Charges dropped, damage still done
Federal prosecution said to upend lives
For three years, businessman John Stacks was trapped in a legal battle with federal prosecutors, who accused him of fraud and money laundering related to a disaster-assistance loan he received after a 2008 tornado.
Defense bills piled up — amounting to $700,000, he said — and he was forced to shutter his business.
Stacks was to face a retrial in the case today in the Eastern District of Arkansas. But in late July, the government dropped the charges, leaving Stacks wondering whether prosecutors had a case to begin with.
Such case dismissals are not uncommon for prosecutors, who face limited resources and heavy caseloads, experts said.
“I don’t think justice is served when things drag on,” said Bud Cummins, a former U.S. attorney for the Eastern District. “Sometimes it’s just time to shut [a case] down, and there’s any number of reasons why that’s the right decision at any given time.”
But to the defendants of such indictments, who often get stuck with big legal bills and damaged careers or reputations, the decision to drop a case can appear dubious.
After prosecutors dropped the charges against him, Stacks said in a statement that his prosecution was “wrongful” and that he faced “unreasonable charges” that “highlight the unjust system which has allowed some federal prosecutors like these to veer off course.” He filed a complaint against the prosecutors with the state’s Office of Professional Conduct.
Prosecutors said the case against him was not wrongful, and that reasons for dropping cases can be multifold and circumstantial.
“We had a compilation of things where we thought it was best to just move on,” First Assistant U.S. Prosecuting Attorney Pat Harris said of the Stacks case.
Records from the Office of Professional Responsibility — the U.S. Justice Department’s internal ethics watchdog — show that prosecutorial misconduct does occur at times, though rarely.
Of the thousands of com-
plaints the office has received over the years, only a fraction led to full investigations. According to federal records, the office completed 586 investigations into federal attorneys nationwide between 2006 and 2015 and discovered 160 cases of misconduct — 78 percent of which were characterized as “intentional or reckless.”
The office does not provide misconduct records by state or district, and the Eastern District of Arkansas doesn’t release any of its own data on misconduct to the public, a spokesman said.
Cummins said there have been instances of government prosecutors in Arkansas “fishing around” for evidence in cases that may not merit prosecution, but he refrained from naming any cases specifically.
“I do see that happen, not just in this district, but it happens across the country quite often, and I think it’s really wrong,” Cummins said.
Arkansas’ Office of Professional Conduct receives complaints filed against federal attorneys, in addition to state-licensed public and private attorneys. In the 15 years Stark Ligon has been the head of the watchdog office, there have been a “very limited” number of sanctions against federal prosecutors in the state, he said. His office does not tally such sanctions.
In response to the complaint Stacks filed, Ligon’s office will conduct a probe into the handling of his case within the next several months, Ligon said.
VAUGHN KNIGHT
No matter the outcome of such complaints, some effects of federal indictments can be irreversible, experts and former defendants said.
“Once the federal government begins an investigation,
that usually means you’re spending money with lawyers,” Cummins said. “And it’s usually not a secret for very long, so there’s a cloud over your reputation that may impact your business or your professional reputation.”
For 2½ years such a cloud hung over attorney Vaughn Knight. In 2013, prosecutors in the Western District of Arkansas filed eight charges of bankruptcy fraud and money laundering against Knight in a case related to the financial meltdown of high-profile Northwest Arkansas real estate developer Brandon Barber.
Knight served as bankruptcy attorney for Barber, who was sentenced in 2014 to more than five years in prison in a fraudulent financing scheme. But Knight didn’t realize, he said, that he was also facing prosecutors’ scrutiny. Less than two months after a grand jury indicted his client in January 2013, Knight was named in a second indictment accusing him of concealing assets from Barber’s creditors in 2008.
A jury handed down a conviction that was later thrown out by the presiding judge. In an appeal to the 8th U.S. Circuit Court of Appeals, appellate judges agreed that the government’s evidence “largely invited only speculation and conjecture,” according to the court’s opinion.
The case was remanded to the circuit court for a new trial. Prosecutors later dropped the case and withdrew the charges.
By then, the damage had been done, Knight said. He had spent $300,000 in legal fees, and his Fayetteville-based real estate law firm had lost 90 percent of its business, he said.
“It’s a big uphill battle when the federal government says you did something wrong,” Knight said. “I had no idea that as soon as I’m indicted, I have to get rid of all my guns [and] I can’t travel anywhere outside the Western District without getting permission.
“When the government says that you’re guilty, you lose all kinds of privileges way before your trial,” he said.
His wife, who worked as a financial adviser, also saw a decline in business, he said, and the damage to his reputation followed his four kids to school.
“It affected our whole family, and we’ve all been through lots of therapy,” he said.
GARY DUNCAN
In Conway, in the back office of the tractor and motorcycle dealership Duncan Outdoors, Gary Duncan was on the phone wishing his daughter a happy birthday when IRS agents raided the building in 2012.
Unbeknownst to him, the IRS had been investigating whether Duncan and his wife, Patrice, were taking part in fraudulent structuring, or the practice of parceling large cash deposits into smaller amounts to avoid federal reporting requirements.
