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Case 1:18-cr-00204-NGG-VMS Document 521 Filed 04/10/19 Page 1 of 9 PageID #: 5538

U.S. Department of Justice

United States Attorney


Eastern District of New York
MKM:MKP/TH/MJL/KMT 271 Cadman Plaza East
F. #2017R01840 Brooklyn, New York 11201

April 10, 2019

By Hand and ECF

The Honorable Nicholas G. Garaufis


United States District Judge
United States District Court
225 Cadman Plaza East
Brooklyn, New York 11201

Re: United States v. Kathy Russell, et al.


Criminal Docket No. 18-204 (S-2) (NGG)

Dear Judge Garaufis:

The government respectfully submits this letter (1) in connection with the
Court’s preliminary ruling regarding Kathy Russell’s motion to dismiss, which the Court set
forth during the status conference on April 8, 2019; and (2) in response to Russell’s April 9,
2019 supplementary submission. (Dkt. No. 517). As set forth below, the government
respectfully submits that (1) Russell was neither a “target” nor a “subject” at the time of her
May 10, 2018 grand jury testimony; and (2) regardless of Russell’s status, there is no basis
upon which the indictment may be dismissed as to her. In addition, the government
respectfully requests that, if the Court intends to make a finding that Russell was a “target”
or “subject” at the time of her May 10, 2018 grand jury testimony, the government be
permitted to supplement the factual record on this issue.1

1
As the government understood the Court’s preliminary ruling, the Court
assumed without deciding that Russell was a “target” at the time of her grand jury testimony.
(See, e.g., Apr. 8, 2019 Transcript at 7 (“If that’s true, that would make the government’s
statement at the beginning of Ms. Russell’s grand jury testimony that she was not a target
misleading, at the very least.” (emphasis added)). The Court then found that Russell’s Fifth
Amendment rights were not violated and, even if they were, the Court held that dismissal of
the indictment is not warranted. If the government understood the Court’s preliminary ruling
correctly, the government does not object to it.
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I. Russell Was not a Target or a Subject at the Time of Her May 10, 2018 Testimony

As an initial matter, the government respectfully submits that the definition of


“target” set forth in Department of Justice’s Justice Manual (“Justice Manual”) § 9-11.151,
must be understood in the context of other applicable DOJ guidance. The Justice Manual’s
definition of “target” is based on the “judgment of the prosecutor” that the individual is a
“putative defendant.” Justice Manual § 9-11.151. As Russell notes in her motion to dismiss
the first superseding indictment, the Third Circuit has construed this as “an objective
standard,” i.e., that the defendant “could be indicted.” United States v. Crocker, 568 F.2d
1049, 1054 (3d Cir. 1977) (cited in Dkt. No. 270, Russell Br. at 8). But the assessment of
whether a defendant “could be indicted” does not simply mean that an indictment is
“conceivable” or “possible,” because that would make the phrase “putative defendant”
meaningless. See United States v. Drake, 310 F. Supp. 3d 607, 620 n.10 (M.D.N.C. 2018)
(defining “putative”). Indeed, the Justice Manual also instructs that “[t]he attorney for the
government should commence or recommend federal prosecution if he/she believes that the
person’s conduct constitutes a federal offense, and that the admissible evidence will probably
be sufficient to obtain and sustain a conviction.” Justice Manual § 9-27.220 (“Grounds for
Commencing or Declining Prosecution”) (emphasis added). Read together, these provisions
of the Justice Manual make clear that a prosecutor exercising her judgment in accordance
with DOJ policy should not consider an individual a target merely because there is some
information connecting that person to the commission of a crime.

