United States v. Kubini (19 F. Supp. 3d 579, 2014)

AMENDED MEMORANDUM OPINION

NORA BARRY FISCHER, District Judge.

I. INTRODUCTION

Defendant Arthur J. Smith (“Smith”) is charged by way of a Superseding Indictment with allegedly committing thirteen separate criminal offenses, including: one count of wire and bank fraud conspiracy, in violation of 18 U.S.C. § 1349; five counts of wire fraud, in violation of 18 U.S.C. § 1343; three counts of bank fraud, in violation of 18 U.S.C. § 1344(1); one count of money laundering conspiracy, in violation of 18 U.S.C. § 1956(h); and three counts of failure to file income tax returns, in violation of 26 U.S.C. § 7203. (Docket No. 92). Presently before the Court are Smith’s: Motion to Dismiss the Superseding Indictment; Motion to Sever; and Motion to Compel, (Docket Nos. 133, 151, 153), all of which are opposed by the Government, (Docket No. 180). In short, Smith moves to dismiss the Superseding Indictment based upon alleged prosecuto-rial misconduct committed by Government counsel; requests that the Court sever the tax counts from the fraud counts if the Superseding Indictment is not dismissed; and, further seeks an order compelling the Government to locate and produce alleged Brady materials, including suspicious activity reports (“SAR”) which the Government has acquired during its investigation. (Docket Nos. 133, 151, 153, 191, 250). The Government strongly denies any allegations that its counsel has committed prose-cutorial misconduct and that dismissal of the Superseding Indictment is appropriate; advocates that the tax and fraud counts are sufficiently related to be joined and tried together; and contends that the alleged Brady materials identified by Smith are neither exculpatory nor improperly withheld under the applicable Rules of Criminal Procedure and the SAR regulations. (Docket Nos. 180, 251).

Smith’s Motions have been fully and exhaustively briefed by the parties, including responses and replies as to each motion, along with documentary evidence with respect to the Motion to Dismiss and Motion to Compel. (Docket Nos. 133-34; 151— 154; 180; 191). The Court also heard oral argument at a motion hearing conducted on December 2, 2013 and the transcript of those proceedings has been filed of record and reviewed by the Court. (Docket No. 248). The parties then filed post-hearing briefs on the applicability of the SAR regulations, (Docket Nos. 245, 247), as well as proposed findings of fact and conclusions of law and responses thereto regarding Defendant’s Motion to Dismiss, (Docket Nos. 250, 251, 256, 257).

After reviewing the relevant filings and further consideration of the contested issues concerning the discoverability of the SARs, and whether they constitute Brady material, the Court accepted the Government’s invitation to conduct an in camera review of the SARs to determine if the SARs and/or information contained therein should be produced to Smith. (Docket No. 258). In response to the Court’s Order, the Government produced the requested documents in camera under a cover letter dated April 4, 2014. See klUHk Letter from AUSA Conway to Court. Smith then submitted a second SAR filed by National City Bank regarding the activity in Smith’s escrow account and relevant attachments for the Court’s examination in camera. (Docket No. 259). The Government confirmed in its response to Smith’s submission that the SAR filed by National City was previously provided to the Court and thus, asserted no objection to the Court’s examination of the materials submitted by Smith. (Docket No. 260). The Government then filed a Supplement on May 12, 2014, further advising the Court of its discovery production to Defendants. (Docket No. 261).

Having received and reviewed all of the foregoing materials, briefing, and the transcript of oral argument, Smith’s Motions are now ripe for disposition. Upon consideration of all of the parties’ submissions and for the following reasons, Smith’s Motion to Dismiss and Motion to Sever are DENIED and his Motion to Compel is GRANTED, IN PART, and DENIED, IN PART, with the Court reserving its final ruling as to one particular issue on the Motion to Compel.

II. FACTUAL BACKGROUND

a. Investigation and Charges

The instant prosecution of Smith and codefendants George Kubini, Dov Ratch-kauskas, and Sandra Svaranovie, (collectively, “Defendants”), arises out of a wide ranging investigation by the Western Pennsylvania Mortgage Fraud Task Force, which has already resulted in convictions of, among others: real estate brokers: Robert Arakelian, Eric Hall, Rhonda Roscoe, and Rochelle Roscoe; closing attorneys: James Steiner and Daniel Sporrer; closing agent, Karen Atkison; appraisers: Jason Moreno, Joel Reck and Howard Reck; and bank employees: Bartholomew Matto, Cynthia Pielin and Crystal Spreng. See Crim. Nos. 09-198 (Arakelian); 09-202 (Spreng); 09-223 (Atkison); 09-811 (Sporrer); 10-106 (Hall); 10-117 (Moreno); 10-232 (Howard Reck); 11-15 (Mat-to); 11-16 (Rhonda Roscoe); 11-17 (Rochelle Roscoe); 11-221 (Joel Reck); 11-255 (Pielin). This case was initially brought against Kubini and Ratchkauskas only on January 18, 2011, with the grand jury charging them with a single count of wire fraud conspiracy in violation of 18 U.S.C. § 1349. (Docket No. 1). While the Indictment was pending, the Government’s investigation continued and culminated in the filing of a twenty-count Superseding Indictment on March 26, 2013, which includes charges of wire fraud conspiracy, wire fraud, bank fraud, and wire and bank fraud conspiracy against all Defendants, and separate tax counts against Kubini and Smith. (Docket No. 92). In short, the Government alleges that Defendants participated in a mortgage fraud scheme from November 2005 through December 2008, which involved 109 separate fraudulent loan transactions, violating a host of federal laws in the process. (Docket No. 154-7). According to the Government, real estate investors Kubini and Ratch-kauskas and entities they controlled were involved as sellers of nearly all of the 109 properties; appraiser Svaranovie provided appraisals overstating the value of forty-nine (49) of the properties; and real estate attorney Smith knowingly participated in the fraud, acting as a closing agent for at least forty-three (43) of the deals. (Id.).

