United States v. Ferguson

08-6211-cr(L)
United States v. Ferguson

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

August Term, 2010

(Argued: November 17, 2010 Decided: August 1, 2011)
Amended: December 19, 2011
Docket Nos. 08-6211-cr(L), 09-0121-cr(Con), 09-0313-cr(XAP),
09-0507-cr(Con), 09-0881-cr(XAP), 09-1072-cr(Con),
09-1120-cr(XAP), 09-1677-cr(Con), 09-1723-cr(XAP),
09-2127-cr(Con), 09-2141-cr(XAP)

- - - - - - - - - - - - - - - - - - - - -x

UNITED STATES OF AMERICA,

Appellee,

- v.-

RONALD E. FERGUSON, CHRISTOPHER P. GARAND, ELIZABETH A.
MONRAD, ROBERT D. GRAHAM, CHRISTIAN M. MILTON,

Defendants-Appellants.*

- - - - - - - - - - - - - - - - - - - -x

Before: JACOBS, Chief Judge, KEARSE and STRAUB,
Circuit Judges.

The defendants, four executives of General Reinsurance

Corporation (“Gen Re”) and one of American International

Group, Inc. (“AIG”), appeal from judgments of the United

States District Court for the District of Connecticut

*
The Clerk of the Court is directed to amend the
official caption to conform to the names listed above.
(Droney, J.), convicting them of conspiracy, mail fraud,

securities fraud, and making false statements to the

Securities and Exchange Commission. The charges arose from

an allegedly fraudulent reinsurance transaction between AIG

and Gen Re that was intended to cure AIG’s ailing stock

price.

We vacate the defendants’ convictions and remand for a

new trial.

SETH P. WAXMAN (Jonathan E. Nuechterlein,
Catherine M.A. Carroll, Washington, DC,
and Paul A. Engelmayer, Daniel C.
Richenthal, Julia M. Lipez, New York, NY,
on the brief), Wilmer Cutler Pickering
Hale and Dorr LLP, Washington, DC, for
Defendant-Appellant Ronald E. Ferguson.

ROBERT J. CLEARY (Anthony Pacheco, Keith
Butler, Los Angeles, CA, and Mark D.
Harris, William C. Komaroff, New York,
NY, on the brief), Proskauer Rose LLP,
New York, NY, for Defendant-Appellant
Christopher P. Garand.

IRA M. FEINBERG (Katie M. Lachter, New
York, NY, and Dominic F. Perella,
Washington, DC, on the brief), Hogan
Lovells US LLP, New York, NY, for
Defendant-Appellant Elizabeth A. Monrad.

ALAN VINEGRAD (Jonathan L. Marcus and
Pamela A. Carter, on the brief),
Covington & Burling LLP, New York, NY,
for Defendant-Appellant Robert D. Graham.

FREDERICK P. HAFETZ (Victor J. Rocco,
Tracy E. Sivitz, Hafetz Necheles & Rocco,

2
 New York, NY, and Kannon K. Shanmugam,
George W. Hicks, Jr., Williams & Connolly
LLP, Washington, DC, on the brief),
Hafetz & Necheles, New York, NY, for
Defendant-Appellant Christian M. Milton.

ERIC J. GLOVER and RAYMOND E. PATRICCO,
JR. (William J. Nardini and David B.
Goodhand, on the brief), Assistant United
States Attorneys, for Nora R. Dannehy,
Acting United States Attorney for the
District of Connecticut, New Haven, CT,
and Neil H. MacBride, United States
Attorney for the Eastern District of
Virginia, Alexandria, VA, for Appellee.

TABLE OF CONTENTS

BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . 6

I - All Defendants’ Claims . . . . . . . . . . . . . . . 22
A - Stock Price Data . . . . . . . . . . . . . . . . 23
B - Jury Charges . . . . . . . . . . . . . . . . . . 27
1 - “Willfully Caused” Instruction . . . . . . 27
2 - “Conscious Avoidance” Instruction . . . . . 31
3 - “Specific Unanimity” Instruction . . . . . 34
4 - “No Ultimate Harm” Instruction . . . . . . 38
C - Prosecutorial Misconduct . . . . . . . . . . . . 40
1 - Napier’s Potential Perjury . . . . . . . . 40
2 - Summation Remarks . . . . . . . . . . . . . 46

II - Ferguson’s Claims . . . . . . . . . . . . . . . . . 50
A - Sufficiency Challenge to Scienter Evidence . . . 51
B - Graham’s Email: “[Ferguson] et al[.] have been
advised of, and have accepted, the potential
reputational risk” . . . . . . . . . . . . . . 52
1 - Double-Hearsay . . . . . . . . . . . . . . 53
2 - Severance from Graham . . . . . . . . . . . 56
3 - Summation . . . . . . . . . . . . . . . . . 60
C - Finding that Conspiracy Began with First Call . 61

III - Graham’s Claims . . . . . . . . . . . . . . . . . . 63
A - Requested Jury Instructions . . . . . . . . . . 64

3
 1 - Professional Responsibility Rules . . . . . 64
2 - Non-Contractual Understandings . . . . . . 66
B - Treatment of Graham’s Boss . . . . . . . . . . . 67

IV - Milton’s Claims . . . . . . . . . . . . . . . . . . 70
A - Admissibility of Recordings Denigrating AIG . . 70
B - Severance from Gen Re Defendants . . . . . . . . 73

V - Monrad’s Claims . . . . . . . . . . . . . . . . . . . 75

VI - Garand’s Claims . . . . . . . . . . . . . . . . . . 78

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . 78

DENNIS JACOBS, Chief Judge:

This criminal appeal arose from a “finite reinsurance”

transaction between American International Group, Inc.

(“AIG”) and General Reinsurance Corporation (“Gen Re”).

That transaction (the “Loss Portfolio Transfer,” or “LPT”)

reallocated risk in a way that shored up AIG’s flagging loss

reserves, which were feared to be dragging down its stock

price. Finite reinsurance transactions, which entail some

(usually low) risk, are acceptable accounting measures in

the insurance industry, and have their uses; but in this

instance it is charged that the transaction entailed no risk

at all, and was a fraud. The defendants, four executives of

Gen Re and one of AIG, appeal from judgments entered in 2008

4
and 2009 by the United States District Court for the

District of Connecticut (Droney, J.), convicting them of

conspiracy, mail fraud, securities fraud, and false

statements made to the Securities and Exchange Commission

(“SEC”). They were sentenced principally to prison terms

ranging from one to four years, and are free on bail pending

this appeal.

The government’s case depended heavily on testimony

from two cooperating witnesses--Richard Napier, a senior

executive of Gen Re; and John Houldsworth, a senior

executive of Cologne Re Dublin (“CRD”), an Irish subsidiary

of Gen Re--who had pled guilty to similar charges. Their

testimony was bolstered by contemporaneous recordings of

calls involving Houldsworth (a normal business practice in

Ireland for derivatives traders). The government also

introduced AIG stock-price data to show the LPT’s material

effect on investors: The price declined steeply as details

about regulatory scrutiny of the deal were released. After

a six-week trial, the jury convicted the defendants on all

counts.

The defendants appeal on a variety of grounds, some in

common and others specific to each defendant, ranging from

5
evidentiary challenges to serious allegations of widespread

prosecutorial misconduct. Most of the arguments are without

merit, but the defendants’ convictions must be vacated

because the district court abused its discretion by

admitting the stock-price data.

BACKGROUND

AIG’s announcement of its 3Q earnings in 2000 met

analysts’ expectations, but the stock price dropped

significantly nevertheless. The cause was thought to be a

$59 million decline in loss reserves that quarter.

Loss reserves are liabilities on an insurer’s balance

sheet that approximate expected claims on insurance

contracts. Stock analysts and investors evaluate loss

reserves in conjunction with new policies: If loss reserves

do not rise when new policies are written (or worse, if they

fall), the insurer’s stock may drop notwithstanding better-

than-expected income because a contract of insurance that is

not covered by sufficient loss reserves inflates present

income at the expense of future income. Thus,

counterintuitively, a net decrease in a balance sheet

liability may cause a stock price to drop.

6
 Loss reserves can be transferred between companies

through reinsurance arrangements. In an ordinary

reinsurance transaction, an insurer purchases coverage from

a reinsurer for potential losses on policies it has issued,

thus ceding substantial or unlimited risk to the reinsurer.

In finite reinsurance, however, a company cedes a smaller,

circumscribed (hence, finite) amount of risk to the

reinsurer. To over-simplify, traditional reinsurance is

primarily used by an insurer to lay off risk, whereas finite

reinsurance lends itself to accounting goals because it can

be strategically designed but also carefully bounded.

An insurer’s creativity with finite reinsurance

transactions is not unconstrained: Accounting rules require

that each transaction transfer a threshold of risk. Under

Financial Accounting Standards (“FAS”) 113,1 a reinsurance

transaction must have “significant insurance risk,” so that

it is “reasonably possible” that the reinsurer may realize a

“significant loss” from the deal. See FAS 113 ¶ 9. An

industry rule of thumb provides clearer guidance: A

transaction with more than a 10% chance of incurring more

1
The Financial Accounting Standards are accounting
rules that help define Generally Accepted Accounting
Principles (“GAAP”), which companies must use for public
filings in the United States.
7
than a 10% loss (of the contractual limit) satisfies FAS

113, and can be booked as reinsurance.

Transactions that fall short of the risk threshold in

FAS 113 cannot be treated as reinsurance; any premium paid

must be deposit accounted, which has no effect on loss

reserves. Each party makes its own determination as to

whether a transaction has risk sufficient to qualify as

reinsurance. Since risk can be hard to quantify,

counterparties’ good-faith determinations may conflict, with

one booking the transaction as reinsurance and the other, as

a deposit. Such asymmetric accounting may draw the

attention of regulators, but is not a violation per se. See

FAS 113 ¶ 47 (rejecting symmetrical-accounting requirement).

A

In view of the defendants’ convictions, we summarize

the facts in the light most favorable to the government.

United States v. Riggi, 541 F.3d 94, 96 (2d Cir. 2008).

Maurice “Hank” Greenberg, CEO of AIG, was convinced

that AIG’s decreased loss reserves were depressing the

stock. On October 31, 2000, he called Ronald Ferguson, the

CEO of Gen Re, to discuss ways to shore up AIG’s reserves.

8
AIG was Gen Re’s largest client, so Ferguson was eager to

assist. (Greenberg was named as an unindicted co-

conspirator; Ferguson is a defendant.)

Greenberg requested a particular deal: AIG wished to

“borrow” a specific range of loss reserves ($200 million to

$500 million) over a six- to nine-month time period. This

was unusual in several respects. Cooperating witness

Napier, who had worked on hundreds of reinsurance deals, had

never encountered a deal premised on a request for a

specific amount of loss reserves. To the contrary, loss

reserves are typically calculated through a detailed

actuarial analysis, after a deal has been negotiated. It

was also uncommon for AIG to act as the reinsurer; it

typically sought reinsurance from Gen Re. The deal was to

be largely funds-withheld, meaning that the ceding party

would retain a large percentage of the premium it owes and

only claim such losses as exceed the premium. A funds-

withheld arrangement may not be irregular, but the

insistence upon it is suggestive: AIG could register a

substantial change in loss reserves without Gen Re remitting

a comparably large payment.