Nor do the cases suggest that it was clear that Russell was even a subject at the
time of her testimony.2 Although there are relatively few cases construing this term, the First
Circuit’s analysis in United States v. Babb, is instructive. See 807 F.2d 272, 274-76 (1st Cir.
1986). In Babb, the First Circuit explained that, by the time the defendant appeared to testify
before the grand jury, “the grand jury had questioned a large number of witnesses,” and those
witnesses “had named [the defendant] spontaneously or had responded to the prosecutor’s
direct questions about the [defendant].” Id. at 274. One witnesses testified, for example, that
the defendant had been “introduced to her as a friend [of a coconspirator] who sold cocaine
or heroin in capsules.” Id. at 274 n.1. One of the defendant’s coconspirators testified that
the defendant was “his associate in the sale of drugs.” Id. On this record, the First Circuit
appeared inclined to conclude that the defendant was a “subject,” rather than “target,” but it
assumed the latter in light of the government’s concession that the defendant was a “target.”
Id. at 276 n.4. Although the defendant – who was incarcerated at the time of his testimony –
appeared without counsel and was subsequently convicted of narcotics crimes and perjury,
the First Circuit rejected his argument that his testimony should have been suppressed in
light of the government’s failure to inform him of his status as a subject or target. Id. at 279.

2
The Justice Manual provides that a “‘subject’ of an investigation is a person
whose conduct is within the scope of the grand jury’s investigation.” Justice Manual § 9.11-
151.

2
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The district court’s analysis in United States v. Peterson, also provides useful
guidance. See 544 F. Supp. 2d 1363 (M.D. Ga. 2008). In Peterson, the government served
the defendant with a grand jury subpoena in connection with an investigation concerning
obstruction of justice. At the time the government served the subpoena, it was in possession
of a tape recorded conversation between the defendant and a coconspirator, during which the
coconspirator thanked the defendant for “disclosing to him the identity of the confidential
informant.” Id. at 1368. In light of this direct and presumably admissible evidence of the
crime under investigation, the government informed the defendant that he was a “subject.”
Id. at 1367. The court agreed and found that there was no “evidence in this case that would
lead this Court to conclude that the Government misled Defendant about his status.” Id.

Finally, the district court’s analysis in United States v. Three Juveniles is


consistent with these decisions. See 886 F. Supp. 934 (D. Mass. 1995) In Three Juveniles,
the government was investigating a group involved in racist and anti-Semitic crimes. Id. at
936. The court explained that, on the date FBI agents went to the house of one of the
juvenile members of the group to conduct a first interview, they had been informed by the
leader of the gang that the juvenile had participated in the defacement of a Jewish temple.
Id. at 40. In light of this evidence, the district court concluded that, at the time of the FBI
interview, the juvenile was “a suspect in the investigation, but not yet a target.” Id. at 940.

II. Facts Concerning Russell’s Status Prior to Her Grand Jury Testimony

The government respectfully submits that Russell was plainly not a target and
was likely not a subject at the time of her May 10, 2018 grand jury testimony. If the
government is permitted to supplement the factual record on this point, it would establish the
following, among other things: In the first superseding indictment (“S-1”), which was
returned on July 24, 2018, Russell was charged in Count One with racketeering conspiracy.
She was named in two predicate acts: (1) conspiracy to commit identity theft and to
unlawfully possess an identification document in connection with her role in a conspiracy to
illegally transport a woman across the Canadian border (the “Border Crossing Act”
(Racketeering Act One)), and (2) conspiracy to commit identity theft and identity theft in
connection with her involvement in the installation of a “keylogger” on a computer
belonging to an accountant for Nxivm, so that his email address and password could be
obtained and his emails monitored (the “Keylogging Act” (Racketeering Act Two)).

At the time of Russell’s grand jury testimony on May 10, 2018, the
government was aware of Russell’s involvement in the Border Crossing Act, but the
incident, which occurred in 2004 (S-1 ¶ 17), was not chargeable as a stand-alone offense
because the statute of limitations had expired. Nor at that time did the government have
evidence of Russell’s participation in the crime of racketeering conspiracy, because the
government did not yet have evidence of her involvement in a second predicate act. The
government first learned of Russell’s involvement in the Keylogging Act on June 24, 2018 –
approximately two months after she was served with a grand jury subpoena and six weeks
after her grand jury testimony on May 10, 2018.

