Case 2:13-cr-00039-JAD-VCF Document 127 Filed 08/25/15 Page 1 of 12

1
2
3
4

DANIEL G. BOGDEN
United States Attorney
J. GREGORY DAMM
CRANE M. POMERANTZ
Assistant United States Attorneys
333 Las Vegas Boulevard South, Suite 5000
Las Vegas, Nevada 89101
702-388-6336

5
UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA
-oOo-

6
7

UNITED STATES OF AMERICA,

8
Plaintiff,
9
vs.
10
RAMON DESAGE, et. al.,
11
Defendants.
12

) Case No. 2:13-CR-00039-JAD-VCF

)
) Appeal of Magistrate Judges Order
)
)
)
)
)
)
)
)

13
14

The United States, by and through the undersigned, appeals the August 13, 2015 Order of

15

United States Magistrate Judge Cam Fehrenbach granting defendant Ramon Desages motion to

16

compel the production of ten years worth of tax records of victims and other individuals and

17

entities to be used for impeachment purposes.

18

Fehrenbachs Order is clearly erroneous and contrary to law. 28 U.S.C. 636(b)(1)(A).

See Doc. No. 121.

Magistrate Judge

19

Introduction

20

Based solely on the defendants unsupported expectation that his victims tax returns

21

fail to account for alleged cash payments he made to them, Doc. No. 117 at 3, and the

22

defendants conclusory allegation that such information constitutes impeachment material,

23

Magistrate Judge Fehrenbach erroneously ordered the disclosure of ten years worth of tax

24

Case 2:13-cr-00039-JAD-VCF Document 127 Filed 08/25/15 Page 2 of 12

returns for fourteen separate individuals and entities, including the four victims, but also their

spouses, business partners, and business entities. His Order authorizes a rank fishing expedition

that puts the victims sensitive financial data in the hands of the defendant, effectively

victimizing them a second time.

Magistrate Judge Fehrenbachs Order contains three errors warranting reversal. First, he

5
6

misapplied the applicable legal standard.

Because the defendant provided only a general

description of the information sought [and] conclusory allegations of materiality, United States

v. Santiago, 46 F.3d 885, 894-95 (9th Cir. 1995), Magistrate Judge Fehrenbach incorrectly held

that the defendant made the requisite preliminary showing of materiality to support disclosure

10

under Rule 16. He also incorrectly held that the defendant made the appropriate showing of

11

materiality under Giglio and its progeny.

12

Second, he erroneously accepted the defendants faulty and unsupported - argument

13

that the information sought will constitute significant impeachment material. Doc. No. 117 at

14

3.

15

payments that form the basis for this motion are funds defendant Desage swindled from the

16

victims. The return of stolen money does not constitute earned income, Order at 4, and, thus,

17

is not a taxable event that would ever appear in a taxpayers return.

While the defendant failed to specify, the United States believes that the alleged cash

18

Finally, Magistrate Judge Fehrenbachs Order is significantly overbroad. The Order

19

characterizes the tax returns as impeachment material, but directs the United States to disclose

20

returns belonging to individuals and entities that will never testify at trial, an obvious non-

21

sequitir. Even for those victims who might potentially testify, the Order requires that the United

22

States disclose ten years worth of tax returns without regard to when the victims actually were

23

engaged in business with defendant Desage.

24

The United States respectfully requests a hearing on its appeal of the Order.
2

Case 2:13-cr-00039-JAD-VCF Document 127 Filed 08/25/15 Page 3 of 12

Points and Authorities

A. The Tax Returns Are Not Discoverable Under Rule 16 or Giglio.

The defendant moved for the disclosure of tax returns of fourteen separate

individuals and entities 1 on the grounds that the disclosure of these returns was material to

preparing Desages defense under Rule 16. Although this was the only basis for the defendants

motion, Magistrate Judge Fehrenbach also apparently assessed whether the tax returns were

discoverable as Giglio (impeachment) evidence. 2 Neither Rule 16 nor Giglio require disclosure.

1. The Defendant Failed to Make a Prima Facie Showing of Materiality

Under Rule 16.

Under Rule 16, the United States must disclose documents and items within its

10
11

possession, custody, or control that are material to preparing the defense. Fed.R.Crim.P.

