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David Ganek says he lost his company after a raid by federal prosecutors that was based on a flawed search warrant affidavit. Last fall he lost a lawsuit, too, intended to hold federal officials accountable.
Case in Point

For Want of a Nail

How one false statement brought down a Wall Street company.

Here is a story of a criminal case, a white-collar investigation on Wall Street by high-profile federal prosecutors, where no one seems to dispute that government officials misled a court when asking for a search warrant. But the suspect, who says his business was forced to close as a result of that warrant, got no relief from the federal courts even though he ultimately was not charged with any crime. The lasting effect of David Ganek’s tangle with the courts is an invitation to cops and prosecutors: you can omit important information from warrants without fear of jeopardizing your cases.

As the case wended its way through the courts over the past few years, the feds responsible for the error don’t appear to have undertaken any meaningful investigation to find out why a dubious affidavit was submitted to a federal magistrate in the first place. At the heart of the controversy is Preet Bharara, then the U.S. Attorney for the Southern District of Manhattan, whose reign as the top federal prosecutor in New York was abruptly ended last year by President Trump.

David Ganek grew up in the world of high finance and after college went to work with Steven Cohen, whose company, SAC Capital, was just then starting its extraordinarily lucrative run. Decades later, in 2003, Ganek and a partner went out on their own and started Level Global Investors. The company immediately did well and Ganek lived a boldface, top-of-the-one-percent life, until the feds came calling.

On November 22, 2010, the FBI raided the offices of Level Global. The raid was based on allegations of insider trading and other federal crimes and it was authorized by a federal magistrate. The warrant in turn was based on a sworn affidavit signed by FBI agent Holly Trask. In that affidavit, Trask swore that Ganek was given inside information about Dell Inc. by a man named Sam Adondakis, who had served as a research analyst at Level Global until he was fired earlier in 2010 for violating what a reviewing court called Level Global’s “compliance protocols.”

Federal prosecutors and the FBI had come across Adondakis through wiretaps and a month before the raid they had confronted him in Central Park with their evidence. He quickly agreed to cooperate, admitted to his own insider trading, and implicated two of his former colleagues at Level Global, neither one of whom was Ganek. In fact, Ganek now alleges, Adondakis specifically told authorities three weeks before their raid of Level Global that he, Adondakis, had never told Ganek that he was trading on inside information.

But that’s not what Trask’s affidavit said. It said: “ADONDAKIS provided this Inside Information to DAVID GANEK… and GANEK… executed and caused others to execute certain securities transactions based, in part, on the Inside Information, and that ADONDAKIS informed GANEK…. of the sources of the Inside Information.” There were other references in Trask’s affidavit that Ganek now says falsely alleged that he had knowledge of inside information. The impact of those allegations is clear. By linking Adondakis and Ganek the feds were looking to go after the man at the top.

Armed with the affidavit, the FBI and federal prosecutors asked a judge for permission to search what a judge later described as “Ganek’s personal office, financial records, correspondence, photographs, address book, phone records, and cellphones.” The FBI and federal prosecutors got their warrant-- federal law enforcement officials almost always get their warrant-- and then tipped off reporters about the raid. The Wall Street Journal soon had photos of federal agents taking boxes out of the Level Global offices.

The raid and publicity that surrounded it were devastating to Level Global’s business even though no one had yet been indicted. The Justice Department heralded it as a sign of the Obama administration’s willingness to go after Wall Street. For the next three months, Ganek tried desperately to convince federal prosecutors that he was not guilty of insider trading. These efforts included direct appeals to the U.S. attorney himself. Ganek claims that Bharara told him that he understood the investigation might put Level Global out of business but that he would do nothing to save it.

On February 11, 2011 Level Global closed. That same day, Ganek says, federal prosecutors met with Adondakis for the first time since their memorable encounter in the park the previous November. Ganek says Adondakis again told the feds that he had never told Ganek he was trading on insider information. Nearly a year later, in January 2012, the Bharara and his line prosecutors filed charges against seven people implicated in the investigation, only one of whom was a Level Global employee, and it was not Ganek. Ganek was not mentioned in the indictment.

Two of the seven people charged by Bharara and company went to trial in November 2012 after the Trask affidavit finally had been unsealed. At that trial-- which resulted in convictions -- Adondakis testified under oath and again denied that he had told Ganek about any insider trading. At that trial, an FBI agent named David Makol testified: “I was certain that Mr. Adondakis was not saying that he specifically told Mr. Ganek that the information was coming from someone at Dell.” It was the first time, Ganek now says, that he came to realize the feds had used false information to justify the warrant that led to the raid that eventually destroyed his business.

Ganek got mad, and then tried to get even. He sued Bharara, Trask, and a handful of other FBI agents and federal prosecutors in the New York office. He sued under the Fourth Amendment, alleging that the feds had violated his constitutional rights against unreasonable searches because no probable cause existed to justify the search. And he sued under the Fifth Amendment, alleging that the feds violated his due process rights by depriving him of his property based on fabricated evidence.