3
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Russell has noted that prior to her grand jury testimony two witnesses had
alleged that she promoted non-payment of taxes and moved money amongst Nxivm entities
to accomplish a “zero balance” for tax purposes. It is far from clear that these general and
(then) uncorroborated allegations in the FBI 302 reports would constitute evidence of
involvement in a crime, and, in any event, tax offenses were not within the scope of the
investigation at that time. See 28 C.F.R. § 0.70 (noting that tax investigations “are assigned
to and shall be conducted, handled, or supervised by, the Assistant Attorney General, Tax
Division”); Justice Manual § 6-4.120 (“[T]he Tax Division must first approve and authorize
the United States Attorney’s Office’s use of a grand jury to investigate criminal tax
violations”). As the Court is aware, to date, Russell has not been charged with tax-related or
money laundering offenses.

A third witness reported that (1) Nxivm/ESP kept two sets of books, and that
Russell was responsible for both organizations’ books prior to 2015 and (2) that Russell
played a role in obtaining visas for Nxivm/ESP members and some of the visa holders were
not paid in accordance with law. The witness did not indicate whether Russell was aware of
or responsible for the second set of Nxivm/ESP books or that Russell was not responsible for
the unlawful payments to the visa holders.

These statements are different in kind from the evidence in the cases described
above. The government had neither allegations from coconspirators, as in Babb and Three
Juveniles, nor inculplatory recordings, as in Peterson. The government was in possession of
statements that suggested Russell’s proximity to criminal activity, but not necessarily her
involvement in it. On May 10, 2018, the government simply did not know where Russell fit
in the investigation.

To the extent the government failed to properly inform Russell that she was a
“subject,” any such failure was inadvertent. The grand jury heard testimony from more than
17 witnesses in the course of the investigation and the government made a good faith effort
to comply with the Justice Manual throughout. The government did not “deliberately dupe”
(Br. at 2) or “[m]islead[]” (Br. at 5) Russell and there is no evidence to support Russell’s
assertions to the contrary. Indeed, the government offered to speak to Russell’s prior counsel
both before and after the grand jury testimony to discuss where she fit in the investigation,
but Russell’s counsel declined all attempts at engagement.

III. Whether Russell Was a Target or Subject is Immaterial

Ultimately, however, it is immaterial to the Court’s analysis whether Russell


was a target or a subject. As an initial matter, as the Court noted and Russell conceded in the
course of the status conference on April 8, 2019, the Justice Manual creates no enforceable
rights. See United States v. Piervinanzi, 23 F.3d 670, 682 (2d Cir. 1994) (“These guidelines,
however, provide no substantive rights to criminal defendants.”). Moreover, the Supreme
Court has expressly rejected the argument that the government must provide target warnings.
See United States v. Washington, 431 U.S. 181, 189 (1977). In so doing, the Court held that
it had not identified any

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constitutional disadvantage a failure to give potential defendant