An important question for this case is whether the call

9
between Ferguson and Greenberg initiated a conspiracy. It

may have been a high-level brainstorming session about using

accounting rules aggressively--but lawfully--to achieve an

accounting objective; but it may (instead or also) have been

an unlawful agreement to deceive AIG stockholders by booking

a no-risk transaction (which by definition would not satisfy

FAS 113) as reinsurance.

B

Shortly after the call from Greenberg, Ferguson created

a deal team at Gen Re. He briefed Napier, a senior VP and

the manager of Gen Re’s relationship with AIG, and asked him

to spearhead the effort. Ferguson suggested that Napier

contact: (1) Christian Milton, the VP of reinsurance at AIG,

to discuss specific requirements of the deal; and (2) Joe

Brandon, the president of Gen Re. (Milton is a defendant;

Brandon was named as an unindicted co-conspirator.)

Napier spoke with Brandon the same day, and Milton the

next. Milton confirmed that AIG only wanted reserve impact

to address criticism from stock analysts, and he and Napier

began preliminary discussions about the particulars of the

deal. Brandon suggested that defendant Chris Garand, a

10
senior VP and Chief Underwriter of Gen Re’s finite

reinsurance operations, would be a good resource.

It is unclear when Napier first contacted Garand.

Emails reflect that within a week, defendant Elizabeth

Monrad, the Chief Financial Officer of Gen Re, became

involved. Napier claims that he contacted Garand that same

week, and that Garand pitched a “no risk” transaction in a

November 13 meeting with Monrad and him.

For convenience, the role and affiliation of each

player referenced in this opinion are listed in the margin.2

Napier’s testimony concerning Garand is suspicious.

2
Defendants:
• Ronald Ferguson: CEO of Gen Re
• Christopher Garand: Senior VP and the Head and
Chief Underwriter of Gen Re’s finite
reinsurance operations
• Robert Graham: Legal counsel and Senior VP at
Gen Re
• Christian Milton: VP of Reinsurance at AIG
• Elizabeth Monrad: CFO of Gen Re

Co-operating Witnesses:
• Richard Napier: Senior VP at Gen Re, who
managed its relationship with AIG
• John Houldsworth: CEO of Cologne Re Dublin, a
Gen Re subsidiary

Unindicted Co-Conspirators:
• Maurice “Hank” Greenberg: CEO of AIG
• Timothy McCaffrey: General Counsel of Gen Re
• Joseph Brandon: President of North American
Operations at Gen Re
11
Garand was added as a defendant in a superseding indictment,

filed more than seven months after the other defendants were

charged. On the same day the superseding indictment was

filed, Napier confidently named Garand as the source of the

no-risk idea. This identification contradicted Napier’s

previous identifications (recanted at trial) of Milton and

Ferguson as the source. He made that identification of

Milton while he was looking at the same undated page of

notes that he later attributed to a meeting with Garand and

Monrad (which he does not contend that Milton attended).

Garand calls this allegation a perjurious attempt to curry

favor with the government, and argues that the government

was complicit in the perjury, or complacent.

The documentary evidence bearing on the November 13

meeting does not show what happened. Late in the morning on

November 13, Monrad emailed a warning to Ferguson about

asymmetric accounting, which suggests that the no-risk idea

had been hatched. Later that day, defendant Monrad called

cooperating witness Houldsworth,3 the CEO of CRD, to solicit

3
Houldsworth was not in his office when he fielded
this after-business-hours call. It therefore was not
recorded like most of his other calls. The description of
the call comes from Houldsworth’s testimony. (Phone records
confirm that the call was made, however.)
12
his help with the transaction. She cautioned that AIG would

not be charged any losses on the deal, and that Ferguson

requested strict confidentiality. The next day, Houldsworth

called Garand about the transaction, broaching the subject

delicately because of the confidentiality warning. But

Garand showed no familiarity with it, presuming instead that

Houldsworth was referring to another AIG deal:

HOULDSWORTH: AIG, uh, you may have heard about
this, I, I presume it’s highly confidential -
well, it’s definitely high - [Monrad] told me not
to tell anyone. . . . Do you know anything about
this - or not?
GARAND: No, only to the extent that Milan
mentioned it and --
HOULDSWORTH: Okay.
GARAND: -- Tad had a meeting with AIG.
HOULDSWORTH: Okay. Well, it’s nothing to do with
[your other AIG deal].
GARAND: Okay.
HOULDSWORTH: Um, the - the issue is, and I, for I,
don’t know why you don’t know in that case. I
mean, maybe it’s, - I don’t know how these things
work. Anyway, I’m gonna tell you anyway. If I get
in trouble, heigh ho, uh, we have to work
together, so it’s stupid otherwise.

Joint Appendix at 1959-60. Garand claims that this call on

November 14 was the first he heard of the LPT.

C

The Gen Re team continued designing the transaction.

On November 15, Houldsworth circulated a draft slip contract

13
of the LPT to Monrad, Garand, Napier, and two others.

(Ferguson did not receive the email, but he reviewed a hard

copy of the email and slip. The draft contract contemplated

Gen Re paying AIG $10 million for assuming $100 million of

risk. The premium was $500 million on a 98% funds-withheld

basis, meaning that Gen Re would pay only $10 million but

could charge AIG only for losses beyond the $500 million

premium (up to a $600 million cap on losses, yielding $100

million of risk).

The slip omitted two key terms of the transaction,

however, which were discussed frankly in the cover email:

First, in selecting contracts for AIG to reinsure,

Houldsworth designated over $300 million in contracts that

had already been reinsured, leaving “no possibility” (or

making it “virtually impossible”) for the remaining

contracts to have claimable losses (i.e., over the $500

million premium). Trial Tr. at 2286. This accommodated

AIG’s request, which Houldsworth characterized as seeking

loss reserves “with the intention that no real risk is

transferred.” Joint Appendix at 1978.

Second, Gen Re was to receive a fee for the deal as

well as reimbursement for the portion of the premium it

14
would pay:

Contract we provide must give A[IG] a potential
upside in entering the transaction. Given that we
will not transfer any losses under this deal it
will be necessary for A[IG] to repay any fee plus
the margin they give us for entering this deal.

Joint Appendix at 1978 (emphasis added) (Houldsworth’s cover

email). Houldsworth confirmed at trial that the exclusion

of these fees from the slip was intentional, because AIG

wanted a piece of paper that would allow the contract to be

booked as a reinsurance deal. At one point, Napier clumsily

suggested that fees be written into the contract.

Houldsworth replied:

But I think to give them a deal with no risk in
it, and just charge them a fee, I, you know, I
mean, you can assume their auditors are, you know,
are being, you know, pushed in one direction, but
I think that’s just going too far. . . . I’d be
staggered if they would get away with that.

Joint Appendix at 2003. Similarly, Monrad rejected the idea

of memorializing the fees in a separate written agreement:

“Those always get a little tricky because sometimes

firms . . . feel obliged to show their auditors them.”

Joint Appendix at 2015.4

4
Houldsworth also rejected the idea of treating the
fee as a non-contractual “handshake.” We discuss handshake
deals below in connection with Graham’s argument that a jury
instruction on handshakes should have been given.
15
 By November 17, Ferguson had secured Hank Greenberg’s

agreement to the rough contours of the deal, including the

no-risk aspect, the repayment of the $10 million premium,

and Gen Re’s $5 million net fee. Greenberg tapped Milton as

a point person for the transaction at AIG. Napier then

forwarded the slip contract to Milton, describing in his

cover email the fee and premium repayment (which remained

conspicuously absent from the contract).

D

With a preliminary agreement in place, Gen Re began

internal discussions about the accounting treatment of the

deal. At some point during these discussions, defendant

Robert Graham, an in-house lawyer at Gen Re, joined the

team. The Gen Re side understood that AIG wished to book

the transaction as reinsurance to invigorate its loss

reserves. But recognizing that the deal lacked the

necessary risk, they wanted to protect Gen Re by booking the

transaction using deposit accounting.

Ferguson asked his team to alert AIG that Gen Re was

contemplating asymmetric accounting. On November 20,

defendants Monrad, Graham, and Garand (and co-conspirator

16
Napier) of Gen Re called defendant Milton of AIG to advise

that Gen Re would be booking the LPT as a deposit

transaction. Milton confirmed that Gen Re’s deposit

accounting would not be an issue for AIG. Napier relayed

the good news to Ferguson.

E

Milton accepted the deal on AIG’s behalf on December 7,

but he asked Gen Re to create a paper trail to disguise the

transaction’s origin. On December 18, Houldsworth

circulated an offer letter to AIG suggesting that the deal

had first been solicited by Gen Re. Milton at AIG

circulated the offer letter and draft contract to AIG

accountants and informed them that it would be booked as

reinsurance, thus ensuring that the usual underwriting and

actuarial due diligence on such a large transaction would

not be performed.

Gen Re’s in-house counsel Graham drafted the final

contracts for the deal. They omitted the $5 million fee and

$10 million premium repayment. As he drafted, Graham

expressed some discomfort with the accounting of the deal to

his boss, Tim McCaffrey, the General Counsel of Gen Re:

17
 Tim -

The AIG project continues. . . .

Our group will book the transaction as a deposit.
How AIG books it is between them, their
accountants and God; there is no undertaking by
them to have the transaction reviewed by their
regulators.

[Ferguson] et al[.] have been advised of, and have
accepted, the potential reputational risk that US
regulators (insurance and securities) may attack
the transaction and our part in it.
Rob

Joint Appendix at 2192. The discomfort must have been

fleeting, however, because the contracts were shortly

thereafter finished and sent off to Milton.

In January 2000, the offer letter (annotated with

written instructions from Milton) and draft slip contract

were routed to Lawrence Golodner, an assistant comptroller

at AIG. (The documents were sent by Golodner’s boss, John

Blumenstock, but their route from Milton to Blumenstock is

not entirely clear.) Golodner followed Blumenstock’s

instructions, booking $250 million in loss reserves for each

of 4Q 2000 and 1Q 2001.5

5
The parties decided to split the deal into two $250
million tranches.
18
 F

The deal worked, up to a point. AIG announced

increased loss reserves in 4Q 2000 and 1Q 2001 that, without

the LPT, would have been declines.

Meanwhile, Gen Re sought to enforce the unwritten fee

agreements. It refused to deliver the $10 million premium

(that it was contractually obliged to pay) until it had

collected the $15 million that it was owed under the secret

side deal. Garand orchestrated a scheme to effect the

payment without directly transferring funds (which could

have attracted regulatory scrutiny).6 Milton agreed. On

December 28, the final steps of Garand’s scheme were

executed; the same day, Gen Re wired the $10 million premium

to an AIG subsidiary.

The matter was dormant for several years. In a typical

reinsurance arrangement, the ceding company files claims

with the reinsurer, which pays the claims and, over time,

reduces loss reserves commensurately. But Gen Re made no

claims, AIG paid no claims, and there were no adjustments to

AIG’s loss reserves (excluding a $250 million reduction in

6
The scheme entailed (1) offsetting $15 million from
the $30 million that a Gen Re subsidiary held for an AIG
entity under an existing contract, and (2) concealing the
offset with a sham reinsurance contract.
19
AIG’s loss reserves in late 2004, when the parties commuted

half of the deal).