b. Search/Seizure Warrants and Execution Thereof at Smith’s Law Office

On January 16, 2011, a few days before the grand jury returned its Indictment against Kubini and Ratchkauskas, Special Agent Daniel Fisher of the United States Secret Service obtained a search and seizure warrant for Smith’s Law Office in order to obtain evidence of violations of federal law. (Docket No. 154-2). In his supporting affidavit, Special Agent Fisher noted that, among other things, the evidence obtained at Smith’s Law Office would likely include: disbursement sheets; copies of checks and wire transfer information; instructions and correspondence with lenders; closing documents; title insurance documents; correspondence with mortgage brokers related to transactions; sales agreements; and evidence of payments for the settlement of the transactions. (Docket No. 154-2 at ¶ 119). Exhibit “A” to the affidavit details twenty-five specific transactions which Smith closed for Kubini and Ratchkauskas and the agents believe were fraudulent. (Id. at 154-2 at 40-2). The affidavit explains with specificity the general mortgage and bank fraud scheme, advising that the agents had obtained evidence that numerous fraudulent documents were used during the twenty-five listed transactions, including: fake Uniform Residential Loan Applications (“1003s”); false verification of deposit forms (“VODs”); appraisals significantly misrepresenting the value of the properties and the conditions of same; and settlement statements, (“HUD-ls”), which did not properly inform the lenders of the true facts of the transactions. (Docket No. 154-2 at ¶¶ 20-21). In brief summary, Special Agent Fisher averred that the lenders were deceived into believing that they were financing eighty percent (80%) of the values of the properties in question and that buyers were making twenty percent (20%) down payments on each deal. (Id. at ¶¶ 24-27). The lenders were also misled to believe that the properties were appropriately valued and in the condition stated on the appraisals and that the buyers were financially qualified for the loans they obtained. (Id.). However, the “reality of the transactions,” which was not disclosed to the lenders, was that the lenders were financing 100% of the purchases of the properties, many of which were in very poor condition and worth far less than stated on the appraisals and approving loans for buyers who did not have the financial wherewithal to qualify for the loans. (Id.).

Special Agent Fisher asserted that because the agents’ search of Smith’s Law Office necessitated review of an attorney’s files, “law enforcement officers will encounter materials that may be covered by the attorney-client privilege or work product doctrine.” (Id. at ¶ 106). He further advised that the search of any such materials would be conducted by a “Privileged Review Team” consisting of an attorney and agent “who are not involved in the underlying investigation.” (Id. at ¶ 107). The affidavit also notes the procedures for dealing with privileged materials which may be uncovered, including that “[a]ll obviously privileged documents will remain at the Office, or if inadvertently seized they will be immediately returned to Smith. Those documents that are not obviously privileged will be seized pursuant to the terms of the search warrant. Those documents which are open to questions as to the applicability of a privilege will be set aside for further review.” (Id. at ¶ 109). He continued that “materials that appear as if they may be protected by attorney-client privilege or work product doctrine will be immediately segregated without review pursuant to a written protocol,” that potentially privileged documents “will be set aside for further review,” and “will be shown to counsel for Smith in an attempt to resolve any lingering disputes about whether material is covered by a privilege.” (Id. at ¶¶ 108-110). The affidavit also states that the agents were not seeking any evidence from Smith’s computers. (Id. at ¶ 120).

Special Agent Fisher led a team to execute the warrant at Smith’s Law Office at 9:00 a.m. on January 19, 2011, which included Special Agent Christopher Watson and Assistant United States Attorney (“AUSA”) James Wilson, whom the Government proffers headed the privilege review during the search. (Docket No. 251-7 at 17). After their arrival, Special Agent Fisher spoke to Bonnie Harrison, who identified herself as Smith’s paralegal and office manager. Crim. No. ll-mj-33, Docket No. 1-1. Harrison advised Fisher that the types of files which the warrant sought were located in a locked file room outside of the central office and in the hallway of the office building. (Id.). Special Agent Fisher then returned to the courthouse and obtained a second search and seizure warrant which authorized the specific search of “the file room for the law offices of Arthur J. Smith located on the ninth floor of the office building” and seizure of files located therein. Crim. No. ll-mj-33, Docket No. 1. While Special Agent Fisher was off site, Special Agent Watson approached Smith, advised him that Secret Service agents were executing a warrant to search his office for files related to his closings of properties involving Kubini and Ratchkauskas, provided him with a copy of the initial warrant and permitted him an opportunity to read it. (Docket No. 251-7 at 17). Special Agent Watson also informed Smith that he was not under arrest, was free to leave and that he was under no obligation to speak to the agents. (Id.). Despite these instructions, Smith purportedly told Special Agent Watson that he stopped doing business with Kubini and Ratchkauskas because he received too many complaints from buyers, many of the loans they brought to his office did not close and they were too difficult for him and his staff to deal with. (Id.). Special Agent Fisher returned after securing the second warrant to search the file room and Smith repeated the same statements in his presence as well. (Id.).

The Government proffers that Special Agent Fisher did not directly participate in the search of Smith’s Law Office or the file room and lead trial counsel AUSA Conway was not present during the searches. It is also uncontested that AUSA Wilson performed the privilege review during the searches and that he prepared and left two post-it notes on certain of the files which were seized and are now located in the Secret Service’s local office. The first note states that “(2) Removed letter + copy of same; see #2 on master list. JRW 19 Jan. 2011.” (Def. Ex. 3, Docket No. 251-4). The second note states that “(2) see JRW Master list; letter Atty Smith to Kubini and Ratchkauskas.” (Def. Ex. 4, Docket No. 251-5). Smith has repeatedly requested that the Government produce the referenced “Master List”, any log prepared by AUSA Wilson denoting the privileged materials encountered during the search, and the referenced letters. (Docket No. 154-5). According to Smith’s counsel, AUSA Wilson advised him in a telephone conversation that Wilson “gave any pulled documents to [AUSA Conway] in a sealed envelope or file.” (Id.). AUSA Conway has responded that AUSA Wilson did not prepare a “Master List” or privilege log, never provided a sealed envelope to him and that any privileged materials which were located by AUSA Wilson during the search were simply left at Smith’s Law Office in accordance with the procedures outlined in the affidavit.