12

16(a)(1)(E)(i). Disclosures under this rule are not self-executing; a defendant must make a prima

13

facie showing of materiality before he is entitled to the materials sought. United States v.

14

Santiago, 46 F.3d at 894-95; United States v. Mandel, 914 F.2d 1215, 1219 (9th Cir. 1990);

15

United States v. Cadet, 727 F.2d 1453, 1468 (9th Cir. 1984); United States v. Little, 753 F.2d

16
17
18
19
20
21
22
23
24

The fourteen individuals and entities identified by the defendant are: Jacob Hefetz, any entity
with which . . .Hefetz isaffiliated, Harold Foonberg, Stanley Sunkin, any entity with which .
. .Foonberg isaffiliated, Harvey Vechery, Linda Vechery, any entity with which . . .Harvey
Vechery isaffiliated, William Richardson, any entity with which . . .Richardson
isaffiliated, Herb Frey, AW Financial Group, Federal Pants Company, Inc., and F & S
Partners LP. The defendants concede that only Hefetz, Harvey Vechery, Foonberg, and
Richardson are victims, Doc. No. 117 at 3, but contend that these other individuals and entities
are affiliated with the four victims, without explaining how they are affiliated or offering any
proof of this affiliation. Id. The defendants failure to provide record support for his claims is a
recurring theme and underscores the erroneous nature of Magistrate Judge Fehrenbachs Order.
2

Under Giglio v. United States, 405 U.S. 150, 154-55 (1972), the United States has a
constitutional obligation to disclose material impeachment evidence.
3

Case 2:13-cr-00039-JAD-VCF Document 127 Filed 08/25/15 Page 4 of 12

1420, 1445 (9th Cir. 1984). 3 Ordering production by the government without any preliminary

showing of materiality is inconsistent with Rule 16. Mandel, 914 F.2d at 1219.

The required threshold showing is exacting: Neither a general description of the

information sought nor conclusory allegations of materiality suffice. Santiago, 46 F.3d at 894-

95. Santiago is illustrative. In that case, the defendant, charged with the death of a fellow

inmate, requested Bureau of Prisons files on other testifying inmates to seek information that

linked them to rival gangs. Id. These gang affiliations, so the argument went, might

demonstrate their bias against the defendant. Id. The Ninth Circuit rejected the defendants

request, characterizing it as conclusory because he did not cite any fact . . . that might link

10

one of the witnesses to a rival gang. Id. at 895 (emphasis added).

11
12

Significantly, Santiago held that plausible assertions of materiality are inadequate to

justify disclosure:

13

In defense counsels only significant attempt to show the materiality of the inmate files,
counsel argued at the pre-trial hearing that because the government planned to introduce
testimony of gang affiliations, he would need to know for impeachment purposes whether
any inmate witnesses were linked to rival gangs, and that any evidence from prison files
on affiliation would be critical. These assertions, although not implausible, do not satisfy
the requirement of specific facts, beyond allegations, relating to materiality.

14
15
16

Id. at 894-895 (emphasis added).

17
Despite Santiagos directive to look beyond the intuitive appeal of an argument in favor
18
of specific, articulable facts, Magistrate Judge Fehrenbach repeatedly emphasized the
19
plausibility of Desages allegations as the basis for disclosure. See Order at 4 (Nor has
20
Desage failed to make a plausible showing that the tax returns are favorable to his defense. He
21
22
23
24

While the Ninth Circuit has consistently and steadfastly required a defendant to make a
preliminary showing of materiality, none of the leading cases provide a firm definition of the
word material in the context of the rule. Read together, the leading cases (Santiago, Mandel,
Cadet, and Little) stand for the proposition that evidence is material as long as there is a strong
indication that it will play an important role in uncovering admissible evidence, aiding witness
preparation, corroborating testimony, or assisting impeachment or rebuttal.
4

Case 2:13-cr-00039-JAD-VCF Document 127 Filed 08/25/15 Page 5 of 12

contends that the records will show that the victims failed to report earned income, which they

received in cash from Mr. Desage. This plausibly shows that the tax records contain

impeachment evidence.) In doing so, he granted the defendants motion on the basis of a legal

standard that Santiago expressly rejected. 4

5
6

The extent of defendants preliminary showing are three sentences in his motion
regarding his expectation of what disclosure might reveal:

Mr. Desage expects that Mr. Richardson's, Mr. Vechery's and Mr. Foonberg's personal
and corporate tax returns will show that they did not take into account their receipts of
cash from Mr. Desage. These omissions from their tax returns will constitute significant
impeachment material regarding the credibility of these alleged victims. Thus, the tax
returns are crucial to Mr. Desage's defense that he did not defraud investors/lenders.

