Relator Seeks Transfer of Case Against Credit Suisse

UNITED STATES ex rel. JOHN DOE,
Relator
Plaintiff
v.
CREDIT SUISSE AG
Defendant

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF VIRGINIA

RELATOR'S MOTION TO TRANSFER

The relator respectfully requests that this Court transfer the pending suit to District Court Judge Rebecca Beach Smith of the Norfolk Division under 28 U.S.C. § 1404. This pending qui tam action concerns whether Credit Suisse and the Department of Justice (“DOJ”) misled Judge Smith in 2014 into accepting a binding Rule 11(c)(1)(C) plea agreement that allowed Credit Suisse to avoid a sentencing guideline penalty of over $1 billion. Both DOJ and Credit Suisse failed to inform Judge Smith that, at the time of the Credit Suisse plea agreement in May 2014 and again at sentencing in November 2014, Credit Suisse continued to engage in the very same criminal tax conspiracy against the Internal Revenue Service (“IRS”) to which it pled. As Judge Smith is in the best position to analyze whether the Court was misled, this Court should transfer the suit to Judge Smith to determine whether the underlying information can form the basis of a False Claims Act case as well as any additional actions that Judge Smith would have taken with respect to the Plea Agreement.

BACKGROUND

On April 19, 2014, relator's attorney contacted a senior attorney at DOJ's Tax Division and a member of the Credit Suisse prosecution team, regarding an undisclosed $200 million account at Credit Suisse belonging to Dan Horsky, a U.S. citizen. During this proffer, relator's attorney disclosed the existence of Mr. Horsky's ongoing tax conspiracy with Credit Suisse. The DOJ prosecutor followed up with questions that same day via email. Shortly after that initial contact, relator provided DOJ with the following additional information: (1) the name of the account holder; (2) the account number; (3) the names of the beneficial owners of the account; (4) the citizenship and residency of the beneficial owner; (5) other individuals who held signature authority over the account; (6) background on changes to the beneficial owner of the account; (7) background on changes to the signature authority over the account; (8) information regarding a W-8BEN for the account; and (9) other information relating to the existence of the account including the fact that the account remained open at Credit Suisse. In addition to the above-referenced information, relator provided DOJ with hard evidence (a signature card and an account statement) which established that Credit Suisse was engaged in an ongoing conspiracy with Horsky despite its supposed “full cooperation” with DOJ as part of its 2014 plea. That evidence later proved instrumental in the Government's prosecution of Mr. Horsky in 2015.

On April 28, 2014, relator's attorney asked DOJ for additional information regarding the IRS Criminal Investigations (IRS-CI) Agent assigned to the Horsky investigation and the DOJ attorney responded with the IRS-CI Agent's name and contact information. After the April 19, 2014 proffer, relator's attorney had occasional back and forth with the DOJ to confirm certain meetings and provide other information.

On May 19, 2014, DOJ and Credit Suisse filed a Rule 11(c)(1)(C) plea agreement with Judge Smith (the “Plea Agreement”). See Ex. A, Plea Agreement, ECF No. 13 at ¶ 7A, United States v. Credit Suisse, 14-cr-188 (E.D. Va.). “A plea agreement under Rule 11(c)(1)(C), like all plea agreements, is binding on both the government and the defendant, but Rule 11(c)(1)(C) plea agreements are unique in that they are also binding on the court after the court accepts the agreement.” United States v. Kling, 516 F.3d 702, 704 (8th Cir. 2008) (emphasis in original). The statement of facts, attested to by Credit Suisse and the Federal Prosecutors, was incorporated into the Plea Agreement. Ex. A, Plea Agreement, ECF No. 13 at ¶ 2. The statement of facts falsely represented that Credit Suisse's participation in the criminal tax conspiracy ended in 2009. See Ex. B, Statement of Facts, ECF No. 14 at ¶ 8, United States v. Credit Suisse, 14-cr-188 (E.D. Va.).

On July 17, 2014, DOJ interviewed the relator who provided credible, verified, evidence that Credit Suisse and the Federal Prosecutors made, caused to be made, or ratified the following material misrepresentations to Judge Smith: (1) by 2013, Credit Suisse had identified all of its U.S. customers and the U.S. customers who remained at Credit Suisse were fully compliant with U.S. tax and reporting requirements; (2) Credit Suisse had identified and corrected all of the “egregious” misconduct relating to its U.S. customers; and (3) Credit Suisse had withdrawn from the conspiracy to which it pled and stopped helping its U.S. customers avoid their U.S. tax obligations. Ex. C, Complaint, ECF No. 1, at ¶ 15. In particular, the relator identified a specific Credit Suisse customer — U.S. citizen and resident, Mr. Horsky — who maintained over $200,000,000 in his accounts with Credit Suisse in Zurich and continued to conspire with Credit Suisse to conceal those accounts at the same time Credit Suisse appeared on May 19, 2014, at a Plea Hearing before Judge Smith. Id. at ¶ 22.