Special Agent Fisher filed two inventory return forms which detail the materials seized from Smith’s Law Office and file room. Crim. No. ll-mj-22 at Docket No. 6. The inventory return for the search of the office details that the agents’ search commenced at 9:05 a.m. and concluded at 12:30 p.m. (Id. at 3). The agents seized five boxes of documents from the office which are described as “closing documents”; “mise, documents”; “George Ku-bini and Dave Ratchkauskas file, Admiral Capital file”; and “policy inventory registers.” (Id. at 3-4). The inventory return for the file room search states that the agents’ search of that area commenced at 10:40 a.m. and concluded at 11:45 a.m. Crim. No. ll-mj-33 at 5. The agents seized nine boxes of documents from the file room which are described as: “Box 2007 Putoti-[R]athkauskas, eleven (11) loan closing files”; “Box 2007 Ratchkaus-kas-Richter, twenty-four (24) loan closing files”; and numerous other boxes of loan closing files without more specific descriptions. (Id.). There is no mention of any privileged materials, a privilege log and/or a “Master list” on either inventory return. See Crim. No. ll-mj-22 at Docket No. 6; see also Crim. No. ll-mj-33 at Docket No. 5. Of note, Smith admits that he has been granted access to search his own files at the Secret Service office both before and after the Superseding Indictment was returned against him. (Docket Nos. 154-5; 251).

c. Smith’s Interviews with Law Enforcement and Attorney Levenson

Shortly after the execution of the warrants, Smith retained Attorney Stanton Levenson to represent him. (Docket No. 251-7). Smith voluntarily participated in meetings with AUSA Conway and Special Agent Fisher on February 19, 2011 and February 22, 2011. (Id.). Levenson represented Smith at these meetings. (Id.). By the time of the meetings, the search warrants, applications and affidavits had all been unsealed and produced to Smith and his counsel. See Crim. No. ll-mj-22; see also Crim. No. ll-mj-33. Smith agrees that the interviews were “wide-ranging” and “the topics included the transactions that would later form the basis for the fraud counts in the superseding indictment now pending against [him].” (Docket No. 251 at ¶¶ 9,10).

The Memoranda of Interviews prepared by Special Agent Fisher as well as his notes and the notes of Agent Galson describe Smith’s statements to law enforcement during these meetings to include, among other things, all of the following.

• Smith closed approximately 50 deals for Ratehkauskas, Kubini and entities they controlled but there were also 19 cancelled deals. The 50 closings represented 4.5% of Smith’s closing business and 3.4% of his net income. His gross earnings on closings for the years in question consisted of: $488,000 from 397 closings in 2007; $734,000 from 341 closings in 2008; and $693,000 in 2009 based on an unspecified number of closings;

• Smith explained that he had worked with Ratehkauskas for 20 years, closing many loans for him when he was working as a mortgage broker rather than as an investor;

• Around 2006 or 2007, Ratehkauskas told Smith that he was going into business with Kubini as real estate investors “flipping foreclosures.” Smith informed the agents that Ku-bini supposedly was doing the repairs and Ratehkauskas was providing the funding for the deals. He added that Kubini and Ratehkauskas would be working with a new brokerage firm, Riverside Mortgage, in their house flipping venture;

• Smith advised the agents that in early 2007, he attended a meeting at Riverside Mortgage with Kubini, Ratehkauskas and Rochelle Roscoe of Riverside where they all discussed the potential of doing business together. Smith stated that someone at the meeting other than he proposed that the deals should be financed by using the seller’s “gross proceeds to fund the buyer’s down payment as a gift of equity,” which Smith advised he felt was “very creative” and he agreed to participate;

• With respect to the transactions, Smith explained that he was told that the down payment would be gifted by the sellers and that a letter must be provided to the lender by the broker. He believed that it was not his responsibility to tell the lender about the gifts of equity or to show this aspect of the transaction on the HUD-1 forms because the gifts of equity were not part of the closing process. He confirmed that he always supplied 1099 forms to the sellers in these deals which showed the entire proceeds of line 603 of the HUD-1 forms. Smith also told the agents that they were wrong in their opinions that the deals as written on the HUD-1 forms — which all stated that cash down payments were made by the buyers — constituted material misrepresentations to the lenders.

• Smith next informed them that he always followed the lenders’ closing instructions and always informed the buyers of the gifts of equity at the closings. However, he admitted that he never called the lenders to clarify any issues with the gifts of equity or to inquire with the lenders as to how the gifts of equity should be noted on the HUD-1 forms. He likewise acknowledged that he never researched the propriety of the gifts of equity deals or consulted with his title insurance carrier about same but proceeded to close the deals, as he explained, based on his 29 years of experience as a real estate closing attorney.

• Smith articulated that he made a mistake in judgment in dealing with Kubini, Ratchkauskas and Riverside but that he believed he had acted in good faith and without criminal intent. He told the agents at the first meeting that he knew nothing about other fraudulent documents involved in the transactions that they questioned him about, including, VODs, 1003s, 2nd HUD forms or appraisals. At the second meeting, he added that he did not maintain copies of appraisals in his loan files, never read mortgage applications, and believed that gift letters were likely in the broker’s files. He stated that he was “naive” and made a mistake of judgment.

• The agents also inquired about an audit of Smith by his title insurer, Land America Title, and Smith explained that it was a routine audit which uncovered a $93,000 shortfall in his escrow account. He told them this resulted from an accounting error which occurred because his bookkeeper was ill and said error required him to pay $20,000 of his own money to make up the shortfall, close the account and start a new one.

• Smith also recounted conversations and correspondence he had with Alfred Watterson of Land America. He told the agents at the first meeting that a May 2008 letter by Rochelle Roscoe to Mr. Watterson (the “Roscoe Letter”) was unprompted and unconnected to the audit. At the second meeting, he admitted that this was incorrect and that the letter was requested by Watterson, explaining that he misspoke and was trying to answer the questions as best he could. According to Smith, the letter was provided to Mr. Wat-terson to explain the process of the gifts of equity deals. He added that he had repeatedly asked Ms. Roscoe for such a letter throughout their business dealings and admitted that he had received a draft of the letter which he edited for her “because it was poorly written” and she then signed and sent the revised version to Watterson. Smith believed that Watterson was satisfied with the letter but told him to stop doing the deals with Kubini, Ratchkauskas and Riverside. He clarified that Land America was still his title insurer even after the problems with the escrow account and the questioning about the gifts of equity deals.

• The agents’ notes reflect that Smith was also asked about a number of particular closings during the meetings. In the first meeting, he was asked about two closings involving Ratchkauskas as the seller and David Kashi as the buyer. Smith reviewed the HUD-1 forms and told the agents that they were related and involved a cash sale of two properties. The agents questioned him why Ratchkauskas supplied the buyers’ funds and Smith replied that he recalled that Ratchkauskas owed Ka-shi money and in exchange for the debt he gave him both properties and $60,000. The agents then asked if that was the case, why Ratchkaus-kas received $55,000 in cash back on the deals and how the transactions did not constitute money laundering. The report notes that Mr. Levenson then reviewed the documents and commented that it “looked like money laundering to him.” According to the agents, Smith eventually conceded that he could not explain the deals.

(Docket No. 251-7).