warnings could possibly inflict on a grand jury witness, whether
or not he has received other warnings. . . . [W]itnesses who are
not grand jury targets are protected from compulsory self-
incrimination to the same extent as those who are. Because
target witness status neither enlarges nor diminishes the
constitutional protection against compelled self-incrimination,
potential-defendant warnings add nothing of value to protection
of Fifth Amendment rights.
Id.
Consequently, for Russell to establish prejudice, she must demonstrate not that
she was a “target” or a “subject” under DOJ policy, but rather that her Fifth Amendment
right against self-incrimination was violated. See United States v. Drake, 310 F. Supp. 3d
607, 620 (M.D.N.C. 2018) (“The terms ‘target’ and ‘subject’ carry no inherent constitutional
or statutory significance.”). In this context, “[t]he test is whether, considering the totality of
the circumstances, the free will of the witness was overborne.” Id. at 188; United States v.
Babb, 807 F.2d 272, 278 (1st Cir. 1986) (“Our task is not to evaluate the specific warnings
given; it is to determine “whether, considering the totality of the circumstances, the free will
of the witness was overborne.” (quoting Washington)).
In other words, if Russell’s will was not overborne, there has been no Fifth
Amendment violation, and the Court need not consider the question of prejudice and remedy
addressed in Bank of Nova Scotia v. United States, 487 U.S. 250, 256 (1988). This is clear
from the holding of Bank of Nova Scotia itself, in which the Court explained that the
question of prejudice arises only once it has been “established that the violation substantially
influenced the grand jury’s decision to indict,” or if there is “grave doubt” that the decision
to indict was free from the substantial influence of such violations.” Id. It is also clear from
cases like United States v. Gillespie, in which the Seventh Circuit applied Bank of Nova
Scotia and United States v. Williams, 504 U.S. 36 (1992), and held that “[a]fter Williams,
then, nothing short of a violation of laws or procedural rules regulating grand jury matters
will permit a court to exercise its supervisory authority in the grand jury arena.” 974 F.2d
796, 801 (7th Cir. 1992) (“The prosecutor’s failure to provide [the defendant] with target
warnings in contravention of the Department’s internal policy is not error of the nature that
calls for the exercise of our supervisory powers.”).
IV. Russell’s Fifth Amendment Right Was Not Violated
There can be no serious argument that Russell’s will was overborne such that
her Fifth Amendment right was violated in the course of her grand jury testimony.3 First, as

3
Russell asserts that the “government’s misrepresentations and misleading
conduct affected how Ms. Russell responded to the government’s questions.” (Br. at 1).
Even if true, this assertion is plainly insufficient to give rise to a Fifth Amendment violation
or to warrant a remedy. See, e.g., Colorado v. Spring, 479 U.S. 564, 574 (1987) (“The

5
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Russell acknowledges, she was represented by counsel before and during her grand jury
testimony. In addition, at the outset of her testimony, the prosecutor advised her as follows:
[a]s a witness before the grand jury, you have a right under the
Fifth Amendment to the United States Constitution to not say
anything that may incriminate you, in other words, anything that
could suggest that you were involved in a crime. So if I were to
ask a question where a truthful answer could incriminate you,
you may plead the Fifth Amendment and not answer the
question. Do you understand?
(Tr. at 8). Russell acknowledged that she understood her Fifth Amendment right and,
indeed, she had already asserted her Fifth Amendment privilege before the prosecutor
provided this advice. (Id. at 7). Russell asserted her Fifth Amendment right some 75 times
over the course of the proceeding.
It is plain under Washington and its progeny that this was fully adequate to
protect Russell’s constitutional rights before the grand jury. As the Supreme Court
explained, “it seems self-evident that one who is told he is free to refuse to answer questions
is in a curious posture to later complain that his answers were compelled.” 431 U.S. at 188.
Accordingly, when a prosecutor has advised the witness of her Fifth Amendment right
against self-incrimination, she has “received all the warnings required by the Constitution,”
and nothing more is required. See Babb, 807 F.2d at 278; United States v. Long, 977 F.2d
1264, 1276 (8th Cir. 1992) (“[Defendant] was advised of his rights once he appeared before
the grand jury, he affirmed before he testified that he understood those rights, and his
testimony therefore was not compelled or coerced.”); United States v. Russell, 916 F. Supp.
2d 305, 312 (E.D.N.Y. 2013) (“Nonetheless, the Court finds it unnecessary to determine
whether Defendant was a target at the time of his testimony because Defendant has offered
no basis for the court to exercise its supervisory powers.”). This is so even when a defendant
is not represented by counsel. See, e.g., United States v. Trinh, 638 F. Supp. 2d 143, 149 (D.
Mass. 2009) (finding that failure to advise uncounseled witness that she was a target did not
violate her Fifth Amendment right where she was properly advised of that right and the
subject matter of the grand jury proceeding); United States v. Smith, No. 01-348, 2002 WL
1059008, at *8 (E.D. La. May 24, 2002) (rejecting motion to dismiss indictment for failure to
advise uncounseled witness that she was a target, noting that “[v]olunteered statements of
any kind are not barred by the Fifth Amendment”).
Russell’s argument that her invocation of her Fifth Amendment right “standing
alone . . . raises a ‘grave doubt’ that the decision to indict was free” from improper influence

