Justice Department investigating local prosecutors over 'significant failures' in mortgage fraud case

Dec. 28—The U.S. Department of Justice has launched an internal investigation into the actions of federal prosecutors in Buffalo in the criminal case against convicted Rochester real estate developer Robert C. Morgan.

The department's Office of Professional Responsibility has begun a "preliminary inquiry" to review "issues of potential professional misconduct" that were identified by U.S. District Court Judge Elizabeth A. Wolford during pre-trial proceedings over several years.

The U.S. Attorney's Office revealed the inquiry in a legal brief filed in federal court in July, but the brief was unsealed and disclosed to the public only last week after an appellate court ruling involving a Rochester newspaper's challenge of the original seal. The government had submitted the brief to support its argument to Wolford that a separate court hearing into the reported misconduct was unnecessary because the Justice Department was addressing the issues internally.

The issues include failures by local prosecutors to complete electronic review and discovery of evidence to the defense — as required under criminal procedures — as well as discrepancies or inconsistent statements made to the court about whether and when investigators would finish processing the mound of evidence and millions of pages of documents obtained from subpoenas and search warrants.

"The United States Attorney's Office for the Western District of New York recognizes its responsibility for the significant failures in this case which have been the subject of much scrutiny by this court, the defendants, and the public," according to the brief, filed by First Assistant U.S. Attorney Scott Leeson Sroka and Assistant U.S. Attorney and Criminal Chief Maryellen Kresse.

"These are serious issues which require an institutional response from the government," the brief continued. "This institutional response is ongoing in the form of the above-referenced OPR inquiry, as well as a focus and commitment by this office's leadership to take necessary and appropriate steps, including increased supervision and training, to ensure that such failures are addressed and do not occur in the future."

Wolford had sharply criticized the prosecution's work on multiple occasions, both in her written rulings and from the bench. Defense attorneys also denounced the government's actions. However, there is no indication by Wolford or others in any filings or statements that there was deliberate misconduct or deception, nor that the mortgage fraud case itself — which never went to trial — was faulty.

The leadership of the local office — under U.S. Attorney Trini Ross — is working with high-level Justice Department attorneys in Washington, under the direction of the deputy U.S. attorney general, to "to conduct a complete review and dissection of this case to determine what went wrong, when and how errors occurred, and to proactively determine how cases with voluminous electronic discovery can be better handled in the future."

The office is working with Associate Deputy Attorney General Andrew Goldsmith, the national criminal discovery coordinator for Justice, and the department's executive director of e-litigation support, John Haried, to develop better internal practices and procedures to prevent "the types of discovery, management and litigation mistakes which occurred," according to the brief.

The office will also provide more internal training and mentoring of managers and assistant U.S. attorneys to ensure they "completely understand their discovery obligations." And it created a new Litigation Support Unit to "standardize the office's discovery processes and procedures" and to provide discovery "in a more efficient and timely manner," given the "growing volume and complexity of electronic discovery, according to the brief.

Morgan his son, his finance chief and a Buffalo-area mortgage broker were indicted in May 2019 and charged with submitting falsified rent rolls, income statements, appraisals and other financial documents to deceive lenders into providing larger loans on apartment projects than the properties were actually worth. Three other people, including Morgan's nephew, pleaded guilty to similar charges.

From the start, FBI investigators and local prosecutors were overwhelmed by the volume of documents and other evidence that were seized in raids or delivered from subpoenas, including 15 computers, phones and other devices. That led to multiple delays that tried the patience of Wolford and U.S. Magistrate Judge H. Kenneth Schroeder, who repeatedly set deadlines for the government and even extended the deadlines, only to see them exceeded.

Citing violations of the defendants' rights to a speedy trial, Wolford threw out the first indictment against Morgan in October 2020, after finding that prosecutors mishandled the discovery process and failed to meet the court-imposed deadlines. But she allowed the government to refile the case because she found no indication of "bad faith," but just "sloppy" execution because of insufficient resources, expertise and focus.

Five months later, on March 2, 2021, the U.S. Attorney re-indicted the defendants on 104 counts in what it called a "wide-ranging" scheme. But problems continued, and by October 2021, the defendants accused the government of misleading the court and asked the judge to dismiss the case. Wolford heard oral testimony and received filings on the motion in December 2021 and January 2022.

That's when she voiced concern about "apparent inconsistencies in the way the government had handled certain evidence" and "representations the government had made about it." She ordered an evidentiary hearing for the week of April 4, and warned that the results could change her mind about the government's behavior.

Specifically, Wolford focused on statements about three laptops that were seized by the government but never searched, conflicting statements by Assistant U.S. Attorney Douglas Penrose about when the evidence processing would be finished, and "factual discrepancies" related to a cellphone seized from one defendant's girlfriend, but not revealed until much later, and which Morgan's attorneys claimed could have had critical evidence for the defense.

There were also questions regarding claims made to Schroeder or Wolford about how much time was needed to complete discovery; about whether the government had complied with its discovery obligations under federal criminal procedure rules; about how it used search terms in processing evidence; that "all discovery" had been completed by Oct. 31, 2018; and that "many or most of the items" on three "missing" computers were just duplicates.

But the hearing never happened, because Morgan and his co-defendants pleaded guilty to significantly reduced charges with no prison time and minimal fines, ending the case. Morgan also previously agreed to forfeit $16.3 million in proceeds that prosecutors claimed was a result of his reported fraud on eight properties.

In the meantime, the Justice Department already knew what was happening, and the OPR had opened its inquiry in early April, but held it in abeyance until the criminal case and evidentiary hearing were resolved.

Wolford was still open to investigating, so the U.S. Attorney's Office urged her to drop the hearing and filed the two motions that were sealed in July at the government's request, because they dealt with individual misconduct investigations and "should be shielded from public disclosure."

The Rochester Democrat & Chronicle objected, intervened and appealed to the Second Circuit Court of Appeals in New York. A three-judge panel ruled against Wolford Dec. 20, citing a "strong public interest in the manner in which criminal cases are conducted," and the "presumptive right of public access" to the documents "under both the First Amendment and common law rights."

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