Ultimately, Smith declined to cooperate with law enforcement and their investigation of his conduct and pursuit of criminal charges against him continued. There is no other evidence of record concerning the scope of Attorney Levenson’s continuing representation of Smith beyond the February 2011 meetings with law enforcement agents as the present record discloses no subsequent information about any further meetings between Smith and law enforcement. (See Docket Nos. 250, 251, 256, 257).

d. Attorney Levenson’s Representation of James Steiner

Around this same time, Attorney Le-venson was separately retained by another target of the investigation, James Steiner (“Steiner”), who was also a real estate attorney and had closed six fraudulent transactions for Kubini and Rateh-kauskas. (Docket No. 154-7). It is undisputed that Smith and Steiner closed separate transactions and neither worked together nor communicated about their respective dealings with Kubini and Ratchkauskas. (Docket Nos. 154-7; 250; 251; 256; 257). Steiner agreed to cooperate with the Government’s investigation and signed a cooperation letter with the United States Attorney for the Western District of Pennsylvania on May 6, 2011. (Docket No. 154-8). Among other things, Steiner agreed to “provide complete and truthful information in connection with an investigation into violations of federal laws related to mortgage fraud by George Ku-bini, Dov Ratchkauskas, and others during the period from January 2007 to the present.” (Id.). Such agreement was executed by Steiner and Levenson, as counsel for Steiner, on May 6, 2011. (Id.).

Steiner was debriefed by law enforcement agents concerning his involvement on May 9, 2011. (Docket No. 251 at ¶ 12). According to Smith’s current counsel, Stephen Stallings, Esquire, the agents’ mem-oranda and notes from that session include facts that:

• Steiner sent one or more HUD-ls to the lender advising the lender of the fact that these transactions did involve “gifts of equity”;

• Steiner possessed email correspondence with Chase showing that he’d sent HUD-ls to them showing the gifts of equity.

• Ratchkauskas told Steiner that everyone, including Riverside Mortgage and Chase, knew what was really going on in these transactions (i.e. the buyer was not bringing the funds to the closing that were represented on the HUD-1 as Cash From Borrower and that these amounts were just being subtracted from the seller’s proceeds).

(Docket No. 233-1 at ¶ 9(c)).

It is undisputed that Government counsel brought the potential issue of a conflict arising from Levenson’s representation of both Smith and Steiner to his (Levenson’s) attention prior to either of the closing attorneys being charged. (Docket Nos. 250; 251). As a result, in June of 2012, Levenson withdrew as counsel for Smith but continued to represent Steiner. (Docket No. 251 at ¶¶ 13). AUSA Conway proffers that he told Levenson that he had a potential conflict of interest if there was a joint trial against Smith, Kubini and Ratchkauskas because if Levenson continued to represent Smith, he could be put in a position where he was forced to cross-examine his other client, Steiner. (Docket No. 250 at ¶¶ 111-115). The factual circumstances surrounding Levenson’s withdrawal have not been fully developed as neither Smith nor Levenson have testified as to same. Smith proffers that he was never told that Levenson also represented Steiner or the reasons for Leven-son’s withdrawal, including the purported conflict with the representation of both Smith and Steiner. Smith further claims that he was unaware that Steiner was cooperating with the Government until after his own indictment and did not waive any conflict of interest by Levenson.

On September 24, 2012, Steiner was charged by Information with one count of bank fraud and aiding and abetting bank fraud, in violation of 18 U.S.C. §§ 1344(a) and 2. See United States v. Steiner, Crim. No. 12-242, Docket No. 1. This charge was voluntarily dismissed because a document containing the wrong charge was inadvertently filed by the Government. (Docket Nos. 7, 8). A second Information was filed at a new criminal case number (Crim. No. 12-257) on October 15, 2012, charging Steiner with one count of wire fraud conspiracy, in violation of 18 U.S.C. § 1349. See United States v. Steiner, Crim. No. 12-257, Docket No. 1. With Levenson’s assistance and counseling, Steiner waived indictment and pled guilty to wire fraud conspiracy on November 13, 2012. (Docket No. 9). The Court recalls that Steiner admitted to closing six fraudulent loans as a part of this scheme and accepted his guilty plea as knowingly and voluntarily made.

e. Smith’s Retention of Attorney Stallings and Pre-Grand Jury Appearance Activities

After Attorney Levenson withdrew as Smith’s counsel in June of 2012, Smith retained his present counsel, Stallings, who was formerly an Assistant United States Attorney in this District and worked alongside both AUSA Wilson and AUSA Conway in the division of the U.S. Attorney’s Office for the Western District of Pennsylvania which prosecuted white collar fraud-type cases. (Docket No. 251-6 at ¶ 6). Stallings quickly proceeded to actively and aggressively represent his new client, Smith. On June 19, 2012, Stallings wrote to AUSA Conway, advising him that he now represented Smith and asked for a meeting with AUSA Conway to sit down and discuss the matter with him. (Docket No. 251-13). AUSA Conway purportedly responded that unless Smith was interested in pleading guilty, that the requested meeting was better put off until after an indictment was returned and they had the opportunity to review discovery. (Id.).

Stallings separately set up a polygraph examination for Smith with William Barrett of Assured Polygraph Sendees, Inc., which occurred on June 28, 2012. (Def. Ex. 11, Docket No. 251-11). A “Privileged & Confidential Polygraph Report” authored by Mr. Barrett sets forth his opinions that Smith demonstrated “no deception” during the polygraph he administered to him including with respect to the following questions and answers:

1. Regarding if you have engaged in fraudulent activities to defraud lenders, do you intend to answer all of these questions truthfully?

ANSWER: Yes

2. Did you ever issue checks from your escrow account to deceive lenders into mistakenly believing that borrowers were providing their own funds as down payments?

ANSWER: No

3. Did you ever conduct a real estate closing knowing that the lenders issued the loan based on fraudulent loan applications?

ANSWER: No

4. Did you ever agree with Dov Ratch-kauskas or George Kubini to defraud lenders?

ANSWER: No

(Def. Ex. 10, Docket No. 251-11).

