be to obtain money or property, [and] the

Court made it clear that the intent must be to obtain money or property from the one who

is deceived” (emphasis added)); United States v. Baldinger, 838 F.2d 176, 180 (6th Cir.

1988) (Section 1341 “was intended by the Congress only to reach schemes ‘that have

as their goal the transfer of something of economic value to the defendant.’”); United

States v. Alsugair, 256 F. Supp. 2d 306, 312 (D.N.J. 2003) (“[I]n addition to an allegation

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that a defendant deprived a victim of money or property, the mail-fraud statute, 18

U.S.C. § 1341, requires an allegation that the defendant obtained money or property as

well.”).

Counsel’s error in allowing instructions that permitted conviction based upon mere

deprivation of money or property was crucially prejudicial. The government presented

no evidence whatsoever that Olis or his alleged coconspirators obtained money or

property from any victim. Thus, if the instructions had followed the law, acquittal would

have been required.

3. The Infirmities Infect the Other Charges

Counsel’s ineffective failure to challenge the jury instructions on Counts Three

through Six also requires reversal on Counts One and Two.

“[W]here a general verdict form allows for conviction for conspiracy to commit any

one of several object offenses[,] a legal defect in any one of the offenses alleged will

require reversal of the conspiracy conviction.” United States v. Pettigrew, 77 F.3d 1500,

1511 (5th Cir. 1996); see also Griffin v. United States, 502 U.S. 46, 58-60, 112 S. Ct.

466, 473-74 (1991); Yates v. United States, 354 U.S. 298, 312, 77 S. Ct. 1064, 1073

(1957). Thus, an instructional error with respect to one object offense “raises the

possibility that [the] conspiracy conviction rests upon legally inadequate grounds,” and

requires reversal. Pettigrew, 77 F.3d at 1511-12.

Here, Count One of the indictment charged Olis with conspiring to commit the

object offenses alleged in the other counts. Indictment (Docket # 1) ¶ 13. The

erroneous instructions concerning the mail and wire fraud counts — and counsel’s

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unconstitutional failure to object to the instructions — therefore raise “the possibility that

[the] conspiracy conviction rests upon legally inadequate grounds.” As in Pettigrew, the

legal infirmities infecting Counts Three through Six also infect the Count One conspiracy

charge. Counsel’s failure to object to the erroneous mail and wire fraud instructions

undermines the conspiracy conviction too, and reversal on Count One is mandated.

Likewise, if a defendant is convicted on conspiracy and substantive offenses after

the court gives a Pinkerton charge, see Pinkerton v. United States, 328 U.S. 640, 66 S.

Ct. 1180 (1946), but the conspiracy conviction is subsequently reversed, the convictions

on the substantive offenses must be reversed “unless [the court] find[s] beyond a

reasonable doubt that the jury would have convicted [the defendant] of each substantive

count” as an aider and abettor or a principal. United States v. Castaneda, 16 F.3d 1504,

1511 (9th Cir. 1994); see also United States v. Rosas-Fuentes, 970 F.2d 1379, 1983

(5th Cir. 1992) (reversing conspiracy conviction and conviction for a substantive offense

after finding that the conviction on the substantive count “could rest only upon [the

defendant’s] participation in the conspiracy under the Pinkerton rule”). Here the Court’s

instructions permitted the jury to convict Olis of the various substantive offenses based

solely upon Pinkerton liability. TTx Day 8, 35:5-19. Because Olis’ conspiracy conviction

must be reversed, the remaining convictions on the substantive counts must likewise be

reversed unless it is clear beyond a reasonable doubt that the jury would have convicted

Olis on those counts in the absence of Pinkerton liability.

It is not clear beyond a reasonable doubt that the evidence supported Olis’

conviction as a principal in the commission of securities fraud. This question is not one

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of mere sufficiency of the evidence, and consequently the Fifth Circuit’s decision

affirming Olis’ conviction after applying that standard, 429 F.3d at 542-43, is not

controlling. Moreover, given the convoluted and conflicting facts of this case, the

government’s shifting legal theories, and the equivocal testimony of its star witness,

Gene Foster, the record does not sustain the conviction of securities fraud independent

of Pinkerton liability. Indeed, the Court instructed the jury that a securities fraud

conviction requires proof that the conspirators engaged in a scheme to “obtain money or

something of value.” TTx Day 8, 29:10-13. As discussed above, there was no evidence

that Olis or his alleged coconspirators attempted to obtain any money or property.

Furthermore, as discussed, the government’s proof of the materiality element of

securities fraud was entirely insufficient. The securities fraud conviction must be

dismissed.

D. Failure to Object to Hecker’s Attempt to Testify as an Expert

Although the government disavowed any effort to prove that the Project Alpha

accounting treatment was improper because of the outside hedges and tear-ups, see

Part IV, supra, it could conceivably argue that Hecker obliquely established the

impropriety. But such an argument should be foreclosed because Hecker was not

entitled to testify to such opinions. To the extent the Court finds that Hecker reached

conclusions sufficient to establish that Project Alpha’s cash flows were in fact derived

from financing, Olis’ counsel was ineffective in failing to object to those conclusions.