8
9
10

Doc. 107 at 3.

11

This is the entire basis for the disclosure of 140 tax returns (ten years for each of at least

12

fourteen individuals or entities) and that which apparently satisfied Magistrate Judge

13

Fehrenbachs erroneous plausibility standard. The defendant does not articulate, let alone

14

demonstrate, how or why he expects the tax returns to provide impeachment evidence or the

15

basis for his expectation. He makes no offer of proof, appends no documents or affidavits in

16

support of his request, and, as argued further below, does not even make an effort to explain

17

which cash payments he is referring to or why they would be reflected in the tax returns sought.

18

The basis for his request is speculative, conclusory and falls far short of the prima facie showing

19
20
21
22
23
24

Mandel, one of the other leading cases analyzing what is material to the defense, also
implicitly rejects plausibility as a basis for discovery. In that case, the Ninth Circuit reversed a
district court order directing the United States to produce Department of Commerce records
relating to the promulgation of commodity export controls to husband and wife defendants
charged with exporting items on the prohibited list. 914 F.2d at 1216. The defendants in Mandel
made a plausible argument: they should be able to see documents relating to the promulgation of
regulations they were accused of violating. But the plausibility of their argument was
insufficient; the Ninth Circuit rejected their request because they made no [factual] showing . . .
[that the promulgation of these regulations] were not in accordance with the law. 914 F.2d at
1219. Mandel, like Santiago, stands for the proposition that the defendant must make some
evidentiary showing, aside from mere plausibility, to be entitled to the discovery sought.
5

Case 2:13-cr-00039-JAD-VCF Document 127 Filed 08/25/15 Page 6 of 12

required. Under these circumstances, there was no legal basis for Magistrate Judge Fehrenbach

to grant defendants motion.

3
4

2. The Tax Returns Are Not Discoverable Under Giglio

Magistrate Judge Fehrenbach also erroneously concluded that the tax returns constituted

material impeachment evidence discoverable under Giglio. But both the scope and substance of

his order is erroneous and contrary to law.

Giglio is a trial right which compels the United States to disclose impeachment evidence

for testifying witnesses. Giglio, 405 U.S. at 153-155; see also United States v. Ruiz, 536 U.S.

622, 628 (2002) (holding that the Constitution does not require the United States to disclose

10

material impeachment evidence prior to entering into a plea agreement with a defendant).

11

Recognizing that the four victims (Hefetz, Foonberg, Vechery, and Richardson) will likely

12

testify, the defendant has made no offer of proof suggesting that the other ten individuals and

13

entities will testify, and the United States has not made that determination. (Some of the

14

individuals and entities, such as Mrs. Vechery and the corporate entities, cannot or almost

15

certainly will not be testifying.) To the extent Magistrate Judge Fehrenbachs Order relies on

16

Giglio for the disclosure of the tax returns for non-testifying individuals and entities, it

17

impermissibly expands the scope of Giglio and, thus, is clearly erroneous.

18

Even as to the witnesses the United States anticipates will testify, however, the Order is

19

erroneous. In order to be subject to disclosure under Giglio, the evidence at issue must be

20

favorable to the defendant, which is to say that the evidence must bear adversely on the

21

credibility of a prosecution witness. United States v. Olson, 704 F.3d 1172, 1181-82 (9th Cir.

22

2013). The evidence must also be material as that term in understood in the Constitutional

23

context. Id. Evidence is material if it could reasonably be taken to put the whole case in such a

24

different light as to undermine confidence in the verdict. Kyles v. Whitley, 514 U.S. 419, 435
6

Case 2:13-cr-00039-JAD-VCF Document 127 Filed 08/25/15 Page 7 of 12

(1995). In the post-trial context,5 this means the defendant must demonstrate that there is a

reasonable probability of a different result.

probability sufficient to undermine confidence in the outcome. Pennsylvania v. Ritchie, 480

U.S. 39, 57 (1987) quoting United States v. Bagley, 473 U.S. 667, 682 (1985).