Stallings proceeded to review the materials which were seized from Smith’s Law Office and file room while they were being maintained in the Secret Service’s office. During these efforts, Stallings located the post-it notes of AUSA Jim Wilson on certain of the files which were seized. On August 27, 2012, Stallings contacted AUSA Conway via email and requested that he locate any documents which were pulled for potential privilege during the search. (Docket No. 154-5). Two days later, Stall-ings wrote AUSA Conway again, further elaborating on his request for any potentially privileged documents and/or any privilege log related to same. (Id.). In this email, Stallings also recounts a telephone conversation that he had with AUSA Jim Wilson wherein Wilson told him that he had given AUSA Conway “any pulled documents ... in a sealed envelope or file.” (Id.). AUSA Conway responded to Stallings twenty minutes later, stating succinctly that he did “not intend to do anything related to this aspect of the case prior to indictment.” (Id.). Stallings then asked if there was a date for the return of an indictment “in mind” and advised that Smith would like to have a meeting with AUSA Conway before indictment and that he “may want to request the opportunity to testify before the grand jury as well.” (Id.).

Stallings recounts that he also submitted a formal written request to AUSA Conway on August 29, 2012 that he “notify us a reasonable time before seeking indictment in order to afford Mr. Smith the opportunity, should he wish to do so, to testify before the Grand Jury.” (Docket No. 251-13 at 2). Stallings avers that AUSA Conway responded to him two days later, stating that “I have not focused on that and do not intend to focus on it anytime in the next couple of weeks. I will let you know as we get closer to the date.” (Id.). Six weeks later, on October 15, 2012, Stallings sent another email to AUSA Conway, reiterating that Smith would like advance notice of the return of an indictment, advising that Smith would like the opportunity to address the grand jury, and noting that “there is information we are preparing to make available to you that you are likely not aware of that goes to his innocence of charges related to [Dov Ratchkauskas] and [George Kubini], including definitive polygraph results.” (Id.). According to Stall-ings, seven days later, AUSA Conway responded to this inquiry noting that he received the emails and that Smith “will certainly be invited to provide his side of the story to the grand jury when the time comes.” (Id.).

There was no additional correspondence between counsel for the parties between October, 2012 and Thursday, February 14, 2013. At 8:42 p.m. on that date, AUSA Conway emailed Stallings, advising that “[i]f he wants to still come into the grand jury, it looks like it will have to be on 2/19. Will that work?” (Docket No. 251-13 at 1). The next day, Friday, February 15, 2013, Stallings drafted a four-page letter to AUSA Conway, alleging that he violated “local custom and practice, not to mention simple common sense and decency” along with Department of Justice Policy which requires that a target of an investigation be given notice “a reasonable time before seeking an indictment in order to afford him or her an opportunity to testify before the grand jury.” (Docket No. 251-13 at 3 (quoting U.S. Attorney’s Manual, § 9-11.153)). Stallings complained that AUSA Conway’s email

constitute^] one (1) business day’s [sic] notice after nearly eight months of you rebuffing our efforts to discuss this investigation with you, and after nearly six months have elapsed since we requested advance notice of your planned indictment so he [Smith] could testify before the Grand Jury and so we could meet with your office and discuss potential resolutions. Your refusal to discuss this investigation with me and your lack of reasonable notice to Mr. Smith violate the spirit, if not the actual provisions of the United States Attorney’s Manual, is contrary to the longstanding practice of the Office of the United States Attorney for the Western District of Pennsylvania, and is inconsistent with common civility and courtesy.

(Id.). Stallings then reiterated all of the above correspondence between him and AUSA Conway since he took over the case in June of 2012. (Id.).

In his letter, Stallings acknowledges that AUSA Conway previously provided him notice that Smith “faces a potential indictment for bank fraud, wire fraud and conspiracy” and that he would “supersede later on to add failure to file his tax return charges.” (Id. at 1). Stallings argues that the tax charges are “very different from, and wholly unrelated to, the fraud allegations.” (Id.). He asserts that Smith was “ready, willing and able” to meet with AUSA Conway to resolve “the tax matters” but that such efforts had been rebuffed by the government. (Id.).

With respect to the threatened fraud charges, Stallings writes that Smith proclaims his actual innocence, never intended to deceive lenders, never closed a real estate transaction he believed was funded based upon a fraudulent loan application and never agreed with Ratchkauskas or Kubini to defraud lenders. (Id. at 3). He quoted the entirety of Mr. Barrett’s findings in the polygraph examination and attached the report and his curricula vitae to his letter, as Exhibits “A” and “B”. (Id. at 4). Stallings also stated that “Smith is prepared to submit to a polygraph on these same questions administered by a polygrapher of the government’s choice at your convenience.” (Id.). Stallings next stated that Smith did not intend to defraud lenders but believed that the lenders were aware of and approved gifts of equity to the buyers. (Id.). He also quoted portions of the May 15, 2008 letter from Roscoe to Watterson as stating that “for each of the above closings a gift of equity was provided by the seller. These loans were approved by the investor [the lender] on this basis. Accordingly, the gift of equity was not shown on the settlement sheet, nor is it ever shown on the settlement sheet.” Stallings also attached a copy of the Roscoe Letter as Exhibit “C.” (Id.). Stallings further advocates that the Government had no evidence against his client that he had any involvement in the other aspects of the fraud committed on the lenders, such as elevating the appraisal values, producing false loan applications or engaging in other fraudulent activity. (Id.). Stallings concludes stating that the U.S. Attorney should decline to prosecute the fraud charges; meet with them on the tax issues; give Smith reasonable notice to appear before the grand jury; and, permit him to introduce the attachments (i.e., the polygraph examination report, Barrett’s c.v. and the Roscoe letter) to the grand jury. (Id.).

The attorneys also engaged in correspondence on the morning of Smith’s February 19, 2013 grand jury appearance. (Docket No. 191-6). Stallings wrote the following at 9:45 a.m.:

Dear Mr. Conway,

Please let me know if you are able to briefly respond, this morning if at all possible, to the following questions:

1. Do you intend to seek return of an indictment against Arthur Smith today?

2. If so, what are the charges you will seek?

3. If so, do you intend to seek issuance of a summons or a warrant?

4. If you intend to charge fraud and tax issues, is it your intention to charge them in one indictment or two?

5. If Mr. Smith chooses to testify, how, logistically, do you anticipate his testimony will be permitted? In narrative form? In response only to your questions? Or some combination thereof? Thank you,

Stephen S. Stallings, Esq.

(Id.). AUSA Conway promptly responded to this inquiry at 10:19 a.m.:

Mr. Stallings:

I do not intend to respond to questions one through four. If Mr. Smith wants to testify, he will have to respond to my questions and questions from the grand jury. I will, however, certainly give him the chance to explain why he believes he did not act with the intent to defraud. The letter you wrote to me contains mainly extraneous information of no relevance to the grand jury and therefore will not be admitted. He will, however, be permitted to relate the relevant information from the letter — i.e., his claim that he did not act with the intend to defraud. If he has contemporaneous letters or other exhibits that he wants admitted, like, for example, Exhibit C of your letter, I would be happy to consider those of [sic] potential admission.

