United States v. Calk

UNITED STATES OF AMERICA, v. STEPHEN M. CALK, Defendant.

19 Cr. 366 (LGS)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

July 1, 2020

OPINION AND ORDER

LORNA G. SCHOFIELD, District Judge:

Defendant Stephen M. Calk seeks an order (1) suppressing all evidence recovered from Defendant's iPhone pursuant to a search warrant or, alternatively, a hearing pursuant to Franks v. Delaware, 438 U.S. 154 (1978); (2) compelling the Government to provide the defense with a transcript of the grand jury proceedings leading to Defendant's indictment; and (3) compelling the Government to produce its correspondence with the Office of the Comptroller of the Currency (the "OCC") and the Presidential Transition Team. For the reasons below, the motions are denied.

I. MOTION TO SUPPRESS

A. Relevant Background

1. Warrant and Supporting Affidavit

On June 26, 2017, Magistrate Judge Mary Rowland of the Northern District of Illinois signed a warrant authorizing the search of Defendant's Apple iPhone.

In applying for the warrant, Special Agent Carrie Fisher ("Fisher") submitted a thirty-seven page sworn affidavit (the "Affidavit") alleging that there was probable cause to believe the iPhone

contains evidence, fruits and instrumentalities of (a) the making of false entries in the books and reports of a bank in violation of 18 U.S.C. § 1005 and conspiracy to commit that offense in violation of 18 U.S.C. § 371; (b) fraud in connection with the extension of credit in violation of 18 U.S.C. § 1014 and conspiracy to commit that offense in violation of 18 U.S.C. § 371; (c) wire fraud, bank fraud, honest services fraud, and conspiracy to commit these offenses in violation of 18 U.S.C. §§ 1343, 1344, 1346, and 1349; and (d) money laundering and money laundering conspiracy in violation of 18 U.S.C. §§ 1956 and 1957 (the "Subject Offenses").

During the relevant time frame, Defendant was chairman and CEO of the Federal Savings Bank (the "Bank"), and CEO, chairman and majority owner of National Bancorp Holdings, Inc. (the "Holding Company"), which owns the Bank in its entirety. Paul J. Manafort ("Manafort") was chairman of the Donald J. Trump presidential campaign (the "Trump Campaign"). In the section of the Affidavit relating to probable cause, Fisher asserts that there is probable cause to believe that these crimes were committed as follows:

"there is probable cause to believe that [Defendant] and Manafort conspired to defraud [the Bank] out of its intangible right to [Defendant's] honest services by having [Defendant] take action to process and approve the [favorable] loans to Manafort in exchange for a personal benefit; that [Defendant] and Manafort withheld material information about the loans from [the Bank's] loan committee and board of directors as well as the books and records of the bank . . . and that [Defendant] committed a scheme to defraud another bank that was considering underwriting one of the [Bank] loans, BofI Federal Bank [(the "Wholesale Lender")], by concealing from [the Wholesale Lender] material information regarding Manafort's creditworthiness."

The Affidavit makes the following assertions relevant to this motion:

In February 2016, a Manafort-affiliated entity that owned a townhouse in Brooklyn (the "Brooklyn Property") received loans from Genesis Capital Master Fund II, LLC, ("Genesis Capital Master Fund"), an entity affiliated with Genesis Capital, totaling approximately $5.3 million (the "Genesis Brooklyn Property Loan"). Manafort personally guaranteed these loans. At the same time, Genesis Capital also provided a different Manafort-affiliated entity approximately $3.7 million in a refinance and construction loan (the "Genesis California Property Loan") secured by a property in California (the "California Property"). By spring 2016, these loans were in default. On September 20, 2016, Genesis Capital Master Fund filed anaction in New York Supreme Court, Kings County seeking foreclosure on the Genesis Brooklyn Property Loan (the "Foreclosure Action"). Manafort attempted to obtain a $10 million line of credit from Banc of California prior to his introduction to the Bank Loan Officer, but was ultimately offered only a $1 million line of credit because he was deemed too high of a risk.