Constitution does not require that a criminal suspect know and understand every possible
consequence of a waiver of the Fifth Amendment privilege.”). “In this case there is no
allegation that [Russell] failed to understand the basic privilege guaranteed by the Fifth
Amendment,” id. at 575, and therefore no question that her statements to the grand jury were
the result of her free will.

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(Br. at 3) is incorrect. First, she correctly acknowledges that a curative instruction is


generally required when a witness invokes the Fifth Amendment. See Carter v. Kentucky,
450 U.S. 288, 303 (1981) (cited at Br. 4). The reason this is so, of course, is because jurors
are presumed to follow such instructions, which cures any potential constitutional issue. See
Richardson v. Marsh, 481 U.S. 200, 206 (1987) (noting “the almost invariable assumption of
the law that jurors follow their instructions”). It therefore makes little sense to assert, as
Russell does, that there is no instruction that could have cured Russell’s invocation. (Br. at
4). Indeed, that is untrue even in the trial context, in which the government is precluded
from inquiring of a defendant in a way that would result in invocation of the privilege. See
Doyle v. Ohio, 426 U.S. 610, 619 (1976) (“[T]the use for impeachment purposes of
petitioners’ silence, at the time of arrest and after receiving Miranda warnings, violated the
Due Process Clause of the Fourteenth Amendment.”); United States v. Pannell, 321 F. App’x
51, 54 (2d Cir. 2009) (noting in trial context that a “curative instruction . . . to disregard
questions and answers to which an objection has been sustained” alleviates any constitutional
violation). To conclude, as Russell urges the Court to do, that a properly instructed grand
jury would fail to abide by the instructions given would undermine a fundamental principle
of criminal law and would impermissibly invade the province of the grand jury.4 See
Williams, 504 U.S. at 49–50 (“Given the grand jury’s operational separateness from its
constituting court, it should come as no surprise that we have been reluctant to invoke the
judicial supervisory power as a basis for prescribing modes of grand jury procedure. Over
the years, we have received many requests to exercise supervision over the grand jury’s
evidence-taking process, but we have refused them all.”).
Moreover, the inference Russell identifies is not a cognizable injury in this
context. To the contrary, Russell asserts that she was prejudiced because, if properly
advised, she would have asserted the Fifth Amendment privilege in response to more of the
government’s questions. (Br. at 3). And, indeed, the cases upon which she relies confirm
that is the most she would have been entitled to do had the government informed her she was
a subject. See, e.g., Drake, 310 F. Supp. 3d at 635 (noting that if defendant had been
informed of her status, “counsel may very well have recommended invoking her Fifth
Amendment privilege”). Russell cannot argue both that she was entitled to invoke the
privilege in this way and that such invocation would have prejudiced her in the eyes of the
jury. That is tantamount to an assertion that she could not be called to testify before the
grand jury at all consistent with her constitutional rights; a proposition for which there is of
course no legal support.
Finally, the Supreme Court addressed this issue in Washington, in responding
to the defendant’s argument that “giving the oath in the presence of the grand jury
undermines assertion of the Fifth Amendment privilege by placing the witness in fear that the
grand jury will infer guilt from invocation of the privilege.” 431 U.S. at 191. The Court
concluded that “this argument entirely overlooks that the grand jury’s historic role is an

4
The government is prepared to provide to the Court for in camera inspection
the relevant grand jury instructions that were provided in this case.