On November 21, 2014, Credit Suisse and DOJ appeared before Judge Smith for sentencing. See Ex. D, Nov. 21, 2014 Tran. (“Sentencing Transcript”), ECF No. 51, United States v. Credit Suisse, 14-cr-188 (E.D. Va.). At the sentencing hearing, Judge Smith recognized that the proposed $1,333,500,000 statutory fine (the low end of the agreed fine range) reflected in the Plea Agreement was intended to punish Credit Suisse and to deter future misconduct by Credit Suisse and other foreign financial institutions. See Ex. D, Sentencing Transcript at p. 8:8-15. Before accepting the plea and imposing its sentence, the Court stated:

So, I have looked at that from the standpoint of the law, and the seriousness of this offense, to render just and proper punishment, to show respect for the law, and to afford deterrence. I think that's a very important factor here, to afford deterrence not only to the individual defendant before the Court, Credit Suisse, but also to afford deterrence for other similarly situated entities to engage in this type of conduct.

Id.

Judge Smith explicitly asked DOJ and Credit Suisse if there was any evidence or information that the court should consider prior to sentencing. Ex. D, Sentencing Transcript at p. 10:11-14 (DOJ), 10:22-24 (Credit Suisse). Both DOJ and Credit Suisse declined to come forward with evidence of the ongoing conspiracy. Id. at p. 10:15-16 (DOJ attorney: “No additional statements from the Government”), p. 10:25 - p. 11:2 (Credit Suisse attorney: “We don't have anything to add”). There is no allegation that DOJ and Credit Suisse colluded with respect to the false statements and material omissions made to Judge Smith, however, both DOJ and Credit Suisse independently deceived the Court. If Judge Smith had accepted the Plea Agreement after truthful disclosures by either DOJ or Credit Suisse, Judge Smith in all likelihood would have assessed the maximum guideline fine of $2,666,000,000. Ex C., Complaint at ¶ 13. Notwithstanding, only Judge Smith is in a position to resolve what the Court actually would have done if the Court was fully informed and either party had made the required disclosures.

According to publicly available filings, on April 23, 2015, federal agents arrived at Mr. Horsky's home and served him with a subpoena that required him to produce all records related to his foreign accounts. Ex. C at ¶ 24. Mr. Horsky confirmed that he was engaged in a conspiracy with Credit Suisse to hide his offshore accounts and related income from the United States. Id. Two weeks later, Mr. Horsky began plea negotiations. Id. On June 8, 2015, Mr. Horsky entered into a proffer agreement with DOJ confirming that he engaged in a conspiracy with Credit Suisse. Id. On June 29, 2015, Mr. Horsky pled guilty to conspiring with Credit Suisse and others to defraud the United States and paid over $100,000,000 in taxes, interest, and penalties. Id. at ¶ 25.

As detailed in the Horsky Information, in 2012 Credit Suisse (identified in the Information as “International Bank”) suggested that an unnamed individual “replace defendant Horsky as a director of several offshore nominee entities and assume[ ] signature authority over financial accounts held in the names of those entities at [Credit Suisse].” Id; Ex. E, Horsky Information, ECF No. 1 at ¶ 3, United States v. Horsky, 16-cr-224 (E.D. Va.).

Later, Credit Suisse helped this sham director renounce their United States citizenship to further conceal the accounts' nexus with the United States. Mr. Horsky acknowledged that “[t]his was done with the purpose of concealing Horsky's beneficial interest in and control of those accounts” due to his status as a U.S. taxpayer. Ex. C at ¶ 25; Ex. E at ¶ 3.

In addition, Mr. Horsky admitted that “[w]hile Defendant [Mr. Horsky] directed the activities in his Horsky Holdings and other accounts maintained at International Bank [Credit Suisse], it was readily apparent in communications with employees of International Bank [Credit Suisse] that Defendant [Mr. Horsky] was a resident of the United States.” Ex. F, Statement of Facts, ECF No. 13 at ¶ 6, United States v. Horsky, 16-cr-224 (E.D. Va.); Ex. C at ¶ 25. Further, “International Bank [Credit Suisse] representatives routinely sent emails to Defendant [Mr. Horsky] recognizing that Defendant [Mr. Horsky] was residing in the United States.” Ex. C at ¶ 25; Ex. F at ¶ 6. Despite Credit Suisse's knowledge of Mr. Horsky's status as a U.S. citizen and resident, Credit Suisse continued to service Mr. Horsky's accounts and conceal his tax information from the United States through at least 2015. Ex. C at ¶ 26.