In late July 2016, Manafort met with Dennis Raico (the "Loan Officer") and Defendant in Manhattan to discuss a proposed loan from the Bank to refinance the Genesis California Property Loan (the "First Manafort Loan"). Defendant and the other members of the Loan Committee approved the terms of the loan the next day, leading to an email from the Loan Officer noting "I'm sure [Manafort and his son-in-law] will be highly impressed to receive within 24 hours of our meeting." In early August, following correspondence between Manafort, the Loan Officer and Defendant in which Manafort requested Defendant's resume, the Trump Campaign announced the creation of the Trump Economic Advisory Council. Defendant was named as one of its 13 members. The former Chief Risk Officer and Chief Credit Officer of Genesis Capital told the FBI that Manafort's son-in-law told him that the Bank had agreed to refinance the Genesis loan because "Manafort promised Calk a position on the Trump Economic Advisory Council."

In August and September 2016, Bank employees determined that the Genesis California Property Loan was in default, Manafort was in significant debt and the appraised value of Manafort's assets was lower than expected. In October 2016, the First Manafort Loan was adjusted from $8.2 million up to $9.2 million following an "Emergency Portfolio Committee meeting" in which Defendant "pulled in the private board." The Affidavit details several emails exchanged between Defendant and Manafort during this time regarding the Presidential Campaign and Defendant's access thereto. It also details statements made by Anna Ivakhnik, aBank employee during this period who was later terminated, asserting that it was unusual that the Bank was willing to issue the First Manafort Loan in light of the default and Manafort's financial circumstances, and that she believed that the loan would be approved "no matter what" because the Loan Officer had told her that he had heard from Defendant that he wanted to be appointed Secretary of Veterans Affairs.

Shortly before the closing date for the First Manafort Loan, Bank emails reflect that Manafort contacted the Bank to request that the loan be restructured again to, among other things, increase the loan amount from $9.2 million to $9.5 million and remove the California Property as collateral. Subsequently, the Bank decided not to pursue the First Manafort Loan as a "portfolio" loan for which the Bank would assume the risk, and instead proposed the loan to the Wholesale Lender for underwriting. In early October, Manafort also sought a second loan (the "Second Manafort Loan") from the Bank to refinance the Genesis Brooklyn Property Loan, which at that time was subject to the Foreclosure Action.

President Trump was elected on November 8, 2016. The Affidavit details several communications between Defendant and Manafort via emails, texts and telephone calls throughout November and early December regarding Defendant's interest in and potential candidacy for roles in President Trump's administration, including the Secretary of the Army. At the same time, the First Manafort Loan closed, despite the Wholesale Lender approving underwriting the loan up to $7 million only (not the full $9.5 million), because "[Defendant] stepped in and [the Bank] ended up closing [the First Manafort Loan] in Portfolio on 11/16/16." The final Bank credit approval memorandum did not mention the California Property default or the Foreclosure Action, and assigned the loan a risk factor of 4 (average).

During the month of December, Defendant, Bank employees, Manafort and Manafort'scounsel continued to correspond regarding the proposed Second Manafort Loan. The Brooklyn Property was scheduled to go to auction in late December due to the Foreclosure Action. Defendant communicated to Manafort that "it looks like we will be forced to take additional cash collateral for [the Second Manafort Loan] due to our legal maximum loan amount to any one individual or entity." Bank employee emails show that they were attempting to close the loan as quickly as possible, but could not do so until they "[got] the larger one [(i.e. the First Manafort Loan)] off [their] books" by selling it to the Wholesale Lender, and that "[Defendant was] all over [the Loan Officer] regarding these appraisals." At the same time, Defendant and Manafort were communicating regarding Defendant's invitation to the inauguration and Defendant's candidacy for Secretary for the Army. In late December, Defendant emailed General James Mattis, who had been announced as President Trump's prospective nominee as Secretary of Defense, stating "I believe that Steve Bannon will be speaking to you again about me today."

In early January, the Holding Company (owned 67% by Defendant, and 29% by Defendant's brother) purchased the First Manafort Loan.¹ Days later, Defendant was informed via email that he was scheduled for an interview at Trump Tower on January 10, 2017. On January 12, 2017, Defendant emailed General Mattis's assistant asking to set up a meeting "at the request of the Tiger Team that I interviewed with in New York at Trump Tower this week." On January 17, 2017, the Second Manafort Loan funded, paying $6.5 million to the benefit of Manafort and his wife. The final Bank credit approval memorandum did not mention the California Property default or the Foreclosure Action against Manafort, and assigned the Second Manafort Loan a risk factor of 4 (average).

The Affidavit further asserts that there is probable cause justifying the search of Defendant's iPhone because Defendant "engaged in multiple communications in which he referenced the use of the cellular phone . . . to engage in communications relevant to the...