Id. at 434.

A reasonable probability is a

The tax return evidence is neither favorable nor material. As addressed in more detail

below, the alleged cash payments are not a taxable event that would be reflected in the returns

sought; the tax returns that Magistrate Judge Fehrenbach ordered disclosed are neither required

nor likely to reflect Desages alleged cash payments. Thus, the returns do not contain favorable

information in the first instance and their non-disclosure will have no impact on the outcome at

10

trial.

11

B. The Tax Returns Do Not Contain Impeachment Evidence and Are Not
Otherwise Favorable to the Defendant.

12
Magistrate Judge Fehrenbachs Order rests on the faulty assumption based on the

13
14
15
16
17
18

defendants unsupported representations - that the tax returns constitute impeachment evidence.
Indeed, the lynchpin of the Order is Magistrate Judge Fehrenbachs characterization of the
alleged cash payments as earned income. See Order at 4 ([The defendant] contends that the
records will show that the victims failed to report earned income, which they received in cash
from Mr. Desage.)
But the record does not support this conclusion. In his motion, the defendant offers no

19
20

detail about when these alleged cash payments were made, to whom, or under what

21
22
23
24

Unfortunately, there are few cases analyzing Giglio in the pre-trial context.
7

Case 2:13-cr-00039-JAD-VCF Document 127 Filed 08/25/15 Page 8 of 12

circumstances. 6 In the absence of these specifics, not to mention any supporting documentation,

the Court and the United States are left to speculate about which cash payments the defendant

is referring. Because the entirety of the record before Magistrate Judge Fehrenbach was the

defendants bald assertion that there were payments to victims, he had no basis for concluding

that these payments constituted earned income, 7 Order at 4, and, thus, his conclusion that the

tax returns would contain evidence favorable to the defense is erroneous.

The United States surmises that Desage is referring to cash payments to the victims in

partial satisfaction of money they loaned to him. 8 If true, the alleged cash payments are nothing

more than the return of money that Desage borrowed (or, more correctly, stole) from them.

10

There is no gain constituting income until an investment is paid in full. Commissioner of IRS v.

11

Liftin, 317 F.2d. 234, 235 (4th Cir. 1963). Stated another way, only interest is taxable; the return

12

of principal is not a taxable event that needs to be reported in a tax return. 9 IRS Publication 550,

13
14
15
16
17
18
19
20
21
22
23
24

In fact, neither Foonberg nor Vechery, two of the victims, state anything about receiving cash
payments from Desage in their witness interviews. If the defendant has information that they
did, he neglected to address it in his motion, another failure of proof that should doom his
motion.

Magistrate Judge Fehrenbach uses the phrase earned income inappropriately. It is a term of
art defined as all taxable income and wages earned from working, including wages, salaries and
net earnings from self-employment. Interest and dividends are not earned income as defined
by the IRS. To the extent the Order rests on his characterization of the alleged payments as
earned income, this is another legal error that undermines his decision.

As alleged in the Indictment, Desages scheme worked as follows: Desage purported to work
in the wholesale distribution business in which he would purchase various items (luggage, hand
soap, etc.) at a discount, and then re-sell them at a profit. He convinced investors to provide him
with large sums of money so that he could purchase these items, promising them both the return
of their original investment plus some interest or profit. In fact, Desage used the substantial
sums of money he received for gambling, personal items, or to pay back previous investors. To
the extent he used the funds to repay earlier investors, his conduct properly is characterized as a
Ponzi scheme.
9

Assume, for example, that Desage borrowed $1 million dollars from one of his victims to
purchase hand soap but, in fact, used this money to pay off gambling debts. Further assume that
8

Case 2:13-cr-00039-JAD-VCF Document 127 Filed 08/25/15 Page 9 of 12

Investment Income and Expenses (2014) at 3. Thus, even if Desage made sizable cash payments

to each of his victims in partial satisfaction of his debts to them, such payments are not earned

income to the victims and would not need to be reported in their tax returns.