In June 2015, the relator provided more information to DOJ that Credit Suisse's Israel Desk continued to conspire with U.S. customers to conceal their Swiss bank accounts and related income with the intent to defraud the United States. Relator informed DOJ of the Israel Desk's practices and provided an organizational chart that identified more than ten Credit Suisse employees that continued to engage in an ongoing conspiracy. Ex. C at ¶ 27. In 2016, the relator provided additional evidence showing that Credit Suisse's Legal and Compliance staff were aware that Credit Suisse continued to conspire with U.S. customers to conceal their Swiss bank accounts and related income with intent to defraud the United States. Id. at ¶ 28.

The Plea Agreement was initially filed in the Alexandria Division of the Eastern District of Virginia. United States v. Credit Suisse, 14-cr-188 (E.D. Va.). The case was then assigned to then Chief Judge Smith who sits in the Norfolk Division of the Eastern District of Virginia. On February 26, 2021, Relator filed the instant case as a related case to United States v. Credit Suisse, in the Eastern District of Virginia. Ex. C. at Document 1-1 (civil cover sheet identifying 14-cr-188 as a related case). Nevertheless, the case was assigned to Judge Hilton who sits in the Alexandria Division of the Eastern District of Virginia.

MEMORANDUM OF LAW

This action should proceed in the Norfolk Division because DOJ and Credit Suisse misled the Court into accepting the Plea Agreement and thus a “substantial part of the events or omissions giving rise” to this qui tam case occurred in the Norfolk Division, specifically in Judge Smith's courtroom. Furthermore, the interests of justice favor transferring this case to Judge Smith in the Norfolk Division.

I. The Case Should Be Transferred to the Norfolk Division Because DOJ and Credit Suisse Misled Judge Smith who has Unique Familiarity with the Issues of This Action.

Attorneys who submit pleadings and make representations to a court are expected to be truthful. In the Eastern District of Virginia, Local Criminal Rule 57.4(I) provides the ethical standards relating to the practice of law in criminal cases. See E.D. Va. Loc. Crim. R. 57.4(I). That rule specifically adopts (with one non-relevant exception) Section II of Part Six of the Rules of the Virginia Supreme Court (“Virginia Rules of Professional Conduct”). Under Rule 3.3 of the Virginia Rules of Professional Conduct, a lawyer owes a duty of candor towards the tribunal and may not knowingly: (1) make a false statement of fact to a tribunal; (2) fail to disclose a fact to a tribunal when disclosure is necessary to avoid assisting in a criminal or fraudulent act; and (3) offer evidence that the lawyer knows to be false. Virginia Rules of Professional Conduct 3.3(a)-(b).

In addition, a lawyer who receives information establishing that a fraud has been perpetrated upon the tribunal in a proceeding in which the lawyer is representing a client is required to “promptly reveal the fraud to the tribunal.” Virginia Rules of Professional Conduct 3.3(d). Those rules are specifically applicable to Government attorneys under 28 U.S.C. § 530B which provides that attorneys for the Government “shall be subject to State laws and rules, and local Federal court rules, governing attorneys in each State where such attorney engages in that attorney's duties, to the same extent and in the same manner as other attorneys in that State.”

The District Court for the Eastern District of Virginia has also recognized that there are instances in which the “failure to make a disclosure is the equivalent of an affirmative misrepresentation.” See Va. Innovation Scis., Inc. v. Samsung Elecs. Co., 983 F. Supp. 2d 713, 754-55 (E.D. Va. 2014). And there is a broader general duty of candor and good faith that encompasses an attorney's duty to advise a district court of any development that may affect the outcome of the litigation. See United States v. Shaffer Equip. Co., 11 F.3d 450, 457–59 (4th Cir. 1993). Furthermore, “[t]he government has a duty to furnish complete and accurate information at sentencing” so that the court can evaluate the plea agreement and accept or reject the plea in the “exercise of sound judicial discretion.” United States v Edgell, 914 F.3d 281, 287 (4th Cir. 2019) (citation omitted). This duty exists so that “the court has complete and accurate information, enabling the court to impose an appropriate sentence.” Id. at 287 (citing United States v. Maldonado, 215 F.3d 1046, 1052 (9th Cir. 2000)); see also United States v. Casillas, 853 F.3d 215, 218 (5th Cir. 2017) (the government may not “stand mute in the face of factual inaccuracies or . . . withhold relevant factual information from the court”).