Beginning in February 2005, the SEC and the Office of

the New York Attorney General began investigating the

transaction. News articles about the investigations

trickled out for several months, while AIG’s stock price

declined steadily. On May 31, 2005, AIG concluded that the

LPT did not transfer sufficient risk for reinsurance

accounting, and restated its financials for the duration of

the LPT’s existence.

G

The defendants were charged with conspiracy, mail

fraud, securities fraud, and making false statements to the

SEC.7 The trial began in January 2008. The government’s

7
Garand was first charged in the superseding
indictment filed in September 2006; the rest of the
defendants were indicted back in February 2006.

All defendants were charged with one count of
conspiracy under 18 U.S.C. § 371 and three counts of mail
fraud under 18 U.S.C. § 1341. All defendants except Garand
were also charged with seven counts of securities fraud, 15
U.S.C. §§ 78j(b) & 78ff, and five counts of making false
statements to the SEC, 15 U.S.C. §§ 78m(a) & 78ff; Garand
was also charged with three counts of securities fraud and
three counts of making false statements.
20
two cooperating witnesses, Napier and Houldsworth, provided

critical testimony that narrated the events of the deal and

was used to argue the parties’ fraudulent intent. The

particulars of much of their testimony were corroborated by

contemporaneous emails and Houldsworth’s recorded phone

conversations. (Much of this corroboration was admitted

into evidence as co-conspirator statements, the court having

found that the conspiracy began with the Ferguson-Greenberg

call.8) The testimony was not uncontroverted, however. The

cross-examination of Napier was especially fierce: He

acknowledged some mistaken recollection, but refused to

recant his allegedly perjurious claim that Garand conceived

the idea of doing a no-risk deal.

After four days of deliberations, the jury convicted

the defendants of all charges. The court denied the

defendants’ perfunctory Fed. R. Crim. P. 33 motions for a

new trial.9

8
Certain findings are necessary to admit co-
conspirator statements under Fed. R. Evid. 801(d)(2)(E).
See United States v. Geaney, 417 F.2d 1116, 1120 (2d Cir.
1969). The court conditionally admitted co-conspirator
statements during the government’s presentation of its case;
after the government rested, the court made the necessary
Geaney findings and admitted the statements.
9
Prior to submission to the jury, the defendants had
moved for acquittal pursuant to Fed. R. Crim. P. 29(a) and
21
 In hundreds of pages of briefing, the defendants raise

numerous issues on appeal, ranging from evidentiary

challenges to serious allegations of widespread

prosecutorial misconduct.

I

Several arguments affect all five defendants. We

consider each in turn.

A

Materiality is an element of most of the charged

offenses. There must have been a “substantial likelihood”

that the LPT-related misstatements would be important to a

renewed their motions for severance under Fed. R. Crim. P.
14(a). (Only Ferguson, joined by Garand, submitted motion
papers.) The court reserved decision.

After the verdict, the defendants moved for a new trial
under Rule 33 only if the court granted their Rule 29(a)
motions for any of the counts. They submitted skeletal
memos without substantive argument, declined to file Rule
29(c) motions, and declined oral argument despite the
court’s request. (Ferguson initially requested oral
argument on his motions, but then withdrew his request.)

The district court denied the defendants’ pre-verdict
motions for severance (Rule 14) and acquittal (Rule 29(a)),
thus mooting their conditional motions for a new trial (Rule
33). United States v. Ferguson, 553 F. Supp. 2d 145, 163-64
(D. Conn. 2008).
22
reasonable investor. See Basic Inc. v. Levinson, 485 U.S.

224, 231 (1988). As evidence of materiality, the government

introduced (inter alia) articles about the LPT’s

impropriety, which it connected to contemporaneously

declining stock prices. Excluded as overly prejudicial was

a line graph tracing AIG’s stock price from February to

March 2005 (as it declined by 12%). However, the court

permitted the government to show a functionally identical

chart to the jury during opening statements, and it admitted

into evidence three bar-charts showing single-day stock

prices for the days following each publication.

The charts were prejudicial because the LPT was one of

several problems besetting AIG at that time. Unrelated

allegations of bid-rigging, improper self-dealing, earnings

manipulations, and more, had to be redacted from the

articles about the LPT, to avoid prejudicing the defendants.

The stock-price evidence presented the defendants with a

dilemma: [i] allow the jury to attribute the full stock-

price decline to the LPT, or [ii] introduce prejudicial

evidence of the other besetting scandals, wrongdoing, and

potentially illegal actions at AIG. The defendants sought

to sidestep by stipulating to materiality, but the

23
government refused.

We conclude that the district court abused its

discretion in admitting the three bar-charts and that the

defendants’ substantial rights were affected. Marcic v.

Reinauer Transp. Cos., 397 F.3d 120, 124 (2d Cir. 2005).

The district court’s rulings on the stock-price charts

were inconsistent. The chart showing the full decline in

stock price was excluded as overly prejudicial, but it was

functionally identical to the chart shown during the

government’s opening argument. In any event, the court’s

solution, to allow only isolated ranges of stock-price data,

did not mitigate the prejudice: Instead of a downward line,

there were three dropping sets of dots; it is inevitable

that jurors would connect them. So the risk that jurors

would attribute the full 12% decline to the LPT was unabated

by the court’s precaution.

The government may of course reject a proposed

stipulation in order to present a “coherent narrative” of

its case. Old Chief v. United States, 519 U.S. 172, 191-92

(1997). But the charged offenses here do not require a

showing of loss causation (“a causal connection between the

material misrepresentation and the loss”). Dura Pharms.,

24
Inc. v. Broudo, 544 U.S. 336, 342 (2005). The stock-price

evidence therefore fell “outside the natural sequence of

what the defendant[s] [were] charged with thinking and

doing.” Old Chief, 519 U.S. at 191. Although the evidence

was admitted only to show materiality, the government

exploited it to emphasize the losses caused by the

transaction. For example, the government reminded the jury

during rebuttal summation that:

[B]ehind every share of [AIG] stock is a living
and breathing person who plunked down his or her
hard-earned money and bought a share of stock,
maybe [to] put it in their retirement[] accounts,
maybe to put it in their kids’ college funds, or
maybe to make a little extra money for the family.

Trial Tr. at 4584. The prosecution’s use of the evidence,

while aggressive, was not “egregious misconduct” that “so

infect[ed] the trial with unfairness as to make the

resulting conviction a denial of due process.” United

States v. Shareef, 190 F.3d 71, 78 (2d Cir. 1999) (internal

quotation marks omitted). Still, the government used this

evidence to humanize its prosecution, not to complete the

narrative of its case.

If no offer to stipulate were forthcoming, the

government could have relied upon the sufficiency of its

25
other materiality evidence10 or offered expert testimony

about the LPT’s effect on the stock price.11 The charts

suggested that this transaction caused the price of AIG
shares to plummet 12% during the relevant time period (at a
time when AIG’s market capitalization was in excess of $150

billion). This is without foundation. Nevertheless, the
government bookended its case with the theme of the
financial loss suffered by the average investor. Its

opening statement told the jury that, beginning on the day
the government issued subpoenas to AIG about the LPT deal,

“AIG’s stock price began a downward spiral. On February

14th, AIG shares were worth $70.33. By March 14th, March
15th, AIG’s shares were worth only $61.03. This was

approximately a 12 percent decline in AIG stock price over

that one month period alone.” Trial Tr. 90. And during its

rebuttal summation, the government envisioned that “behind

10
The government’s other materiality evidence was
substantial: Two stock analysts and an AIG investor-
relations manager testified about the importance of loss
reserve information to investors and analysts.
11
If expert testimony were used, the probative value
of the evidence would be reinforced because confounding
factors could be excluded. Cf., e.g., United States v.
Schiff, 538 F. Supp. 2d 818, 836 (D.N.J. 2008) (deeming
stock-price data irrelevant for materiality in the absence
of expert testimony). The expert could, for example,
estimate the extent of the 12% drop attributable to the LPT.

26
every share of [AIG] stock is a living and breathing person
who plunked down his or her hard-earned money and bought a

share of stock.” Trial Tr. at 4584.

The fraudulent aspect of the transaction at issue was

that it entailed zero risk as opposed to an ordinary--and
permissible--finite reinsurance transaction, in which the
risk would be minimal. As between a permissible transaction

with minimal risk, and an illegal one with none, it would be
difficult for the jury to appreciate what adverse effect the

transaction would have had on anyone. Moreover, since the

permissible transaction with minimal risk would have had the
same advantageous effect on AIG’s accounts as the

impermissible transaction with no risk, there would seem in

fact to have been no effect whatsoever in financial terms–-

except that stockholders might have developed qualms about
the honesty of the company’s leadership. Other than the
charts, nothing in the record conveyed the impression that

the transaction had a palpable financial impact and that
stockholders were hurt–-and hurt seriously.

B

The defendants challenge the particulars of the

“willfully caused” jury instruction, as well as the district

court’s refusal to give certain instructions and insistence

27
upon giving others. We review the jury charge de novo,

examining “the entire charge to see if the instructions as a

whole correctly comported with the law.” United States v.

Jones, 30 F.3d 276, 283 (2d Cir. 1994). A defendant

challenging jury instructions must show that he was

prejudiced by a charge that misstated the law. See United

States v. Goldstein, 442 F.3d 777, 781 (2d Cir. 2006).

1

A defendant commits an offense if he “willfully causes

an act to be done which if directly performed by him or

another would be an offense against the United States.” 18

U.S.C. § 2(b). In seeking to accommodate the reasonable

phrasings offered by the various parties, the court ended up

with a charge that allowed the jury to convict without

finding causation. The court instructed the jury about

“willfully causing” liability through a similar pair of

questions for each offense:

The meaning of the term “willfully caused” can be
found in the answers to the following questions:

With regard to securities fraud:
First, did the defendant act knowingly,
willfully, and with an intent to defraud as I
defined those terms for you in my instructions
about securities fraud?

28
 Second, did the defendant intend that this
crime, as explained to you in my earlier
instructions, would actually be committed by
others?

. . .

If you are persuaded beyond a reasonable doubt
that the answer to both of these questions is
“yes,” then the defendant is guilty of the crime
charged just as if he or she had actually
committed it.

Trial Tr. at 4760-61.

It appears the judge was led into error. The original

instruction submitted by the government contained a proper

causation standard;12 the defendants challenged a vague

phrase (“take some action”) in the government’s instruction

and proposed a lengthier instruction that tracked the actual

elements of each offense (but that also properly charged on

12
The first question in the government’s proposed
instruction enunciated the causation requirement:

The meaning of the term “willfully caused” can be
found in the answers to the following questions:
First, did the defendant take some action
without which the crime would not have
occurred?

Second, did the defendant intend that the
crime would be actually committed by others?

Joint Appendix at 300 (emphasis added).
29
causation).13 The court fashioned a compromise from the

parties’ submissions, but neglected to include either side’s

causation instruction: The court’s first question instructs

about both the requisite act (“did the defendant act”) and

the requisite mental state (“knowingly, willfully, and with

an intent to defraud”); the second question merely refines

the mental state requirement (“did the defendant intend that

this crime . . . would actually be committed by others?”).