To the extent Desage believed that his alleged cash payments constituted income to his

victims, surely he would have issued 1099 or 1099 INT statements to them for income or interest

paid.

constituted earned income. But he fails to identify, describe or append any 1099 statements,

yet another evidentiary defect in his motion. 10

Desage-issued 1099s would be the best (and likely only) proof that his payments

In his motion, Desage blatantly failed to specify which cash payments he made, to whom,

10

when, or for what. Instead of properly denying the motion as a result of Desages failure to

11

make an adequate preliminary showing, Magistrate Judge Fehrenbach erroneously granted it,

12

compounding his error by incorrectly holding that the un-identified cash payments constituted

13

earned income, when they do not.

14

evidence and are not favorable.

15

...

The tax returns sought do not contain impeachment

16
17
18
19
20
21
22
23
24

Desage subsequently borrowed $500,000 from a second victim under the same pretenses, but
used the second investment to partially pay back Victim 1, a payment he made in cash. The
$500,000 payment to Victim 1 is not income to Victim 1 and does not become income until it
reflects interest on the money loaned. Victim 1 is not required to report the partial repayment of
principal until he earns money on that loan.
10

Additionally, it bears emphasizing that the victims are sophisticated businessmen with
complex financial dealings. As a practical matter, evidence of the alleged cash payments will not
be readily apparent from an examination of the tax return itself. There is no line item in the
victims tax returns which reads Payments from Desage. Rather, determining whether funds
were received, and how they were accounted for, would require a complete audit of each return,
including an extensive review of supporting documentation, including other, unrelated
investments, and interviews with the victims CPAs and bookkeepers to understand how these
investments were treated for tax purposes. In short, the returns sought are, standing alone,
unlikely to bear the fruit the defendant claims they would.
9

Case 2:13-cr-00039-JAD-VCF Document 127 Filed 08/25/15 Page 10 of 12

C. The Order is Overbroad.

If the Court agrees with Magistrate Judge Fehrenbach that the defendant has made a

prima facie showing of materiality and determines that the disclosure of some returns is

appropriate, it should nonetheless narrow the scope of the Order.

disclosure to the victims themselves, notwithstanding the significant privacy imposition, and

protect from disclosure the returns of spouses, business partners, or corporate entities, especially

those who cannot or will not testify, and certainly not without some greater showing by the

defendant about how these individuals and entities are affiliated with the victims. Doc. No.

117 at 3.

The Court should limit

10

Next, the Court should tailor disclosure, if any, to those years that the victims and Desage

11

were engaged in business together. For example, victim Richardsons first investment with

12

Desage was in 2011. He continued to invest into 2012, but not since. Desage was arrested on

13

these charges in July 2012, after which he is unlikely to have made any cash payments. Even if

14

everything Desage has asserted is true and he can adequately support it there appears to be no

15

basis for the disclosure of Richardsons returns, for example, prior to 2011 or after 2012.

16

For Desage to carry his burden as the movant, the Court should require him to provide the

17

dates of investments for each of the victims and the dates of his alleged cash payments back to

18

them. Assuming appropriate supporting documentation exists, the Court should then limit the

19

disclosures to the years that the investments or Desages alleged return payments were made.

20

There is no basis for the wholesale disclosure of ten years worth of returns in the absence of any

21

proof that the alleged payments would be reflected in the returns for the vast majority of those

22

years.

23

...

24

...
10

Case 2:13-cr-00039-JAD-VCF Document 127 Filed 08/25/15 Page 11 of 12

1
2

Conclusion
For all of the foregoing reasons, the Court should reverse Magistrate Judge Fehrenbachs

Order and deny Desages motion to compel the production of tax returns. In the alternative, the

Court should limit disclosure to testifying victims, for the tax years in which investments to

Desage or payments by Desage were made.

6
7

Respectfully submitted,
DANIEL G. BOGDEN
United States Attorney

8
9

/s/
10
J. GREGORY DAMM
CRANE M. POMERANTZ
Assistant United States Attorneys

11
12
13
Dated: August 24, 2015
14
15
16
17
18
19
20
21
22
23
24
11

Case 2:13-cr-00039-JAD-VCF Document 127 Filed 08/25/15 Page 12 of 12

1
2
3
4
5
6

Certification
The foregoing was served on counsel of record via electronic case filing on this 24th day
of August, 2015.
/s/
___________________
Crane M. Pomerantz

7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
12