During their investigation, agents obtained the store’s financial records through a state audit and identified several cash deposits they deemed to be structured.
The agency then sent an undercover agent to purchase a motorcycle with cash. Wearing a wire, the agent visited the store on two occasions, asking Patrice Duncan to make the transaction under the table. On the agent’s second attempt, she was recorded agreeing to break up his cash payment into two smaller amounts.
“He was trying to get us to do the transaction without a bill of sale. He said he wanted to pay in cash without a record of transaction,” Patrice Duncan recalled. “At the time, I thought he was just kind of a weird guy.”
Eight months after the raid, prosecutors indicted the Duncans on 21 federal structuring charges. In 2014, a month before their trial date, Harris ofsuit. a plea deal: Prosecution would drop all charges against her husband if Patrice Duncan pleaded guilty to the single structuring charge evidenced by the recording.
“I’m a convicted felon now. I can’t vote, I can’t buy firearms,” Patrice Duncan said recently, still in near disbelief of the fact.
Despite the fact that the charges against him were dropped, Gary Duncan said the ordeal still hurt him, as well.
“Everybody assumes that you’re guilty. They don’t assume that you’re innocent,” Gary Duncan said. “They started treating us as if we were convicted right after the indictment. They take everything: my concealed carry permit, my passport.”
And on the day of the raid, agents seized $94,500 from Duncan’s bank account that they said was tied to the purported crimes, and the Duncans have little hope of ever seeing that money returned.
“I look at it like we got robbed,” Gary Duncan said.
STACKS’ CASE
For Stacks, it was a tornado that incited his legal woes. In 2008, a line of springtime tornadoes ripped through his central Arkansas water-bottling operation, Mountain Pure LLC, and left machinery and equipment in shambles, Stacks said.
He applied for a disaster assistance loan from the U.S. Small Business Administration and received $526,100.
In 2012, an investigation into the loan led to what Stacks called a “SWAT-style” raid on the business, and prosecutors accused the businessman of knowingly participating “in a scheme to defraud the government” and “engage in money laundering of the fraud proceeds,” according to the administration’s search warrant
on the Damascus property.
Investigators accused Stacks of knowingly misleading the agency about what equipment was on his property at the time of the tornado and misrepresenting his financial condition in his loan application. A jury found him guilty in 2014 on three counts of wire fraud, three counts of making false statements to a government agency, and one count of submitting a false or fraudulent claim.
But the circumstances surrounding the conviction troubled U.S. District Judge Leon Holmes, who presided over Stacks’ trial. Holmes was not satisfied that the evidence prosecutors brought against Stacks was conclusive enough to support the jury’s conviction.
In a lengthy opinion, Holmes wrote that “the evidence was insufficient to … find that the government had met its burden of proof.” The judge acquitted Stacks on two of his charges and granted a retrial for the remaining five — a decision that, on appeal, was supported by the 8th Circuit in May.
Then in a July 18 email to Stacks’ attorney, six weeks before Stacks’ trial date, Harris extended an olive branch:
“We have developed some new evidence that may or may not help us if we have a retrial, but before we get all geared up, I’d like to see if we can resolve this by us dismissing the criminal case and Mr. Stacks waiving his right to seek attorneys’ fees under the Hyde Act,” Harris wrote, referring to the federal statute that allows defendants to recoup attorney fees if they can prove a case was frivolous or in bad faith.
“We do not believe he has a claim,” Harris continued, “but if we are going to dismiss the case, we want to end the litigation once and for all.”
Stacks signed the agreement with reluctance, he said, because he no longer had the income to carry out a counterThe
The financial burden of the case forced Stacks to shutter and sell Mountain Pure at an “extremely depressed salvaged price,” he said. The 80 to 90 people the plant had employed were laid off.
In addition to the financial strain of the case, it was “just silly to take a chance” on a new trial, said Tim Dudley, Stacks’ defense attorney.
Even after the charges were dropped, Stacks — like Knight and the Duncans — said the damage to his reputation and his family continues.
“When they hear things like this from other people — about their dad going to jail, that their dad’s been charged with money laundering — it makes a huge impact,” Stacks said. “My son was only 9 years old when people started telling him about it, and that does damage that I’m not sure you could ever repair.”
Stacks, Knight and the Duncans said they see their cases as the result of overzealous and aggressive prosecution verging on ethical misconduct.
Knight’s defense attorney, David Matthews, said the charges filed against his client were based on unfounded evidence that misled prosecutors into a meritless case.
“After the Knight case, I concluded that it’s more important than I knew that the decisions to prosecute people need to be made based upon hard facts and not speculation,” Matthews said. “People ought to be given a chance to explain themselves before they get indicted, charged and have their life ruined.”
For Gary Duncan, the experience was a revelation.
“I didn’t really spend much time thinking about it before, because I thought the system was probably just — that we had a good, fair system,” he said. “It’s not until you have to deal with it that you realize how unfair it is.”
“Fortunately for us and John Stacks, we had enough money to hire counsel,” Duncan said. “We had an opportunity to try and prove our innocence. What about the guy that doesn’t have those resources?”
“It’s a big uphill battle when the federal government says you did something wrong.” — Vaughn Knight