The instruction is not saved by the plain meaning of

“willfully caused,” which is the term the court undertook to

define. The word “cause” should convey a causation

requirement. But the jury was not invited or permitted to

13
The second question from the defendants’ proposed
charge instructed on causation:

Second, as to each count and each Defendant, did
the Defendant (a) intentionally cause other people
to use a deceptive device in connection with the
purchase or sale of AIG stock, that is to say, did
he or she, in connection with the purchase or sale
of AIG stock, intentionally cause other people to
make either a deliberate affirmative misstatement
of material fact or a deliberate omission of
material fact by one who had a legal duty to
disclose that fact, and, (b) intentionally cause
some other person to knowingly use, or cause to be
used, an instrumentality of communication in
interstate commerce (i.e., the mails) in
furtherance of such fraudulent scheme or conduct?

Joint Appendix at 556 (emphases added).
30
rely on the phrase’s plain meaning, given the superseding

definition provided in the charge: “The meaning of the term

‘willfully caused’ can be found in the answers to the

following questions . . . .” Trial Tr. at 4760.

Although the defendants objected to the instruction,

they did not “specific[ally] object[]” about causation; the

objection on that ground was thus not preserved, and we

review for plain error. See Fed. R. Crim. P. 30(d). But

the error is plain enough. When a jury is instructed on

multiple theories of liability, one of which is defective, a

court must ascertain whether a flawed instruction had a
“‘substantial and injurious effect or influence in

determining the jury’s verdict.’” 14 Hedgpeth v. Pulido, 555

U.S. 57, 58 (2008) (per curium) (quoting Brecht v.

Abrahamson, 507 U.S. 619, 623 (1993)); see also Skilling v.

United States, 130 S. Ct. 2896, 2934 n.46 (2010) (applying

Hedgpeth on direct review). The defendants here would not

be prejudiced by the infirm instruction if either: (1) the

14
In United States v. Joseph, 542 F.3d 13 (2d Cir.
2008), we held that we must reverse in such a circumstance
“unless it can [be] determine[d] with absolute certainty
that the jury based its verdict on the ground on which it
was correctly instructed.” Id. at 18. This standard is
inconsistent with the Supreme Court’s intervening decision
in Hedgpeth, and therefore no longer controls. See In re
Zarnel, 619 F.3d 156, 168 (2d Cir. 2010).
31
jury would have necessarily found the causation element
satisfied beyond a reasonable doubt even with a proper

instruction, see Neder v. United States, 527 U.S. 1, 15-16

(1999); or (2) the jury would have necessarily found the

defendants guilty on one of the properly instructed theories
of liability, see Hedgpeth, 555 U.S. at 61; United States v.

Skilling, 638 F.3d 480, 482 (5th Cir. 2011); United States

v. Riley, 621 F.3d 312, 322-24 (3d Cir. 2010).

The government argued a “willfully causing” theory of

liability to the jury, rendering it a likely basis for the
jury’s conviction. See, e.g., Trial Tr. 4203 (“[Did

defendants] document a false [transaction] in order to

deceive AIG’s internal auditors and their external auditors
and accountants[?]”); Trial Tr. 4620 (“These five defendants

helped actively create false documents to deceive AIG’s

accountants. So they cannot now try to say that they
expected those very same accountants to do their job
properly.”). But the record contained sufficient evidence

for the jury to find in the defendants’ favor on the omitted

causation element--more precisely, the record contained
insufficient evidence of why AIG booked the transaction as
it did to render a finding of causation a foregone

conclusion--and the defendants vigorously argued that the
government failed to demonstrate that their conduct caused

32
AIG to book the transaction as no risk. Trial Tr. 4458-59
(“[T]he black hole in this case is the prosecution’s failure

to prove beyond a reasonable doubt anything the defendants
allegedly did had any effect on AIG’s accounting

decision.”).
We doubt, but need not decide, that the jury would have
necessarily returned a verdict of guilty on any of the other

theories of liability. 15 The erroneous admission of the

stock price data sufficiently tainted the defendants’ trial

to require that the verdict be set aside.

2

The district court instructed the jury that the

government could prove that a defendant acted knowingly if

he “was aware of a high probability that [a] statement was

false” but “deliberately and consciously avoided confirming

15
If the jury did base its conviction on the
willfully caused instruction, it was well on its way to
finding the defendants guilty of aiding and abetting. Based
on the court’s willfully causing instruction, the jury would
have found that the “defendant[s] act[ed] knowingly,
willfully, and with an intent to defraud” and that the
defendants “intend[ed] that this crime . . . would actually
be committed by others.” Trial Tr. 4760. However, given
the conflicting evidence about who did the deceiving and who
was deceived, it cannot be ascertained that the jury would
have necessarily found a guilty principal whom the
defendants could have aided and abetted as required by the
aiding and abetting instruction. See Trial Tr. 4757.
33
that fact, unless the evidence show[s] that [he] actually

believed the statement was true.” Trial Tr. at 4730. Such

a conscious avoidance instruction16 may be given only

(i) “when a defendant asserts the lack of some
specific aspect of knowledge required for
conviction,” and

(ii) “the appropriate factual predicate for the
charge exists, i.e., the evidence is such that a
rational juror may reach the conclusion beyond a
reasonable doubt that the defendant was aware of a
high probability of the fact in dispute and
consciously avoided confirming that fact.”

United States v. Quattrone, 441 F.3d 153, 181 (2d Cir. 2006)

(internal citations and quotation marks omitted). The

government need not choose between an “actual knowledge” and

a “conscious avoidance” theory. United States v. Kaplan,

490 F.3d 110, 128 n.7 (2d Cir. 2007).

The defendants claim not to have known (1) that the LPT

contained insufficient risk transfer or (2) how AIG would

16
The Supreme Court appears to now prefer the
appellation “willful blindness.” Global-Tech Appliances,
Inc. v. SEB S.A., 131 S. Ct. 2060, 2070 & n.9 (2011) (citing
United States v. Svoboda, 347 F.3d 471, 477-78 (2d Cir.
2003), which uses the term “conscious avoidance,” as an
example of this Court’s “articulat[ion of] the doctrine of
willful blindness”); see also United States v. Reyes, 302
F.3d 48, 54 (2d Cir. 2002) (“The doctrine of conscious
avoidance, also known as deliberate ignorance or willful
blindness . . . .”). We retain the designation “conscious
avoidance” in order to conform to the briefs and the
district court opinion.
34
account for the LPT. The government argues that the factual

predicate for the charge is the same evidence that

establishes scienter. (The government emphasizes the

November 20 call ordered by Ferguson in which Monrad,

Napier, Graham, and Garand told Milton that Gen Re would use

deposit accounting for the LPT.)

Red flags about the legitimacy of a transaction can be

used to show both actual knowledge and conscious avoidance.

See United States v. Nektalov, 461 F.3d 309, 312, 317 (2d

Cir. 2006). In Nektalov, a jeweler was convicted of money

laundering for repeatedly selling gold to a government

informant posing as a narcotics dealer. Id. at 312. We

upheld a conscious avoidance instruction because the prior

dealings between the parties (cash payments using small

bills) and the statements about the transactions (“moving

gold” to Colombia; money from selling “product” “in the

streets”) provided the factual predicate for the charge.

Id. at 317. Similarly, several red flags are waving here,

including: the secret side agreements, the fake offer

letter, the accounting pretext for the reinsurance

transaction, and the insistence on strict confidentiality.

The defendants claim they could not have consciously

35
avoided present knowledge of how AIG would book the LPT on

some future date. It is true that, “in general, conscious

avoidance instructions are only appropriate where knowledge

of an existing fact, and not knowledge of the result of

defendant’s conduct, is in question.” United States v.

Gurary, 860 F.2d 521, 526 (2d Cir. 1988). In Gurary, the

defendants sold fake invoices that were commonly used by

purchasers to fraudulently reduce taxable income. Id. at

523. The defendants challenged the conscious avoidance

instruction on the ground that they could not know the

nefarious ends of the purchasers. We upheld the instruction

because the repeated (subsequent) frauds provided sufficient

“‘proof of notice of high probability’” of purchasers’ tax

fraud. Id. at 527. But we also noted that a “future

conduct” challenge to a conscious avoidance instruction

“might hold water if th[e] case involved the sale of

invoices on a single occasion.” Id. at 526.

Although the LPT was a single transaction, it is

dissimilar to the “single occasion” theory in Gurary. The

parameters of the deal were developed over a number of

months, and there were numerous forward-looking meetings,

emails, and negotiations. Moreover, AIG’s accounting

36
decisions informed Gen Re’s accounting decisions to some

extent, which brought AIG’s accounting into the

transaction’s purview (even if asymmetric accounting in

general is unobjectionable).

The conscious avoidance instruction was not error.

3

The jurors were presented with four theories of

liability: principal, aiding and abetting, willfully

causing, and Pinkerton.17 The district court denied the

defendants’ request for a “specific unanimity” instruction,

which would have ensured that, as to each defendant, the

jurors unanimously agreed on the theory for conviction. “A

general instruction on unanimity is sufficient to insure

that such a unanimous verdict is reached, except in cases

where the complexity of the evidence or other factors create

a genuine danger of jury confusion.” United States v.

Schiff, 801 F.2d 108, 114-15 (2d Cir. 1986) (internal

citations omitted).

17
See Pinkerton v. United States, 328 U.S. 640, 646-48
(1946) (ruling that liability for reasonably foreseeable
acts within the scope and in furtherance of a conspiracy is
attributable to all conspirators).
37
 In dicta, we have suggested that a jury is unanimous

even if some jurors convicted on a theory of principal

liability and others on aiding and abetting. United States

v. Peterson, 768 F.2d 64, 67 (2d Cir. 1985); accord, e.g.,

United States v. Garcia, 400 F.3d 816, 820 (9th Cir. 2005)

(“It does not matter whether some jurors found that [the

defendant] performed these acts himself, and others that he

intended to help someone else who did, because either way,

[his] liability is the same. . . .”). Just as there is “no

general requirement that the jury reach agreement on the

preliminary factual issues which underlie the verdict,”

neither must it agree on “alternative mental states.” Schad

v. Arizona, 501 U.S. 624, 631-32 (1991) (internal quotation

marks omitted) (holding that specific unanimity not required

for theories of Arizona first-degree murder--premeditated

and felony murder).

Nothing limits the Peterson analysis to principal

versus aiding-and-abetting liability. The four theories are

compatible--they are zones on a continuum of awareness, all

of which support criminal liability.18 This view is

18
The defendants argue that Peterson cannot be
extended because the four theories of liability have
“clearly different elements that the jury must find.”
Garand Br. at 56 n.14. But even Pinkerton liability--which
38
consistent with case law maintaining distinctions among

mental states where different mental states form elements of

different offenses. Compare, e.g., Schad, 501 U.S. at 630-

31 (“[P]etitioner’s real challenge is to Arizona’s

characterization of first-degree murder as a single crime”

that encompasses “premeditated murder and felony murder”),

with, e.g., People v. Gonzalez, 1 N.Y.3d 464, 467 (2004)

(affirming the reversal of depraved indifference murder

conviction for defendant acquitted of intentional murder

count, because “only reasonable view of the evidence here

was that defendant intentionally killed the victim”).