Please let me know when you have made a decision about whether he will testify.

Best regards,

Brendan Conway

(Id.). AUSA Cessar was copied on both Stallings’ email and AUSA Conway’s response. (Id.).

f Smith’s Voluntary Appearance before the Grand Jury

Smith decided to testify before the grand jury as scheduled on February 19, 2013. (Docket No. 154-11). Later that day, Smith and Stallings met with AUSA Conway along with Special Agents Fisher and Galson in a conference room outside of the grand jury room. (Docket Nos. 250, 251). They discussed the parameters of Smith’s testimony during this meeting. (Id.). The parties agree that AUSA Conway specifically advised Smith and Stall-ings that the polygraph report and Mr. Barrett’s c.v. would not be marked and admitted as exhibits. (Docket No. 251 at ¶¶ 18-19). The parties dispute whether AUSA Conway agreed to admit the Roscoe Letter into evidence during Smith’s testimony. (Docket No. 248 at 41-42). Stall-ings states in his affidavit that AUSA Conway “did not [¶]... ] retract his promise to permit Mr. Smith to admit the May 15, 2008 letter from Roscoe or to testify regarding the other information referenced in our letter to AUSA Conway; rather, he reaffirmed that Mr. Smith could offer the May 15, 2008 letter into evidence.” (Docket No. 251-6 at ¶2). The Government proffers that AUSA Conway never agreed to admit the letter into evidence in his emails, that he made no oral agreement with Smith or his counsel that he would enter the letter into evidence during the meeting, and that Special Agents Fisher and Galson would testify consistent with this position. (Docket No. 250 at ¶¶ 20-26). At most, the contested record demonstrates that Stallings and Smith believed that Smith would be permitted to introduce the Roscoe Letter into evidence during his grand jury appearance. But, the record is also clear that Smith and his counsel were explicitly told by AUSA Conway that Stallings February 15, 2013 letter, the polygraph examination report and Mr. Barrett’s c.v. would not be admitted into evidence. (Docket No. 250 at ¶ 21; 251-6 at 2). Despite same, Smith entered the grand jury room with a packet of documents, stapled together, consisting of: Stallings’ February 15, 2013 letter, the polygraph examination report, Mr. Barrett’s c.v. and the Roscoe Letter. (Govt. Ex. “D”, Docket No. 237-4).

The grand jury examination of Smith commenced at 4:02 p.m. with Smith taking the oath administered by the grand jury foreperson. (Docket No. 154-11 at 1). AUSA Conway proceeded to notify Smith that he was a target of the grand jury’s investigation and that the Government intended to ask the grand jury to indict him for a “number of different allegedly fraudulent activities,” which Smith acknowledged. (Id. at 1-3). Smith confirmed that he had not been subpoenaed to testify and that he was voluntarily appearing before the grand jury. (Id. at 4). AUSA Conway next advised Smith of his Fifth Amendment right against self-incrimination, which Smith stated that he understood as he was an attorney and was also represented by counsel. (Id.). Smith affirmed that he was “certainly” waiving his Fifth Amendment rights voluntarily, knowingly and intentionally and was willing to answer any questions posed to him. (Id. at 4-5). Smith testified that he understood that his counsel was not permitted to be in the grand jury room but that he was permitted to stop the questioning at any time in order to exit the grand jury room and confer with his counsel, and then later return and finish his testimony. (Id. at 5). Finally, Smith stated that he “absolutely” understood that he was required to provide truthful and complete information to the members of the grand jury. (Id.).

The first portion of Smith’s grand jury examination focused on his failure to file income tax returns for the years of 2007 through 2011. After some probing by government counsel, Smith admitted that he has not filed federal, state or local (City of Pittsburgh) income taxes for all of those years, either personally or for his S Corporation. (Id. at 6-10). Smith confirmed that he has not paid “a dime” toward his income tax liabilities in any of the tax periods in all of these jurisdictions and that no money was withheld from his salary and paid toward his income tax liabilities. (Id.). AUSA Conway provided Smith with the opportunity to “explain away” why he had not filed his income tax returns or paid his taxes, despite his ac-knowledgement of his obligations to do so and the fact that “everybody else” had to pay their taxes. (Id. at 11). Smith responded:

Of course I have an obligation, just like each and every one of you, and Mr. Conway, and this gentleman here to my right, to file tax returns.

And, for a number of months — for a number of months we have been in contact with Mr. Conway, we have told him that we are prepared to file tax returns, and to resolve the tax issues, and his response has been, categorically, without question, without issue, is, “I am not going to discuss your tax issues, unless you plead guilty to fraud,” and I can’t do that, because I have never committed a fraud, there has been no deception at any time, and I say that under oath, on my — on my — on the hand of my children’s head, and my wife’s head.

And, these tax problems are prepared to be resolved, there has been correspondence by my counsel to U.S. Attorney’s Office for months, and months, saying, “We are prepared to deal with this, and to resolve it, and move on.”

But I have received no cooperation from the U.S. Attorney’s Office to sit down and discuss it, without me pleading guilty to fraud, which I can’t do, which I won’t do, which in fact — in fact, would be acknowledging something that is not true.

And not true by the very fact of what I have said, and not true by the very fact that my counsel provided this earlier to Mr. Conway, the U.S. Attorney’s Office—

AUSA Conway: Sir, you can stop talking now, that is your explanation is that you attempted to resolve these issues with the United States Attorney’s Office—

Smith: That’s correct.

AUSA Conway: — and you haven’t been able to, because we basically are saying we are not going to let you plead guilty — -we are not going to waive our— the right to file fraud charges against you, and have you plead guilty simply to the taxes?

Smith: No, there has been no discussion at all. There has been nothing. There has been — “I don’t want to discuss”— and this is my — I am just paraphrasing, “I don’t” — I am paraphrasing what we have heard from Mr. Conway’s office, and Mr. Conway specifically, is, “I don’t want to address the tax issues until Mr. Smith is willing to plead guilty to fraud.”

AUSA Conway: And that explains your failure to file your state tax returns, or failure to make any payments to your state tax returns how?

Smith: There is no defense.

I want to make this very clear. There is no defense that I should not have filed those returns.

But again, I am no different, just because I’m an attorney, everyone has an obligation.

All I can say to you is that from the time I began practicing law in 1974, I have faithfully filed my tax returns from 1974 through 2006.