The civil lawsuit, filed in 2015, challenged the “qualified immunity” given to police and prosecutors in all cases. And its purpose wasn’t just to gain a money judgment against the federal government, although Ganek hoped to recoup the value of his lost company. It also demanded that the government open itself to pretrial discovery that would shed light on how they justified the warrant. Even if Ganek were to lose at trial, it would be a victory of sorts if he forced the feds to explain themselves. He did not.

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The government moved to dismiss Ganek’s lawsuit. Even assuming the affidavit contained a false statement, they argued, they could not be held liable, and the case could not proceed to discovery, unless Ganek was able to show that the false statement was necessary to a finding of probable cause. They cited a legal doctrine known as the “corrected affidavit,” which, as its name suggests, excuses omissions or lies contained in sworn documents used to justify warrants.

In March 2016, a federal trial judge sided with Ganek and allowed the case to proceed to trial. The feds had violated Ganek’s Fourth Amendment rights, the judge ruled, because they had sought to search his personal property “even though the Government’s sole witness disclaimed that Ganek was aware of the sources of the Inside Information.” The judge also allowed one of Ganek’s Fifth Amendment claims to proceed toward trial. The feds, he ruled, arguably took Ganek’s property without due process when they included bad evidence in the Trask affidavit.

The civil ruling was a big loss for Bharara and his team, not just because it exposed him and his office to potential liability. It also highlighted the extent to which prosecutors had been deemed overzealous in their case against Level Global to begin with. By 2016, the 2nd U.S. Circuit Court of Appeals had reversed the results of the original trial, in which Anthony Chiasson, a co-founder of Level Global, had been convicted. Bharara had failed to present a viable case of insider trading at Level Global, the appellate court concluded.

So Ganek had his revenge. It lasted about 18 months. The feds appealed the 2016 ruling and last October a panel of the 2nd Circuit reversed the judgment in Ganek’s favor. Even if the affidavit contained a false statement by the FBI, the judges concluded, and even if federal prosecutors knew about that false statement, it would not have made a difference in the magistrate’s evaluation of probable cause because there were enough other allegations of insider trading at Level Global, any one of which would have justified a search of Ganek’s office.

Federal prosecutors had alleged that Ganek had acted on insider trading even if he wasn’t aware that it was insider trading, the judges added, and so the affidavit, even if flawed, supported a probable cause finding to search Ganek’s office. What the 2nd Circuit judges did not answer, however, was the question at the heart of Ganek’s complaint: the allegation that an FBI agent had lied in an affidavit, that the lie became known to high-ranking prosecutors when they could have done something about it, and that they didn’t do anything to fix it. By overturning the trial judge, the 2nd Circuit had precluded Ganek’s lawyers from deposing FBI agents and federal prosecutors, and from getting access to correspondence that might have shed light on what happened.

So Ganek in the end got no recourse through the courts. And today it is unclear whether federal officials ever undertook an investigation into what happened to cause them to submit a deceptive affidavit to a judge. Was it an honest mistake due to miscommunication? Was it a purposeful attempt to incriminate Ganek and thus expand the scope of the warrant? Was it a one-off event or did it represent what federal prosecutors in other contexts like to call a “pattern and practice” of misconduct? We don’t know. It’s not an uncommon lament. Ask the folks who defended Ted Stevens, then Alaska’s senior senator running for re-election, when the the prosecutors and the FBI were found to have concealed evidence in Stevens’ corruption case.

The Justice Department’s Office of Professional Responsibility would have been the likely venue for any investigation of official misconduct. The OPR, though, refused to respond to my questions about the case, or any similar investigations, referring me to the Justice Department’s public affairs folks, who promptly reiterated that it is federal policy “not to confirm or deny the existence or non-existence of an investigation.” A request for the information under the Freedom of Information Act was promptly denied.

But the public record tells us a little about some of the law enforcement defendants in the Ganek case. One, FBI agent David Makol, was a defendant in a lawsuit the FBI ultimately settled amid allegations the feds improperly eavesdropped on private, intimate conversations between a white-collar defendant and his wife. Another FBI agent, David Chaves, also named in the Ganek complaint, was subsequently implicated in a “leaks” scandal that now reportedly is under investigation by the Justice Department. Matt Komar, another Ganek defendant, was embroiled in another FBI search that ultimately was nullified, by a federal judge in New York.

None of the federal actors from that era is saying anything. Bharara, now enjoying a private career as a legal analyst and commentator, did not respond to a request for comment. I also reached out to two other federal prosecutors involved in the case, both of whom now are at big law firms, but neither responded to my queries. Michael German, a former FBI agent now at the Brennan Center, says that in his experience about the only time federal agents or officials get in trouble for relying on misleading affidavits is when a judge notices it and demands an investigation.

Ganek told me he understood before he went to court the concept of legal immunity, but he was surprised that a federal appeals courts would apply it in an instance where law enforcement officials were accused of lying about key components of the legal process itself. “The most frustrating thing,” he said, “is the lack of accountability and how the system just covers up for its own lies and malfeasance.”