Even assuming that the jury had to agree on the theory

of liability, the general unanimity instruction--“it is

requires the jury to find certain facts such as
participation in the conspiracy--is premised on a mental
state. See Pinkerton, 328 U.S. at 647 (“The criminal intent
to do the act is established by the formation of the
conspiracy.”); United States v. Thirion, 813 F.2d 146, 153
(8th Cir. 1987) (“In the Pinkerton analysis . . . . [t]he
mens rea necessary to transform the act into a criminal
offense is evidenced by the defendant’s participation in the
conspiracy.”). All four theories are thus various mental
states in which the same crime may be committed; they may
differ in “brute facts” underlying the mental state element,
but none requires proof of other “factual elements” of the
crime (which must be found unanimously by the jury).
Richardson v. United States, 526 U.S. 813, 817 (1999); cf.
United States v. Sanchez, 917 F.2d 607, 612 (1st Cir. 1990)
(“As with the ‘aiding and abetting’ theory, vicarious
co-conspirator liability under Pinkerton is not in the
nature of a separate offense.”).
39
necessary that each juror agrees to [the verdict],” Trial

Tr. at 4788--was sufficient to remove any genuine danger

that the jury would convict on disparate theories. The

accounting and insurance concepts in the case may have been

complicated, but they did not add significant complexity to

the theories of liability. At the same time, the assurance

of a just result would have been reinforced if the

instruction were given.

4

The court instructed the jury that “[n]o amount of

honest belief on the part of a defendant that the scheme

will ultimately make a profit for the investors, or not

cause anyone harm, will excuse fraudulent actions or false

representations by him or her.” Trial Tr. at 4730. Graham

claims that this “no ultimate harm” instruction lacked a

factual basis and undermined his defense of good faith.

Our leading precedent on the “no ultimate harm”

instruction is United States v. Rossomando, 144 F.3d 197,

200-03 (2d Cir. 1998), which rejected the instruction in a

case in which a former firefighter underreported his post-

retirement income on pension forms. Rossomando believed

that he was causing no harm to the pension fund, which

40
distinguished him from a person for whom the instruction is

proper:

[W]here some immediate loss to the victim is
contemplated by a defendant, the fact that the
defendant believes (rightly or wrongly) that he
will “ultimately” be able to work things out so
that the victim suffers no loss is no excuse for
the real and immediate loss contemplated to result
from defendant’s fraudulent conduct.

Id. at 201.

Rossomando is “limited to the quite peculiar facts that

compelled [its] result,” United States v. Gole, 158 F.3d

166, 169 (2d Cir. 1998) (Jacobs, J., concurring), so

Graham’s analogy is not persuasive. The “no ultimate harm”

instruction given in the present case ensured that jurors

would not acquit if they found that the defendants knew the

LPT was a sham but thought it beneficial for the stock price

in the long run. It may well have been proven beneficial to

AIG stockholders, but the immediate harm in such a scenario

is the denial of an investor’s right “to control [her]

assets by depriving [her] of the information necessary to

make discretionary economic decisions.” Rossomando, 144

F.3d at 201 n.5 (citing United States v. DiNome, 86 F.3d

277, 280, 284 (2d Cir. 1996)). Moreover, the jury charge

given here could not have undermined Graham’s good-faith

41
defense; the instructions made clear that “[a] defendant who

acted in good faith cannot be found to have acted knowingly,

willfully, and with the unlawful intent required for the

charge you are considering,” Trial Tr. at 4711, and that

“[h]owever misleading or deceptive a plan may be, it is not

fraudulent if it was devised or carried out in good faith,”

id. at 4729.

C

The defendants argue that prosecutorial misconduct--

ranging from intentional grammatical errors to eliciting

perjury--warrants reversal because the ensuing “substantial

prejudice” “so infect[ed] the trial with unfairness as to

make the resulting conviction a denial of due process.”

United States v. Shareef, 190 F.3d 71, 78 (2d Cir. 1999)

(internal quotation marks omitted). Certain factual

inconsistencies in Napier’s testimony are sufficiently

obvious to raise an eyebrow, but most of the arguments are

meritless.

42
 1

Compelling inconsistencies suggest that Napier may well

have testified falsely. Napier provided important testimony

(i) that he attended a meeting with Monrad at which AIG’s

CFO was warned that Gen Re would book the LPT on a deposit

basis; and (ii) that Garand first proposed a no-risk deal.

(i) Napier testified that Monrad, at Ferguson’s

behest, led a meeting at AIG in late November or early

December 2000, in which she informed Howie Smith and Mike

Castelli (AIG’s CFO and Controller, respectively) that Gen

Re would book the LPT as a deposit. The disclosure ensured

that AIG could not later claim to be surprised by Gen Re’s

accounting. The testimony was thus strong evidence of

Monrad’s scienter.

Neither Napier nor the government could produce “one

scrap of paper” showing that the meeting actually took place

(Trial Tr. at 1274): no preparatory documents or emails, no

AIG sign-in or security records confirming that Monrad and

Napier had visited the office at that time; no records of

the Gen Re car (and drivers) that Napier claimed provided

their transportation. Napier’s calendar entries could not

confirm the meeting, because none of his historic calendar

43
data was recoverable. No one sent an email summarizing the

discussion for those not in attendance or memorializing it

for those who were.

Monrad’s counsel cross-examined Napier about an email

describing an earlier meeting he had with Howie Smith at AIG

on an unrelated matter. The earlier meeting--which Monrad

did not attend--contradicted Napier’s testimony that the

purported LPT meeting was the first time that he had met

Smith. Napier admitted that he may have confused the LPT

meeting with this meeting.

(ii) Garand challenges as perjury (and relatedly, as

government misconduct) Napier’s belated recollection (with

“certain[ty],” Trial Tr. at 1670) that it was Garand who

originated the idea of a no-risk transaction. Among the

circumstances he cites as suspicious are: Napier did not

recollect Garand’s role as originator until the day that the

government filed the superseding indictment in which Garand

was first named as a defendant; Napier’s certainty is

incompatible with his concession on cross-examination that

he was “having a hard time remembering the events of [that

day]” and was “drawing a blank on the entire date”; Napier

had earlier been uncertain about Garand’s first involvement

44
(he had suggested that Garand may not have been involved

until Gen Re collected on the side deal in 2001); the

identification contradicted Napier’s previous identification

(recanted at trial) of Milton as the source; and his

identification of Milton was made while looking at the same

undated page of notes that he attributed at trial to a

meeting with Garand and Monrad (which he does not contend

that Milton attended). Moreover, when Houldsworth

delicately broached the LPT in a call with Garand the next

day, Garand evinced no recognition of the transaction.

Houldsworth formed the impression that Garand “didn’t appear

to know anything about it.” (Garand claims to have first

learned about the transaction during this call with

Houldsworth.)

The government argues that we should not review these

arguments at all because the defendants waived them; but

where a defendant does not “intentional[ly] relinquish[] or

abandon[]” a known right, but simply “fail[s] to make the

timely assertion of [it],” the result is not waiver but

forfeiture. United States v. Olano, 507 U.S. 725, 733

(1993) (internal quotation marks omitted). We review such

forfeited arguments for plain error. If these arguments had

45
been presented to the trial court, a factual record about

Napier’s potential perjury (and the extent of the

government’s awareness and diligence) could have been made.

The district court requested substantive briefing and

argument on the issue, but was not taken up. The defendants

may have had their reasons for sidestepping the issue of

Napier’s possible perjury and the government’s alleged

responsibility for it; but “our review for plain error [is]

more rigorous” where the failure to object was a “strategic

decision” that “resulted in an incomplete record or

inadequate findings.” United States v. Brown, 352 F.3d 654,

665 (2d Cir. 2003).

There are ambiguities in our case law regarding the

proper standard to use, which could not have helped the

district judge in sorting this out. The parties appear to

agree that the two-part test from United States v. Wallach

applies:

(1) Whether the perjury was material to the jury’s
verdict;

(2) The extent to which the prosecution knew or
should have known about the perjury;19

19
Two standards of review are set, based upon the
prosecution’s knowledge. If the prosecution knew or should
have known of the perjury, the conviction must be set aside
“if there is any reasonable likelihood that the false
46
935 F.2d 445, 456 (2d Cir. 1991). But that test is in

tension with the four-part test from United States v.

Zichettello, which supplements the Wallach factors with two

factors from precedent20 (italicized):

(i) “the witness actually committed perjury”;21

(ii) “the alleged perjury was material”;

(iii) “the government knew or should have known of
the alleged perjury at the time of trial”; and

(iv) “the perjured testimony remained undisclosed
during trial.”

208 F.3d 72, 102 (2d Cir. 2000) (internal quotation marks

omitted). Later cases add to the confusion by applying

Wallach without referencing Zichettello. See, e.g., United

States v. Stewart, 433 F.3d 273, 297 (2d Cir. 2006). The

testimony could have affected the judgment of the jury.”
Id. (internal quotation marks omitted). But where the
government was unaware of the perjury, a new trial “is
warranted only if the testimony was material and the court
[is left] with a firm belief that but for the perjured
testimony, the defendant would most likely not have been
convicted.” Id. (internal quotation marks omitted).
20
See United States v. Helmsley, 985 F.2d 1202, 1205
(2d Cir. 1993); United States v. Blair, 958 F.2d 26, 29 (2d
Cir. 1992).
21
In Wallach, the government conceded that the
witness had committed perjury. See 935 F.2d at 455.
47
tests are not necessarily incompatible, however.22

Since we are vacating the judgments on the basis

discussed above, we need not reconcile these cases or decide

whether the prosecution’s actions amounted to misconduct.

(Our decision would have been hindered by the defendants’

gamesmanship; and their fact-intensive arguments23 are

blunted by the underdeveloped record.) No doubt it is

dangerous for prosecutors to ignore serious red flags that a

witness is lying, and the government will doubtless approach

Napier’s revised recollections with a more skeptical eye on

remand. At the same time, Napier’s inconsistent statements

concern facts that could not have been conclusively verified

by the government, and the potential that Napier had lied in

these respects was fully presented in cross-examination and

22
The government in essence collapses the Zichettello
factors into the two Wallach factors, arguing that the
perjury (if any) was immaterial because it was disclosed at
trial and fully corrected by the defendants’ forceful attack
on Napier’s credibility during cross-examination and
summation, yet the jury nevertheless convicted Monrad and
Garand.
23
For example, Garand argues that a subset of Napier’s
notes produced by the government was in rough chronological
order, suggesting that the undated notes page was from
between November 15 and 17, rather than from November 13.
The government’s use at trial of an identical copy of the
notes from elsewhere in the production (rather than the
version from the chronological subset), he argues, shows
intent to obscure the correct date for the notes.
48
summation to the jury, which resolved the credibility issue

against the defendants.

2

The remainder of the misconduct claims involve the

government’s comments at opening statement, in summation,

and on rebuttal. “It is a ‘rare case’ in which improper

comments . . . are so prejudicial that a new trial is

required.” United States v. Rodriguez, 968 F.2d 130, 142

(2d Cir. 1992) (quoting Floyd v. Meachum, 907 F.2d 347, 348

(2d Cir. 1990)). Such comments do not amount to a denial of

due process unless they constitute “egregious misconduct.”

Shareef, 190 F.3d at 78 (internal quotation marks omitted).

In assessing a claim, we consider: (1) “the severity of the

misconduct”; (2) “the measures adopted to cure it”; and (3)

“the certainty of conviction in the absence of the

misconduct.” Id. (internal quotation marks omitted).