And the fact that I have not during the period of 2006 through 2011, is predicated on the fact that — excuse me, let me take a step back — the fact that I have not filed is no indication that I have no intent to file.

My intention is to file, I want to file, but I have been given a condition, a contingency, and the contingency is, “We will talk to you, but you got to come” — “you got to plead to fraud.”

Now, see, what Mr. Conway — well, this is my understanding. If I went unilaterally, and filed these tax returns today, that may have certain implications to me, to my detriment, and on the advice of counsel, and on—

AUSA Conway: We are not asking you—

Smith: — advice of counsel—

AUSA Conway: — about your—

Smith: I am just saying—

AUSA Conway: — conversation with counsel.

Smith: I am saying to you, is I am prepared to resolve any tax issues today, yesterday and tomorrow, but I can’t do it with the threat of having to plead to something that I am innocent of, have always been innocent of, and something that I can’t say any more strongly than I am right now.

(Id. at 11-14). AUSA Conway next attempted to ask Smith if he admitted that he “willfully” failed to file his federal income tax returns. (Id. at 14-15). Smith reiterated his same lengthy response and would not admit that he had “willfully” failed to file his tax returns, even upon repeated questioning by AUSA Conway and rephrasing of similar questions as to the federal, state and local taxes. (Id. at 15).

Despite his persistence, AUSA Conway was only able to get Smith to admit that he would not directly answer a question about whether he “willfully” failed to file his returns and moved on to examining Smith about his financial condition during those years. (Id. at 16-18). Smith initially provided the same response to questioning about his financial condition, but after AUSA Conway advised that his purpose in pursuing this line of questioning was because the information “goes more to your motive for committing the fraud,” Smith provided ■ information about his finances during the relevant period. (Id.). Smith admitted that his real estate closing business was not financially strong during this timeframe and that his interests in investment properties in Florida and Myrtle Beach, South Carolina had lost money, although he was unable to provide specific details on the amounts, even after reviewing his 2006 tax returns. (Id. at 19-24).

AUSA Conway then circled back to inquiring about Smith’s tax liabilities and Smith testified that he did not blame his accountant for the failure to file his tax returns, and even acknowledged that his accountant had repeatedly told him of his obligation to file the returns. (Id. at 25). Smith apologized for not making his filings and added that if he was given the opportunity to file, he “would love to do it.” (Id.). He again divulged into his explanation that:

... you are asking me to plead guilty to another charge, or another matter, having nothing to do with the tax situation. In fact, we haven’t even talked about the fraud situation, we are just talking about the tax situation. I’m sure you will ask questions about that. And I apologize for being argumentative, but the fact of the matter is, that I cannot, and will not admit to something that I didn’t do. I did not file those tax returns for the years 2000, 2011,1 admit it openly, I say to you, that I request—

AUSA Conway: Sir, I am going to instruct you to answer my question.

Smith: I am.

AUSA Conway: All right?

Smith: I—

AUSA Conway: Instead of making speeches for every question that is being asked, you have to answer my questions.

(Id. at 26). At this point during the examination, the transcript reflects that there was a “knock on the door,” AUSA Cessar said “time out” and AUSA Conway asked Smith to exit the grand jury room, to which he obliged. (Id.). Smith was outside the grand jury room for 20 minutes and returned. (Id.).

AUSA Conway resumed his questioning but moved into Smith’s dealings with Ratchkauskas, Kubini and Roscoe. (Id.). Smith was asked if he agreed to do some closing work on behalf of them and he responded “yes” and then started to explain his answer. (Id. at 27). AUSA Conway interrupted Smith and told him to just answer the question he was asked, stating “I ask that you respond to my questions, rather than make a speech, and be here until 7:30 tonight. Okay? You understand? And you are in agreement to doing that?” (Id.). Smith agreed saying, “as best I can, sir.” (Id.). The examination proceeded with some back and forth about the number of transactions that Smith closed for these individuals, with Smith contesting initially that it was 50 total transactions but ultimately admitting that it was between 20 and 30 deals where all three of these individuals were involved and that he closed a number of additional “cash” deals for Ratchkauskas and Kubini, which altogether would likely total 50 deals. (Id. at 28).

Smith then advised that he was acting as a title insurance agent for Land America when he closed these transactions. (Id.). He acknowledged that he had a contract with Land America which granted it the light to audit his closing files. (Id. at 29). As such, the files which were subject to audit did not contain any attorney-client privileged information. (Id.). Land America also required him to operate a trust account containing third party funds necessary to close the transactions. (Id.). Hence, he was obligated to act as a responsible fiduciary to safeguard the funds which were not his. (Id.). Smith confirmed that in a typical transaction, he would receive funds from the lender, any down payment from the buyer and then disburse the funds pursuant to the instructions from the lender, ensuring that all of the parties to the transactions and any other vendors were paid accordingly, as noted on the settlement sheet. (Id.).

The examination moved on to an audit of Smith’s closing flies by Land America in March of 2008. (Id. at 31). Smith agreed that Land America uncovered a shortage of approximately $93,000 during the audit. (Id.). When he was asked what caused the shortage, Smith requested a break to confer with his counsel, which request was granted. (Id. at 32). He returned a few minutes later and the questioning resumed. (Id.). AUSA Conway attempted multiple times to ask Smith if, at that time of the audit, he had investigated and learned where the $93,000 “went” and Smith provided various answers that did not directly address the question, such as: “we were short”; “The money was short. The money — it was an accounting problem”; “very simply, we had our bookkeeper was being treated for cancer, she was out — ” and “we could not locate the problem.” (Id. at 33-34). AUSA Conway rephrased the question to ask if Smith “now” knew where the money “went,” to which Smith provided very similar responses, again without directly responding to the question. (Id. at 34-35). The following exchange then occurred:

AUSA Conway: Are you telling me you don’t know where the $93,000 went?

Smith: I just don’t recall. It’s been— sorry. It’s 2013,1 just don’t recall.

AUSA Conway: Well, how come I asked that question a minute ago, you got all nervous, and went to talk to counsel?

Smith: Excuse me. Wait a minute. I think — I think I have the right — I don’t have the right to have counsel here to represent me, and the fact of the matter is, I am going to be judicious and ask questions, just like you are going to ask questions, because ultimately, I’m going to do ultimately—

AUSA Conway (interrupting): But sir—

Smith: — the best, to do the best I could.

AUSA Conway: Sir, did you not get nervous a minute ago—

Smith: I was—

AUSA Conway: — when I asked you about the $93,000?