Testimony concerning such technical matters as the proper accounting treatment for

cash flows under GAAP is the exclusive province of experts, but the government did not

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proffer or qualify Hecker as an expert.

Federal Rule of Evidence 701 provides:

If the witness is not testifying as an expert, the witness’ testimony in theform of opinions or inferences is limited to those opinions or inferenceswhich are (a) rationally based on the perception of the witness, and (b)helpful to a clear understanding of the witness’ testimony or thedetermination of a fact in issue, and (c) not based on scientific, technical,or other specialized knowledge within the scope of Rule 702.

(emphasis added). In 2000, the drafters amended Rule 701 to foreclose lay witness

testimony “based on scientific, technical, or other specialized knowledge” — testimony

more properly given by a qualified expert. In amending the Rule, the drafters intended

to preclude a party from surreptitiously circumventing “the reliability requirements set

forth in Rule 702 . . . through the simple expedient of proffering an expert in lay witness

clothing” and to “ensure[ ] that a party will not evade the expert witness disclosure

requirements set forth in . . . Fed. R. Crim. P. 16 by simply calling an expert witness in

the guise of a layperson.” Rule 701 advisory committee’s note (2000); see also United

States v. White, 492 F.3d 380, 400-01 (6th Cir. 2007); United States v. Garcia, 413 F.3d

201, 215 (2d Cir. 2005).

“[T]he Federal Rules of Evidence distinguish between lay and expert testimony,

not witnesses.” White, 492 F.3d at 403 (emphasis in original). “One witness may

properly offer lay testimony and, at the same time, may be precluded from putting forth

expert testimony.” Id. Thus, Hecker — a witness to relevant facts in this case — could

properly testify as a lay witness to his “personal interactions” with Olis or his purported

coconspirators. Id. But he should not have been permitted to testify to opinions or

conclusions grounded in “specialized skill or expertise.” Id.; Garcia, 413 F.3d at 215;

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United States v. Cruz, 363 F.3d 187, 189, 193-94 (2d Cir. 2004); United States v. Griffin

324 F.3d 330, 347-48 (5th Cir. 2003). Conclusions about the application of GAAP or the

propriety of a complicated accounting treatment for Project Alpha indisputably call for

such specialized expertise. See SEC v. Guenthner, 395 F. Supp. 2d 835, 846 (D. Neb.

2005) (“Establishing that an accounting practice or method is inconsistent with GAAP

requires expert testimony”).

As the government failed to identify or qualify Hecker as an expert, and neglected

to provide a written summary of Hecker’s expert testimony under Federal Rule of

Criminal Procedure 16(a)(1)(G), it was error to admit testimony that established the

impropriety of Dynegy’s accounting. White, 492 F.3d at 404. Olis’ counsel should have

objected. If the Court finds that Hecker’s testimony established this central element of

the charges against Olis, counsel’s ineffective failure to object must be considered

prejudicial. No other evidence established the accounting impropriety.

E. Failure to Take Other Necessary Steps

Finally, Olis argued in Part III, supra, that the government violated his

constitutional rights by depriving him of funds that would otherwise have been available

to support his defense. If Olis had Dynegy’s contractually-required funding, he would

have retained experts to rebut Heil’s testimony regarding the losses caused by Project

Alpha, witnesses to supply vital accounting expertise, and a jury consultant, and Olis’

team would have purchased a searchable database program to facilitate discovery

review. If the Court finds that the government’s conduct was not unconstitutional or did

not lead to the failures discussed in Part III, Olis submits that his trial counsel was

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ineffective for failing to take the steps outlined therein. The steps were obvious and vital

necessities, and had they been taken, the result of Olis’ trial would almost certainly have

been different.

IV. RELIEF

Olis requests a hearing with evidence taken on the issues raised herein. The

violation of Olis’ fundamental right to prepare and present his defense using funds

lawfully available to him requires that the Court vacate Olis’ conviction and dismiss the

charges against him with prejudice. Stein IV, 495 F. Supp. 2d at 419-25, 427-28.

Likewise, because the government tried Olis for crimes not alleged in the

indictment and failed to prove the allegations in the indictment, the conviction must be

reversed and the indictment dismissed with prejudice. Chambers, 408 F.3d at 247 n.6.

In the alternative, Olis submits that, for all the reasons herein stated, Olis’

conviction must be vacated for the conduct of a new trial under conditions that

guarantee his constitutional rights.

CONCLUSION

For all of the foregoing reasons, to ensure fairness and justice, Jamie Olis’

convictions must be set aside.

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Dated: October 5, 2007, Berkeley CA

Respectfully submitted,

ARGUEDAS, CASSMAN & HEADLEY, LLP

By: /s/ Ted W. Cassman Ted W. Cassman 803 Hearst Avenue Berkeley, CA 94710 (510) 845-3000

Documents

Cristina C. Arguedas (CA Bar 87787) John M. O’Quinn (SBN ...Quinn memo.pdf · Cristina C. Arguedas (CA Bar 87787) Ted W. Cassman (CA Bar 98932) Raphael M. Goldman (CA Bar 229261)