The defendants did not contemporaneously object to the

statements they now claim constitute misconduct. (The one

objection was made a day after the challenged statement was

made.) They were thus able to pore at leisure over the

transcript, hunting for any plausible (or nearly plausible)

49
claims. The remarks do not amount to misconduct, separately

or in the aggregate.24

First, Graham challenges two mistakes that the

prosecution made when quoting his email:

In quoting the line that “regulators (insurance and

securities) may attack the transaction,” the prosecutor

repeatedly used “would” rather than “may.” However, the

distinctions among “may,” “might,” “will” and “would” are

among the slipperiest in the English language. The

distinction should have been preserved, but it cannot be

said that a slip--even a recurring slip--was misconduct. It

is easy to make such mistakes, but there is reason to think

that there will be heightened vigilance on retrial.

The prosecution also misquoted “potential reputational

risk” as “potential risk” in two slides shown to the jury

(and referenced by the prosecutor twice). Graham failed to

object to the omitted word; he chose instead to correct the

government’s mistake in his closing argument, which

24
Several of the misconduct arguments are discussed
elsewhere, including the alleged misuse of (1) stock-price
data, (2) the recordings with derogatory comments about AIG,
and (3) Graham’s email to McCaffrey. The argument about
characterizing the deal as “no risk” from the start
duplicates Ferguson’s argument about co-conspirator
statements discussed below.
50
dovetailed nicely with an argument that the email’s use of

“reputational” was pregnant. Having tried that (and having

called the miscue a “good faith” mistake in closing

argument, Trial Tr. at 4508), he now argues that was

reversible misconduct. We conclude that the omissions were

honest mistakes, and any harm was cured by Graham’s tactical

discussion of the error.

These misstatements were “minor aberrations in a

prolonged trial,” rather than misconduct. United States v.

Modica, 663 F.2d 1173, 1181 (2d Cir. 1981) (internal

quotation marks omitted).

Second, the defendants contend that the government

oversimplified the case by emphasizing Gen Re’s lack of need

for reinsurance and AIG’s acquiescence to paying a $5

million fee despite accepting risk. These features of the

transaction, it is claimed, are irrelevant because they may

also inhere in any lawful finite reinsurance transaction.

It is true that these facts alone are insufficient to

support a conviction, but neither are they irrelevant: It

was within the province of the jury to determine whether

these were incidents of fraud or incidental to a lawful

transaction of that specialized kind.

51
 Third, the defendants claim that the government

knowingly invited a false inference. One defense theory was

that the LPT could not have been fraudulent because Warren

Buffet--the CEO of Berkshire Hathaway, Gen Re’s parent

company--vetted aspects of the deal. Defendants attack the

prosecution statement that there was no evidence Warren

Buffet knew anything significant about the deal. No false

inference was invited: Although the government led with its

inference that Buffett knew nothing of significance, it then

described in detail all of the Buffett evidence. The jury

could assess the evidence as it saw fit; the prosecution was

free to offer its assessment as well.

Finally, the defendants challenge the government’s

rebuttal assertion that Milton’s delivery of the fake slip

and offer letter successfully deceived two AIG employees,

who therefore booked the transaction as reinsurance. They

claim the statement was intended to paper over the

government’s missing proof of causation. But this single

sentence had an insignificant (if any) effect on the

prosecution’s causation evidence, especially in view of the

court’s later reminder to the jury that statements from

summations are not evidence. The statement fell far short

52
of misconduct.

II

Ronald Ferguson, the CEO of Gen Re, and Hank Greenberg

envisioned a creative and unusual deal, but Ferguson claims

that he was unaware that the deal would be fraudulent. He

cautions that the jury may have disregarded the flimsy

evidence of his scienter (some of which he claims was

admitted in error) and convicted him merely because he was

in charge as CEO.

A

Ferguson argues that the jury finding of his scienter

was supported by insufficient evidence. He has the “heavy

burden” of showing that “no rational juror could have found

[his scienter] beyond a reasonable doubt.” United States v.

Bryce, 208 F.3d 346, 352 (2d Cir. 1999) (internal quotation

marks omitted). For a sufficiency challenge, we view “all

of the evidence in the light most favorable to the

government and draw all reasonable inferences in its favor.”

Id.

Napier testified extensively about Ferguson’s knowledge

53
of the no-risk aspect of the deal and his insistence on

disclosing Gen Re’s deposit accounting to AIG; that

testimony alone was likely sufficient to support the jury’s

finding. See United States v. Parker, 903 F.2d 91, 97 (2d

Cir. 1990) (“The fact that a conviction may be supported

only by the uncorroborated testimony of a single accomplice

is not a basis for reversal if that testimony is not

incredible on its face and is capable of establishing guilt

beyond a reasonable doubt.”).

In any event, that testimony, taken together with other

evidence--Ferguson’s unusual request for internal

confidentiality, his review of the Houldsworth email noting

that “no real risk”25 would be transferred and that “[CRD]

w[ould] not transfer any losses under this deal” (Joint

Appendix at 1978), and his proactivity with the tortuous fee

recovery (which was not in the LPT documents)--were

sufficient for a rational juror to have found his scienter

beyond a reasonable doubt.

25
Ferguson attempts to distinguish “no real risk” from
“no risk,” arguing that the former is simply a reference to
a legitimate finite reinsurance transaction with low risk.
He introduced CRD materials that arguably use “no real risk”
in this manner. However, the evidence is inconclusive, and
in any event the potential distinction was before the jury.
A rational juror could have, but need not have, credited the
distinction.
54
 B

Ferguson challenges the admissibility of a December

2000 email from Graham, which assured Gen Re’s General

Counsel, Timothy McCaffrey, that:

[Ferguson] et al[.] have been advised of, and have
accepted, the potential reputational risk that US
regulators (insurance and securities) may attack
the transaction and our part in it.

Joint Appendix at 2192. The email was admitted as a co-

conspirator statement under Rule 801(d)(2)(E). Ferguson

argues that the email: (1) was inadmissible double-hearsay;

(2) mandated severance because it created tension between

his lack-of-scienter defense and Graham’s good-faith

defense; (3) and led the government to invite the inference

that Graham himself told Ferguson about the potential

reputational risk, which it knew to be false.

55
 1

Double-hearsay26 is a potential issue because the

December email is written in the passive voice: Ferguson and

others have been advised about the potential reputational

risk by some unidentified person. Whether this statement

constitutes double-hearsay is a legal issue, which we review

de novo. See, e.g., Biegas v. Quickway Carriers, Inc., 573

F.3d 365, 378 (6th Cir. 2009) (“Whether a statement is

hearsay is a question of law, which we review de novo.”);

United States v. Collicott, 92 F.3d 973, 978 (9th Cir. 1996)

(“Whether the district court correctly construed the hearsay

rule is a question of law reviewable de novo.”). (However,

a district court’s hearsay rulings based upon factual

findings or the exercise of its discretion warrant

additional deference.27)

26
As Ferguson notes, statements admitted under Rule
801(d)(2)(E) are technically nonhearsay, rather than hearsay
exceptions. Ferguson’s argument is thus a first-order
hearsay issue (which happens to be embedded in a nonhearsay
co-conspirator statement). The distinction is irrelevant
for present purposes. We therefore use “double-hearsay” for
ease of reference and to conform to the framing of the
arguments in the district court.
27
See, e.g., United States v. Fell, 531 F.3d 197, 231
(2d Cir. 2008) (reviewing statement admitted as excited
utterance under Rule 803(2) for abuse of discretion); United
States v. Padilla, 203 F.3d 156, 161 (2d Cir. 2000)
(reviewing district court’s findings for admitting co-
56
 The phrase “have been advised of” is used to convey the

idea that they “know”; if the email said “Ferguson et al.

know the potential reputational risk” there would be no

double-hearsay issue.28 Without indicia of evasiveness, it

is not necessary to look for the speaker behind every

sentence written in the passive voice. It is unlikely that

the email was carefully drafted for hearsay subterfuge,

especially in view of the incautious discussion about AIG

answering to God about its accounting practices. This is

not an instance in which a sentence is carefully manipulated

conspirator statements under Rule 801(d)(2)(E) for clear
error).
28
Such a formulation would raise a problem as to the
speaker’s competence to say what is in the mind of another
person, however. It is unclear whether Graham knew that
Ferguson had been informed or whether some degree of
conjecture was involved. We have never explicitly held that
co-conspirator statements admitted under Rule 801(d)(2)(E)
need not satisfy Rule 602’s personal knowledge requirements.
The government argues that personal knowledge is not
required, noting that several other Circuits have so held,
see, e.g., United States v. Lindemann, 85 F.3d 1232, 1237-38
(7th Cir. 1996), and that we have rejected such a
requirement for a similar provision (for admissions by a
party’s agents under Rule 801(d)(2)(D), see United States v.
Lauersen, 348 F.3d 329, 340 (2d Cir. 2003), vacated and
remanded on other grounds, 543 U.S. 1097 (2005)).

The potential personal knowledge issue was waived,
however, because double-hearsay is what was argued and there
was no ruling on personal knowledge in the first place. See
Norton v. Sam’s Club, 145 F.3d 114, 117 (2d Cir. 1998).

57
to smuggle hearsay evidence into pending litigation. See,

e.g., Official Comm. of Unsecured Creditors v. Hendricks,

No. 1:04-cv-066, 2008 U.S. Dist. LEXIS 116318, at *12 (S.D.

Ohio Aug. 1, 2008) (striking passive-voice sentence in

affidavit submitted with motion for summary judgment).

In any event, the unnamed speaker need not be

identified to conclude that the statement is nonhearsay.

First, the statement was not offered for its truth; it was

offered solely for the purpose of showing that the statement

was made to Ferguson. See, e.g., George v. Celotex Corp.,

914 F.2d 26, 30 (2d Cir. 1990) (“[A]n out of court statement

offered not for the truth of the matter asserted, but merely

to show that the defendant was on notice of a danger, is not

hearsay.”). Second, no nonmember of the conspiracy could

have given Ferguson the advice about potential reputational

risk, because only co-conspirators would have been aware of

the particular reputational risk that the conspiracy’s

object entailed (especially in view of Ferguson’s order for

an unusual level of internal secrecy about the deal). The

statement, made in furtherance of the conspiracy, is thus

also a nonhearsay co-conspirator statement under Rule

801(d)(2)(E).

58
 2

Ferguson wished to keep Graham’s email out of evidence,

but Graham wanted it in--as evidence that he acted in good

faith by soliciting his supervisor’s imprimatur on a legally

questionable transaction. Ferguson and Graham claim that

the email created unavoidable tension between Ferguson’s

lack-of-scienter defense and the good-faith defense mounted

by Graham, and that severance was therefore warranted.

Ferguson claims additional prejudice from his inability--

without infringing Graham’s rights--to place before the jury

an exculpatory statement from Graham’s proffer session.

“Motions to sever under Rule 14 are committed to the

sound discretion of the trial judge”; to compel reversal,

the defendant has the “heavy burden” to “show prejudice so

severe that his conviction constituted a miscarriage of

justice.” United States v. Rittweger, 524 F.3d 171, 179 (2d

Cir. 2008) (internal quotation marks omitted).

It was well within the district court’s discretion to

conclude that any tension between defenses was insufficient

to warrant severance. If the jury concluded that both

Graham and Ferguson feared reputational risk because the LPT

was objectionable but non-fraudulent--like, for example, an

aggressive (but defensible) offshore tax position--it could

59
have credited both defense theories.