Smith: I was — I—I wasn’t — I was trying to recall what took place, because it’s five years ago, and I didn’t have the specifics, and I wanted to just consult with counsel, which I am allowed to do.

AUSA Conway: So you weren’t nervous at all, when I asked you about that $93,000 shortfall in your account?

Smith: I was only concerned because I didn’t remember exactly what all if the specifics were.

But, yes, of course, I would be concerned if one penny was out of the account.

AUSA Conway: The fact is, that the money went to fund your payroll account, and it went to fund your lifestyle during that time frame—

Smith: Absolutely—

AUSA Conway: — because you were in such financial affairs?

Smith: Absolutely not.

AUSA Conway: Where did—

Smith: If it—

AUSA Conway: — it go then?

Smith: — asked the question — you want to ask the question, you have asked it, the answer is absolutely not.

AUSA Conway: Where did the money go then?

Smith: I tell you what. I tell you what.

AUSA Conway: You don’t know. All right. We will move on.

Smith: Please.

(Id. 35-36).

Upon additional inquiry, Smith acknowledged that he rebalanced the escrow account and personally paid $20,000 into the account with funds he had separately acquired through a fee he earned in his law practice. (Id. at 38-39). He also admitted that he was instructed to close his escrow account at National City by Land America and did as instructed. (Id.). He then operated out of other escrow accounts he maintained. (Id.). Smith was next asked whether Alfred Watterson at Land America had told him to stop doing deals with Ratchkauskas and Kubini. (Id. at 40-41). In response, Smith propounded lengthy answers explaining that he had discussed the matter with Watterson on several occasions, during which he had informed Watterson of the “gifts of equity” involved in the deals. (Id.). Smith added that Watterson had told him that he should be “more conservative” given the lending climate amid the recession such that Smith should “stop doing deals with these folks.” (Id.). The questioning then progressed into Smith’s contractual relationship with Land America, which prompted the following:

AUSA Conway: And [Alfred Watterson] began proceedings, you were aware, to cut you off, to make sure you were no longer a title insurance agent for Land America; are you aware of that?

Smith: Cut me off?

AUSA Conway: Yes. To terminate your relationship with Land America, so that you could no longer represent them in terms of issuing title

Smith: You will have to speak to Mr. Watterson, I have never been terminated by Lawyer’s Title.

AUSA Conway: And he never told you that he was beginning the process of terminating you?

Smith: No, not at all.

And obviously, it never — all I can tell you, I have never been terminated by anybody, I never had a title claim, I have never had a problem.

(Id. at 41-42).

Once again, AUSA Conway refocused his questions on other areas, turning to the importance of settlement statements. (Id. at 42). Smith concurred with his examiner that settlement statements or HUD-ls are some of the most important documents in a real estate closing. (Id. at 42). He agreed that settlement statements are “basically a summary of the ins and outs of the money associated with the transaction.” (Id.). AUSA Conway asked Smith whether he had previously attended meetings with himself and agents. (Id.). Smith responded “yes” and attempted to further elucidate his answer but was interrupted by AUSA Conway, who again told Smith that the question posed to him was “simple” and counseled him that “[w]e don’t need a speech every time you answer a question.” (Id. at 43). He next probed Smith’s recollection of the fact that he had “changed his story” about the origins of the Roscoe Letter between his two meetings with law enforcement. (Id. at 44). Smith conceded that he initially told the Government that he had requested the letter from Roscoe independent of any involvement of Watterson at Land America but “clarified” at the second meeting that he was previously incorrect, telling them that Watterson had requested that Smith get the letter from Roscoe. (Id. at 44-45). Smith stated that he made a mistake and misspoke due to the passage of time between the interview and the underlying conversations he was recounting. (Id. at 46).

Smith was next asked why he told the agents during the interviews that he had filed 1099 forms with the IRS for all of the closings when the IRS had no record of any 1099s being filed for those transactions. (Id. at 47). Smith said that he could not explain why the IRS had no record of the 1099s being filed or why he had maintained no records of them in his own closing files because he always filed 1099s with the transactions. (Id. at 47-48). Smith continued:

... [a]ll I can tell you is the paralegals issue the 1099’s, I issue them today, I issued them yesterday, I can’t answer the question any more than I have already done.

AUSA Conway: Except in connection with these transactions, why is that, Mr. Smith?

Smith: Why is that?

AUSA Conway: Why in connection with all of the other transactions, you issued 1099’s, but when it comes to Dov Ratch-kauskas, and these deals, you didn’t issue 1099’s?

Smith: Oh, I am glad you brought it up, it just hit me like a ton of bricks. You don’t issue 1099’s when the seller is a corporation. Okay? And you can check that out. So whenever a seller is a corporation, or an LLC, or some type of legal entity, there is no 1099’s issued.

AUSA Conway: Even if the lender instructions require you to issue a 1099? Smith: You are not permitted. You are not permitted to do it. And that is your answer.

AUSA Conway: And your legal authority for that, Mr. Smith, is what?

Smith: Is the fact, that is the — I don’t have a statute in front of you — in front of me, but I have received bulletins from the title companies, as to when to issue 1099’s or not. So if the individual is a seller, the seller is an individual, we issue the 1099’s. If there is some legal entity, we do not. I’m sorry, I didn’t think of that a little bit earlier, but that’s the answer to the question and I certainly challenge you to check that out.

(Id. at 48).

AUSA Conway next attempted to ask Smith a question concerning whether he was precluded from issuing checks from his escrow account to borrowers at a closing and not reflecting it on settlement statements but was interrupted by Smith, who commented, “are you asking a question.” (Id. at 49). Smith then said “[a]ll right. I am going to answer the question, because I can’t answer it yes or no,” to which AUSA Conway retorted that “I seriously doubt you are going to answer the question.” (Id.). AUSA Conway then completed his statement/question, “whether this settlement statement is supposed to reflect the reality of the transaction? Or is it supposed to reflect some sort of falsehood made up by you?”

Smith: Okay. Certainly, there is no question that the four corners of the settlement sheet should reflect everything that went on between buyer and seller. However, when you have gifts of equity, and if you would check your— you know, check the regulations, gifts of equity are taken, are never on the settlement sheet, as a matter of standard operating procedure, they are taken care of outside the closing. Now, in this situation, where it was between seller and buyer, there was. There was a gift of equity from the seller to the buyer, of whatever the number was that they needed at closing.

(Id. at 49-50). Smith admitted that the parties to the particular transaction they were discussing were not related. (Id. at 50)