Based upon the extensive publicly available record, DOJ and Credit Suisse have never notified the Court as to false statements and material omissions contained in the Statement of Facts and Plea Agreement. By not correcting the false statements and material omissions prior to sentencing, both DOJ and Credit Suisse misled the Court. Judge Smith is uniquely qualified to determine whether the Court was misled, and if so, what the consequences for the parties' actions should be. Where a Judge has unique familiarity with a case given his or her adjudication of similar cases and issues, a Court should transfer the case to that Judge. See Calamp Wireless Networks Corporation v. Orbcomm, Inc., Civil Action No. 16-632, 2016 WL 9150694, at *3 (E.D. Va. Nov. 10, 2016) (transferring case to a specific Judge in the Richmond Division because he was “familiar with the Parties and the basic subject matter of the patents at issue, and would thus be able to oversee the [action] more efficiently.”); United States Ship Management, Inc. v. Maersk Line, Ltd., 357 F. Supp. 2d 924, 938 (E.D. Va. 2005) (“And where a party has previously litigated a case involving similar issues and facts a court in that district will likely be familiar with the facts of the case . . . such familiarity is highly desirable”) (citation omitted). Given that the United States has moved to dismiss, the relator will request an evidentiary hearing and Judge Smith — given her familiarity with the Credit Suisse fact pattern — is in the best position to oversee that evidentiary hearing and the United States' motion to dismiss.

II. The Interests of Justice Favor Transferring This Case to Judge Smith in the Norfolk Division.

Section 1404(a) provides that “[f]or the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought.” 28 U.S.C. § 1404(a) (emphasis added). In considering a motion to transfer, a court must make two inquiries: (1) whether the claims could have been brought in the transferee division; and (2) whether the interest of justice and convenience of the parties and witnesses support transfer. Calamp, 2016 WL 9150694, at *2.

Relator attempted to bring this case as a related case to United States v. Credit Suisse, 14-cr-188, which was filed in the Alexandria Division but was assigned to Judge Smith in the Norfolk Division. But the local rules allowed this case to be filed in the Norfolk Division because — replacing the term “district” with the term “division” under Local Civil Rule 3 — 28 U.S.C. § 1391 reads: “A civil action may be brought in: . . . a judicial division in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated”. Here, the Norfolk Division is where a substantial part of Credit Suisse's misrepresentations to Judge Smith took place, and those representations underlie the relator's False Claim Act claims. In his civil cover sheet, the relator noted that this case is related to United States v. Credit Suisse, 14-cr-188, in the Norfolk Division but filed the case in the Alexandria Division. Accordingly, the Court should transfer this case to the Norfolk Division under the relevant Local Rules.

CONCLUSION

With a pending motion to dismiss and a possible evidentiary hearing to come later, the relator firmly believes in the necessity of this action. The relator's case is about ensuring that a recidivist corporation cannot escape the consequences of its misdeeds and that the Court is fully informed about the full extent of Credit Suisse's misconduct. As Deputy Attorney General Lisa O. Monaco recently noted in a speech: “The first area [we] will examine is how to account for companies who have a documented history of repeated corporate wrongdoing . . . I'm concerned about this kind of repeat offender.” See Speech of Deputy Attorney General at ABA's 36^th National Institute on White Collar Crime.¹ One way to hold Credit Suisse, and other corporate recidivists, accountable is to utilize the full weight of the False Claims Act. The relator intends to vigorously prosecute this case even if the Justice Department will not.

When contacted, the United States stated that they oppose the transfer to Judge Smith. For the reasons stated above, the relator respectfully requests that this action be transferred to Judge Rebecca Smith of the Norfolk Division for further proceedings.

Dated: November 9, 2021

Respectfully submitted,

Stuart A. Sears
Virginia Bar No. 71436
Attorney for Relator/Plaintiff
Schertler Onorato Mead & Sears, LLP
901 New York Avenue, N.W.
Suite 500 West
Washington, DC 20001
(202) 628-4199
(202) 628-4177 (FAX)
ssears@schertlerlaw.com

Jeffrey A. Neiman
Florida Bar No. 544469
Jeffrey E. Marcus
Florida Bar No. 310890
Attorney for Relator/Plaintiff
(pro hac vice applications pending)
Marcus Neiman Rashbaum & Pineiro LLP
100 Southeast Third Avenue
Suite 805
Fort Lauderdale, FL 33394
Telephone: (954) 462-1200
jneiman@mnrlawfirm.com
jmarcus@mnrlawfirm.com