Nor was severance necessary to permit Ferguson to

introduce evidence from Graham’s proffer session, in which

Graham denied personally informing Ferguson about the

reputational risk of the transaction. Ferguson argues that

in a joint trial, he was hamstrung: He could not introduce

the government’s notes containing the statement, because

Graham was given limited-use immunity; nor could he compel

Graham to testify, because of Graham’s Fifth Amendment right

against self-incrimination.

We have identified several factors for determining

whether to grant severance based on a defendant’s need to

call a co-defendant as a witness:

(1) the sufficiency of the showing that the
co-defendant would testify at a severed trial and
waive his Fifth Amendment privilege;

(2) the degree to which the exculpatory testimony
would be cumulative;

(3) the counter arguments of judicial economy; and

(4) the likelihood that the testimony would be
subject to substantial, damaging impeachment.

United States v. Finkelstein, 526 F.2d 517, 523-24 (2d Cir.

1975) (internal citations omitted). Although the district

60
court did not recite or explicitly apply these factors,29

its discretion is not conditioned upon reciting or

considering them. Rather, the factors are what the district

court “properly could have considered”; they were announced

“[w]ithout purporting to delimit the trial court’s field of

inquiry.” Id. at 523 (emphasis added).

In any event, the factors weigh in favor of the

district court’s ruling. Only the second factor favors

Ferguson: Graham’s testimony about the email would not have

been cumulative, because there is no adequate substitute for

further clarification from the drafter himself. But the

other factors favor the government: first, Ferguson merely

assumes Graham would testify, and it is unclear whether the

conflicting statement from the proffer session would even be

admissible if he did not;30 second, the exculpatory value of

29
Ferguson’s motion to sever based on this email was
made on the eve of trial, because it was prompted by the
government’s eleventh-hour Brady/Jencks disclosures. The
district court thus had to decide the motion on an expedited
basis, and did so orally (before the government was even
able to file a written response). The court later provided
a written explanation for the denial of Ferguson’s renewed
motion to sever (raised in connection with his Rule 29
motions), but that too omitted any reference to the
Finkelstein factors. (Ferguson had once previously renewed
the motion to sever, which was also denied orally.)
30
Ferguson argues that the proffer session statement
would be admissible under Rule 804(b)(3) as a statement
against interest or under the Rule 807 residual exception.
61
the statement would be hugely outweighed by staging another

multi-week trial (with another potential appeal) for

Ferguson alone; third, the cross-examination of Graham would

elicit testimony damaging to Ferguson about Graham’s qualms

concerning the deal, and the basis for his statement that

Ferguson knew of the reputational risk.

* * *

At bottom, “Rule 14 does not require severance even if

prejudice is shown”; instead, “the tailoring of the relief

to be granted, if any, [is in] the district court’s sound

discretion.” Zafiro v. United States, 506 U.S. 534, 538-39

(1993). Ferguson and Graham have not made a showing that

justifies upending the district court’s exercise of its

discretion.

But “only those declarations . . . that are individually
self-inculpatory” are admissible under Rule 804(b)(3), and a
court could exclude the statement for “d[oing] little to
subject [Graham] himself to criminal liability.” See
Williamson v. United States, 512 U.S. 594, 599, 604 (1994)
(emphasis added). As for the residual exception, it is
unclear that the notes have the necessary “equivalent
circumstantial guarantees of trustworthiness,” Fed. R. Evid.
807, because Graham was not cross-examined and there was no
transcript from the hearing.
62
 3

The government’s closing statement juxtaposes Napier’s

comment that the LPT is Ferguson’s deal with a description

from Graham’s email that Ferguson was advised of the

potential reputational risk. Ferguson argues that this

sequence (and a similar one in the government’s opening

statement) amounted to prosecutorial misconduct, because it

advanced the inference that Graham had personally discussed

reputational risk with Ferguson, which the government knew

to be false.

Prosecutors are well advised to tread carefully when it

comes to arguing for inferences that are fair in terms of

evidence but are doubtful (if not foreclosed) based on what

they were told in proffer sessions. However, any inference

arose from the structure of the government’s argument,

rather than its substance. Although it is possible that the

misleading structure of a prosecutor’s argument could amount

to misconduct, the misconduct here (if any) was insufficient

to create the “substantial prejudice” necessary to warrant

vacatur. United States v. Valentine, 820 F.2d 565, 570 (2d

Cir. 1987).

63
 C

The government insists that the deal was tainted from

the very first call between Ferguson and Greenberg, when AIG

asked to rent a specific amount of reserves for a defined

period. Yet it also theorized that the idea of a no-risk

deal did not surface until Garand suggested it in mid-

November. Ferguson claims that this is a contradiction that

renders untenable the district court’s finding that the

conspiracy began with the Greenberg-Ferguson call on October

31, a ruling that allowed the government to introduce co-

conspirator statements made starting on October 31 (rather

than starting from mid-November).31 The district court’s

decision to admit the co-conspirator statements under Fed.

R. 801(d)(2)(E) is reviewed for clear error. See United

States v. Farhane, 634 F.3d 127, 160-61 (2d Cir. 2011).

31
Extrajudicial statements made among co-conspirators
during and in furtherance of a conspiracy (whose existence
is established by a preponderance of the evidence) are
admissible against co-conspirators. See Fed. R. Evid.
801(d)(2)(E); United States v. Tellier, 83 F.3d 578, 580 (2d
Cir. 1996).

The court conditionally admitted the statements during
the government’s case, but admitted the statements only
after conducting a hearing after the government rested; the
court found that the government satisfied its burden of
proving the necessary Rule 801(d)(2)(E) elements by a
preponderance. See United States v. Geaney, 417 F.2d 1116,
1120 (2d Cir. 1969).
64
 The government’s theories are not irreconcilable.

Although the details of the plan were not settled during the

October 31 call, Greenberg and Ferguson agreed to a highly

unusual deal: The transaction was prompted predominately by

stock market concerns; it inverted their customary

commercial roles as cedant and reinsurer, even though there

was no evidence that Gen Re wanted reinsurance; and AIG

requested a specific dollar range of loss reserves for a

specific term.

Even if Greenberg and Ferguson had hoped to accomplish

their objectives legally, execution of a no-risk transaction

was not unforeseeable. These very senior executives agreed

to pursue specific parameters. And their objective

predictably exerted pressure on their subordinates on the

deal team to get the transaction done that way no matter

what.32 Under these circumstances, we cannot say that it

was clearly erroneous for the district court to find that

the conspiracy began on October 31.

32
The government presented evidence that Ferguson and
Greenberg ratified the transaction even after it became no-
risk.

65
 III

The defense of Robert Graham, in-house lawyer for Gen

Re and the only attorney among the defendants, is that he

acted in good faith throughout, was unaware of the true

nature of the deal, and vetted his ethical concern with Gen

Re’s General Counsel, Timothy McCaffrey. Graham argues that

(1) his requests for certain jury instructions were

improperly denied, and (2) government conduct rendering

McCaffrey unavailable was a hindrance to Graham’s good faith

defense.

A

Graham claims that the district court improperly denied

his request for jury instructions about professional

responsibility rules for attorneys, and non-contractual

understandings (i.e., handshake deals). Although a criminal

defendant is entitled to a jury instruction when there is

“any foundation in the evidence” for it, an instruction that

“divert[s] the attention of the jury to questions of little

significance” and that would “have confused, if not misled,

the jury” are properly rejected. United States v. Russo, 74

F.3d 1383, 1393-94 (2d Cir. 1996) (internal quotation marks

omitted).

66
 1

Graham sought a jury instruction explaining that an

attorney confronted with “an arguable question of

professional duty” may discharge his ethical

responsibilities by consulting with a supervisory lawyer and

relying on his resolution of the matter. Joint Appendix at

2844-45. He argues that his email to his boss,33 which the

government says is a basis for liability, was in fact and

effect compliance with his ethical responsibilities:

Tim -

The AIG project continues. It is now a two step
loss portfolio deal between Cologne Re Dublin and
National Union of Pittsburgh, with $250 million
booked in the 4th quarter of 2000 and $250 million
more to be booked in 2001 (probably 1st quarter).
While it will be booked in the third quarter, it
is retroactive to 1/12/2000.

Our group will book the transaction as a deposit.
How AIG books it is between them, their
accountants and God; there is no undertaking by
them to have the transaction reviewed by their
regulators.

[Ferguson] et al[.] have been advised of, and have
accepted, the potential reputational risk that US
regulators (insurance and securities) may attack
the transaction and our part in it.

Rob

33
This is the same email that Ferguson challenged
(discussed above) for asserting that he had been advised of
the potential reputational risk of the transaction.
67
Joint Appendix at 2192 (emphasis added).

The professional responsibility rules shed no light,

however: A memo reporting on what is being done, without

more, is not the kind of consultation contemplated by the

rules. See Conn. Rules of Prof’l Conduct 5.2. Nor was

there a foundation for the instruction in the record,

because Graham presented no evidence implicating the rules.

(He evidently decided not to call the ethics expert witness

he had considered. See United States v. Ferguson, No. 06-

cr-137, 2007 WL 4539646, at *2 (D. Conn. Dec. 14, 2007).)

2

The government emphasized that Graham drafted the

contracts to omit the $15 million in payments to Gen Re.

Graham countered that the payments were non-contractual

“handshake” deals and thus needed not be included in a

written contract. He sought a jury instruction about

handshake deals to bolster this argument.

There was no foundation for the instruction; and the

instruction only would have created confusion about an

unimportant collateral issue. The testimony on handshake

deals was that they are “agreement[s] over many years, often

decades” in which “one party may or may not make up losses

68
to the other party if they do particularly well,” Trial Tr.

at 3435, and that such arrangements are common in the

insurance industry. But numerous comments in the record

confirm that the $15 million payment was not a handshake.

(The only comment to the contrary was a stray remark by

Houldsworth that appears to have been a misstatement).

Moreover, the money trail does not suggest that the parties

were dealing on the trustful basis of a handshake: Gen Re

withheld the payment it was contractually obligated to make

until AIG had routed the $15 million from the side-deal

(premium repayment and fee) to Gen Re.

B

In a government interview, Graham’s boss, Tim

McCaffrey, recalled that when he received Graham’s email, he

saw nothing that warranted questioning or follow up, and

presumed that Graham would have been more explicit if truly

concerned about legal or ethical issues. Graham subpoenaed

McCaffrey to testify about these matters (and Graham’s good

character), but McCaffrey, who was changed to an “unindicted

co-conspirator” in the superseding indictment,34 declined to

34
Graham argues that the reference to McCaffrey as a
co-conspirator in the indictment should have been stricken.
Motions to strike surplusage from an indictment are granted
69
testify unless immunized. The government refused. Graham

claims that McCaffrey should have been immunized so that he

could testify on Graham’s behalf or, failing that, he should

have had the benefit of a missing witness instruction.

“The situations in which the United States is required

to grant statutory immunity to a defense witness are few and

exceptional.” United States v. Praetorius, 622 F.2d 1054,

1064 (2d Cir. 1979). So few and exceptional are they that,

in the nearly thirty years since establishing a test for

when immunity must be granted, we have yet to reverse a

failure to immunize. The test requires three findings:

(1) “[T]he government has engaged in
discriminatory use of immunity to gain a tactical
advantage or, through its own overreaching, has
forced the witness to invoke the Fifth Amendment”;

(2) “[T]he witness’ testimony will be material,
exculpatory and not cumulative”; and

(3) The testimony “is not obtainable from any
other source.”