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investigative body; it is not the final arbiter of guilt or innocence. Moreover, it is well settled
that invocation of the Fifth Amendment privilege in a grand jury proceeding is not
admissible in a criminal trial, where guilt or innocence is actually at stake.” Id.; Appeal of
Angiulo, 579 F.2d 104, 106–07 (1st Cir. 1978) (same). The Court’s analysis in Washington
and Russell’s own arguments make clear that invocation of the Fifth Amendment privilege
does not prejudice a defendant.
This points to a final flaw in Russell’s reliance on Bank of Nova Scotia. That
case holds that the question of remedy only arises where prosecutorial misconduct itself
“substantially influenced the grand jury.” 487 U.S. at 256. There must, in other words, be a
causal link between the allegedly improper conduct and the grand jury’s charging decision.
For example, the Court explained that Rule 6(e) violations would not provide such a link, but
an infringement on the “grand jury’s independence” would. See id. at 259-60.5 Further, the
rule in Bank of Nova Scotia is derived from Justice O’Connor’s concurrence in United States
v. Mechanik, in which she explained that the presence of an improper person in the grand
jury, in violation of Rule 6(d), which served to intimidate the jury or improperly influence an
important witness’s testimony, would warrant consideration under this standard. 475 U.S. 66,
78 (1986) (O’Connor, J., concurring) (cited in 487 U.S. at 256).
The allegedly improper conduct here – failure to provide a subject or target
letter – bears no causal relationship to the grand jury’s charging decision. Even assuming
that Russell alleges a cognizable injury in this context, she was counseled and properly
advised of her Fifth Amendment right, and her decision to invoke the privilege as to some
questions and to answer others was made freely. It is no doubt largely for this reason that
Russell “has not cited the Court to any cases in which a district or appellate court has
suppressed grand jury testimony based on the failure to give target warnings.” United States
v. Peterson, No. CRIM A 7:07CR34-HL, 2008 WL 4224813, at *7 (M.D. Ga. Sept. 5, 2008).
“To the contrary, the great weight of authority establishes that the failure to give target
warnings is not grounds for suppression.” Id. There is no legal authority – including Bank
of Nova Scotia – to support Russell’s assertion that the government bears responsibility for
her counseled and properly advised decisions before the grand jury.

5
The Court in Bank of Nova Scotia noted that certain alleged misconduct,
including “that the prosecutors manipulated the grand jury investigation to gather evidence
for use in civil audits; violated the secrecy provisions of Rule 6(e) by publicly identifying the
targets and the subject matter of the grand jury investigation; and imposed secrecy
obligations in violation of Rule 6(e) upon grand jury witnesses[,] . . . might be relevant to an
allegation of a purpose or intent to abuse the grand jury process,” but they “could not have
affected the charging decision” and they therefore did not warrant consideration. See 487
U.S. at 259. The Second Circuit reached a similar conclusion recently in United States v.
Walters, noting that the Rule 6(e) violations did “not raise a substantial and serious question
about the fundamental fairness of the process that resulted in [the defendant]’s indictment.”
910 F.3d 11, 26 (2d Cir. 2018).

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V. Conclusion

For the reasons stated above and in the government’s prior submission, the
government respectfully requests that (1) the Court deny Russell’s motion; and (2) assume
for purposes of resolving Russell’s motion that she was a target or subject at the time of her
grand jury testimony or, in the alternative, if the Court intends to make factual findings on
that issue, permit the government to supplement the factual record regarding Russell’s status
at the time of her grand jury testimony.

Respectfully submitted,

RICHARD P. DONOGHUE
United States Attorney

By: /s/
Moira Kim Penza
Tanya Hajjar
Mark J. Lesko
Kevin Trowel
Assistant U.S. Attorneys
(718) 254-7000

cc: Clerk of Court (NGG) (by ECF)


Counsel of Record (by ECF)