United States v. Burns, 684 F.2d 1066, 1077 (2d Cir. 1982).

We review the court’s factual findings about government

only when the challenged phrases are “not relevant to the
crime charged and are inflammatory and prejudicial.” United
States v. Hernandez, 85 F.3d 1023, 1030 (2d Cir. 1996)
(internal quotation marks omitted). The phrase was relevant
because, as discussed below, McCaffrey was legitimately
being investigated; he had to be referenced because he was
the only recipient of Graham’s infamous email.
70
actions and motive for clear error, but its ultimate

balancing for abuse of discretion. United States v. Ebbers,

458 F.3d 110, 118 (2d Cir. 2006).

Graham’s claim fails on two grounds. As to the first

part, a prosecutor does not overreach by refusing to

immunize a legitimate target of an ongoing investigation,

and the district court’s finding that McCaffrey was a target

was not clearly erroneous: He failed to act following

Graham’s remark that “[h]ow AIG books [the LPT] is between

them, their accountants and God,” and he annotated a list of

transactions in his personal files to indicate a hidden

letter for the LPT.

As for the second part, McCaffrey’s interpretation of

Graham’s email was not material because it was non-

contemporaneous and self-serving: It would have been

disadvantageous for McCaffrey to concede that the email had

raised red flags that he subsequently ignored. Moreover,

McCaffrey’s assumption, that Graham would have been more

explicit if he had a qualm, was conjectural.

Similarly, the district court did not abuse its

discretion by omitting a missing witness instruction. Such

an instruction need not be given “in the absence of

circumstances that indicate the government has failed to

71
immunize an exculpatory witness.” United States v. Myerson,

18 F.3d 153, 160 (2d Cir. 1994). For the reasons discussed

above, it was within the court’s discretion to conclude that

McCaffrey’s potential testimony was insufficiently

exculpatory to warrant the instruction.

IV

Christian Milton, a Vice President of Reinsurance at

AIG, was the only AIG employee who was indicted in this

case. His primary defense is that the trial was a

vilification of AIG, and he was convicted by association.

A

Milton argues that the court abused its discretion by

admitting comments from the recordings of the Gen Re

defendants that impugned AIG generally.35 The statements

35
Milton challenges the admission of four passages:

1) HOULDSWORTH: [I]f there’s enough pressure on at
[AIG’s] end, they’ll, they’ll find ways to cook
the books, won’t they?

2) MONRAD: I’m not sure [AIG] use[s] all the same
rules we use.

3) HOULDSWORTH: . . . I mean, how much cooking
goes on in, in there [at AIG]? . . . .
. . .
72
are undeniably prejudicial to AIG, but they are also highly

probative of the scienter of the Gen Re defendants. The

district court conscientiously conducted extensive

balancing, evaluating and redacting recordings on a line-by-

line basis. See United States v. Ferguson, 246 F.R.D. 107,

121-23 (D. Conn. 2007) (excluding comments that

sarcastically referenced the “lovely people” and “nice

people” at AIG, that there were good reasons to avoid doing

business with AIG, and that “Ferguson doesn’t like it

because it’s AIG”). Moreover, the court gave a charge

that guilt could not be conferred

based solely on [the defendants’] senior position
or positions that he or she held within their
respective companies.

. . . [Y]ou may not infer that any of the
defendants, based solely on his or her position at
Gen Re . . . or AIG, had any knowledge of the
alleged fraud.

Trial Tr. at 4766-67. The instruction is easy to follow,

and “juries are presumed to follow their instructions.”36

GARAND: They’ll do whatever they need to make
their numbers look right.

4) GRAHAM: [AIG’s] organizational approach to
compliance issues has always been, pay the
speeding ticket.
36
Milton argues that no limiting instruction could
cure the prejudice, by analogy to cases where plea
allocutions were introduced, see, e.g., United States v.
73
Richardson v. Marsh, 481 U.S. 200, 211 (1987). Although

fortified limiting instructions for each recording could

have provided additional (perhaps redundant) protection,

Milton’s strategy was to forgo additional instructions to

avoid drawing unnecessary attention to the recordings.37

Under these circumstances, we cannot say that the

district court abused its discretion in admitting the

statements.38 At the same time, some of the phrases (from

the recordings) that denigrated AIG were exploited

rhetorically by the government. Although “cook the books”

is a cliche that comes easily to the lips, the government

Riggi, 541 F.3d 94 (2d Cir. 2008). The analogy is not apt.
37
It is easy to see why the defendant did not seek
further limiting instructions. Confusion abounded when the
first limiting instruction was given, causing the jury to
hear the prejudicial statement three times in short
succession. Nevertheless, the option to seek further
instructions was available.
38
Two aspects of the district court’s treatment of
Houldsworth’s “cook the books” comment give pause. First,
the court excluded the comment from evidence after
previously allowing the jury to hear it during the
government’s opening. But the statement was not so
explosively prejudicial as to taint the jury after one
hearing; nor was it irrational for the district court to
revisit its Rule 403 balancing and exclude the comment.
Second, excluding the comment seems inconsistent with
admitting Houldsworth’s other comment that asked how much
cooking goes on at AIG. But the “cooking the books”
metaphor was not the only objectionable part of the excluded
comment; Houldsworth also explained that “We won’t help them
do that too much. We won’t, we’ll do nothing illegal.”
74
pushed its luck by harping on it twenty-three times (by

Milton’s count)--after a recording containing that phrase

was excluded. Such conduct draws appellate scrutiny, and

could neutralize the effect of an otherwise sufficient

limiting instruction. We need not consider this further;

but the government would be well served to avoid gratuitous

prejudice of that kind at retrial.

B

The recordings denigrating AIG did not require that

Milton’s trial be severed.39 Joint trials “play a vital

role in the criminal justice system” by promoting efficiency

and avoiding the “scandal and inequity of inconsistent

verdicts.” Zafiro v. United States, 506 U.S. 534, 537

(1993) (internal quotation marks omitted). As discussed,

the decision whether to sever is confided to the “sound

discretion” of the district court and is “virtually

unreviewable” unless the conviction “constituted a

miscarriage of justice,” United States v. Yousef, 327 F.3d

39
Milton moved for a severance both before and after
trial. The pretrial motion was based on the above
recordings and evidence of a similar transaction, which was
excluded before trial. The post-verdict motion for
severance lacked supporting legal arguments.
75
56, 149-50 (2d Cir. 2003) (internal quotation marks

omitted).

There was substantial other evidence to convict Milton

besides the recordings denigrating AIG. He spoke frequently

with Napier--sometimes a couple of times a day, and other

times “almost daily”--to “keep the pressure” on Gen Re to

get the deal done. Joint Appendix at 789. He also spoke

candidly with Napier about the no-risk nature of the deal,

and their discussions are memorialized in at least one

email. He orchestrated the circulation of deal documents

within AIG to avoid the customary actuarial and underwriting

due diligence. He signed the final contracts on behalf of

AIG, which omitted the $15 million fee, and then helped

effect (and disguise) the payment of the fee, including by

signing the relevant paperwork on AIG’s behalf.

Even if the recordings were likely inadmissible had

Milton been tried alone (they were admitted for the limited

purpose of showing scienter of the Gen Re defendants), we

cannot say--in view of the line-by-line redaction of the

recordings, the court’s steps to minimize each recording’s

76
effect on Milton,40 and the jury charge rejecting conviction

based upon corporate title--that the district court abused

its discretion in denying severance.

V

Elizabeth Monrad, the Chief Financial Officer of Gen

Re, argues principally the prosecutorial misconduct and

other issues discussed above. In addition, she argues that

testimony by Houldsworth and Napier about what others

(sometimes she herself) meant by certain statements was

equivalent to asking what she knew, which improperly

prejudiced the jury as to her scienter.41 Such testimony,

40
(The content of the recordings is discussed above,
see supra note 32.)

Although the first recording was permitted to be played
in the government’s opening, the court did not allow the
government to bring it out in Houldsworth’s testimony.
The second passage is not inflammatory, but in any
event, the court instructed the jury that it “may not
consider this statement at all as to any of the other
defendants” besides Monrad, the speaker.
The court offered to give a limiting instructions to
the jury for the third recording “if requested by Milton,”
246 F.R.D. at 120, but Milton did not request one.
Milton expressly requested that the court not give a
limiting instruction for the fourth recording.

41
Monrad argues in general about improper lay opinions
by Napier and Houldsworth, but focuses on four
77
she claims, was neither “rationally based” on the witnesses’

perception nor helpful to the jury. See Fed. R. Evid. 701.

Monrad relies heavily upon United States v. Kaplan, 490

F.3d 110 (2d Cir. 2007). In Kaplan, conspirators from a

medical office and a law firm set up auto accidents to

collect insurance. Id. at 114-16. A cooperating witness, a

lawyer involved in the ring, testified that when a successor

lawyer in the ring claimed experience with “these kinds of

cases,” the witness “understood” the cases as auto insurance

scams. Id. at 117. That was held to be improper lay

opinion testimony because the government did not establish

that it was “rationally based” on the perception of the

interpretations:

1) Testimony by Houldsworth and Napier concerning
her statement that “We told AIG that there would
not be symmetrical accounting here.” Joint
Appendix at 2094.

2) Houldsworth’s testimony about Napier’s
statement that “The accounting does not appear to
be an issue for AIG.” Joint Appendix at 2067.

3) Houldsworth’s testimony about his comment that
“to me it sounds like [Monrad’s] got something in
mind.” Joint Appendix at 1957.

4) Testimony by Houldsworth and Napier concerning
her statement that AIG “may have a tough time
getting the accounting they want.” Joint Appendix
at 1997.
78
witness (who was extremely vague when explaining the basis

for his testimony). Id. at 119.

Those concerns are absent here. Napier and Houldsworth

testified only about calls or emails they were involved

with, and their testimony was rationally based on the

perceptions that they formed from those communications and

as key players in the LPT deal. The testimony was helpful

to the jury because of the jargon,42 the heavy involvement

by Napier and Houldsworth in the LPT, and their experience

in the reinsurance industry.

Although this Court has “suspect[ed] that in most

instances a proffered lay opinion will not meet the

requirements of Rule 701” when the issue is a party’s

knowledge, we have advised that, like here, “[l]ay opinion

testimony will probably be more helpful when the inference

of knowledge is . . . from such factors as the defendant’s

history or job experience.” United States v. Rea, 958 F.2d

1206, 1216 (2d Cir. 1992). The district court therefore did

not abuse its discretion in admitting the testimony about

42
Monrad’s analogy to “drug code” cases is
unpersuasive. See, e.g., United States v. Grinage, 390 F.3d
746 (2d Cir. 2004). Attributing highly inculpatory meaning
to otherwise innocuous phrases (e.g., “I need something bad,
bad, bad,” and “I need about nearly four” interpreted as
needing four ounces of PCP) differs from providing context
for obscure accounting terminology.
79
these statements.

VI

All of the arguments raised by Chris Garand, a Senior

VP and Chief Underwriter of Gen Re’s finite reinsurance

operation in the U.S., are raised by other defendants and

are discussed above.

CONCLUSION

For the foregoing reasons, the defendants’ convictions

are vacated and the case is remanded to the district court

for a retrial.

80