From United States v. Ferguson, 2011 U.S. App. LEXIS 15811 (2d Cir. Aug. 1, 2011):

Materiality is an element of most of the charged offenses. There must have been a "substantial likelihood" that the LPT-related misstatements would be important to a reasonable investor. See Basic Inc. v. Levinson, 485 U.S. 224, 231, 108 S. Ct. 978, 99 L. Ed. 2d 194 (1988). As evidence of materiality, the government introduced (inter alia) articles about the LPT's impropriety, which it connected to contemporaneously declining stock prices. Excluded as overly prejudicial was a line graph tracing AIG's stock price from February to March 2005 (as it declined by 12%). However, the court permitted the government to show a functionally identical chart to the jury during opening statements, and it admitted into evidence three bar-charts showing single-day stock prices for the days following each publication.

The charts were prejudicial because the LPT was one of several problems besetting AIG at that time. Unrelated allegations of bid-rigging, improper self-dealing, earnings manipulations, and more, had to be redacted from the articles about the LPT, to avoid prejudicing the defendants. The stock-price evidence presented the defendants with a dilemma: [i] allow the jury to attribute the full stock-price decline to the LPT, or [ii] introduce prejudicial evidence of the other besetting scandals, wrongdoing, and potentially illegal actions at AIG. The defendants sought to sidestep by stipulating to materiality, but the government refused. We conclude that the district court abused its discretion in admitting the three bar-charts and that the defendants' substantial rights were affected. Marcic v. Reinauer Transp. Cos., 397 F.3d 120, 124 (2d Cir. 2005).

The district court's rulings on the stock-price charts were inconsistent. The chart showing the full decline in stock price was excluded as overly prejudicial, but it was functionally identical to the chart shown during the government's opening argument. In any event, the court's solution, to allow only isolated ranges of stock-price data, did not mitigate the prejudice: Instead of a downward line, there were three dropping sets of dots; it is inevitable that jurors would connect them. So the risk that jurors would attribute the full 12% decline to the LPT was unabated by the court's precaution.

The government may of course reject a proposed stipulation in order to present a "coherent narrative" of its case. Old Chief v. United States, 519 U.S. 172, 191-92, 117 S. Ct. 644, 136 L. Ed. 2d 574 (1997). But the charged offenses here do not require a showing of loss causation ("a causal connection between the material misrepresentation and the loss"). Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 342, 125 S. Ct. 1627, 161 L. Ed. 2d 577 (2005). The stock-price evidence therefore fell "outside the natural sequence of what the defendant[s] [were] charged with thinking and doing." Old Chief, 519 U.S. at 191. Although the evidence was admitted only to show materiality, the government exploited it to emphasize the losses caused by the transaction. For example, the government reminded the jury during rebuttal summation that:

[B]ehind every share of [AIG] stock is a living and breathing person who plunked down his or her hard-earned money and bought a share of stock, maybe [to] put it in their retirement[] accounts, maybe to put it in their kids' college funds, or maybe to make a little extra money for the family.

***[T]he government used this evidence to humanize its prosecution, not to complete the narrative of its case.

If no offer to stipulate were forthcoming, the government could have relied upon the sufficiency of its other materiality evidence10 or offered expert testimony about the LPT's effect on the stock price. ***

Footnote 11. If expert testimony were used, the probative value of the evidence would be reinforced because confounding factors could be excluded. Cf., e.g., United States v. Schiff, 538 F. Supp. 2d 818, 836 (D.N.J. 2008) (deeming stock-price data irrelevant for materiality in the absence of expert testimony). The expert could, for example, estimate the extent of the 12% drop attributable to the LPT.

*** The government argues that we should not review these arguments at all because the defendants waived them; but where a defendant does not "intentional[ly] relinquish[] or abandon[]" a known right, but simply "fail[s] to make the timely assertion of [it]," the result is not waiver but forfeiture. United States v. Olano, 507 U.S. 725, 733, 113 S. Ct. 1770, 123 L. Ed. 2d 508 (1993) (internal quotation marks omitted). We review such forfeited arguments for plain error. If these arguments had been presented to the trial court, a factual record about Napier's potential perjury (and the extent of the government's awareness and diligence) could have been made. The district court requested substantive briefing and argument on the issue, but was not taken up. The defendants may have had their reasons for sidestepping the issue of Napier's possible perjury and the government's alleged responsibility for it; but "our review for plain error [is] more rigorous" where the failure to object was a "strategic decision" that "resulted in an incomplete record or inadequate findings." United States v. Brown, 352 F.3d 654, 665 (2d Cir. 2003).***

Ferguson challenges the admissibility of a December 2000 email from Graham, which assured Gen Re's General Counsel, Timothy McCaffrey, that:

[Ferguson] et al[.] have been advised of, and have accepted, the potential reputational risk that U.S. regulators (insurance and securities) may attack the transaction and our part in it.

Joint Appendix at 2192. The email was admitted as a co-conspirator statement under Rule 801(d)(2)(E). Ferguson argues that the email: (1) was inadmissible double-hearsay***.

Double-hearsay is a potential issue because the December email is written in the passive voice: Ferguson and others have been advised about the potential reputational risk by some unidentified person. Whether this statement constitutes double-hearsay is a legal issue, which we review de novo. See, e.g., Biegas v. Quickway Carriers, Inc., 573 F.3d 365, 378 (6th Cir. 2009) ("Whether a statement is hearsay is a question of law, which we review de novo."); United States v. Collicott, 92 F.3d 973, 978 (9th Cir. 1996) ("Whether the district court correctly construed the hearsay rule is a question of law reviewable de novo."). However, a district court's hearsay rulings based upon factual findings or the exercise of its discretion warrant additional deference.

Footnote 24. As Ferguson notes, statements admitted under Rule 801(d)(2)(E) are technically nonhearsay, rather than hearsay exceptions. Ferguson's argument is thus a first-order hearsay issue (which happens to be embedded in a nonhearsay co-conspirator statement). The distinction is irrelevant for present purposes. We therefore use "double-hearsay" for ease of reference and to conform to the framing of the arguments in the district court.

Footnote 25. See, e.g., United States v. Fell, 531 F.3d 197, 231 (2d Cir. 2008) (reviewing statement admitted as excited utterance under Rule 803(2) for abuse of discretion); United States v. Padilla, 203 F.3d 156, 161 (2d Cir. 2000) (reviewing district court's findings for admitting co-conspirator statements under Rule 801(d)(2)(E) for clear error).

The phrase "have been advised of" is used to convey the idea that they "know"; if the email said "Ferguson et al. know the potential reputational risk" there would be no double-hearsay issue.

Footnote 26. Such a formulation would raise a problem as to the speaker's competence to say what is in the mind of another person, however. It is unclear whether Graham knew that Ferguson had been informed or whether some degree of conjecture was involved. We have never explicitly held that co-conspirator statements admitted under Rule 801(d)(2)(E) need not satisfy Rule 602's personal knowledge requirements. The government argues that personal knowledge is not required, noting that several other Circuits have so held, see, e.g., United States v. Lindemann, 85 F.3d 1232, 1237-38 (7th Cir. 1996), and that we have rejected such a requirement for a similar provision (for admissions by a party's agents under Rule 801(d)(2)(D), see United States v. Lauersen, 348 F.3d 329, 340 (2d Cir. 2003), vacated and remanded on other grounds, 543 U.S. 1097, 125 S. Ct. 1109, 160 L. Ed. 2d 988 (2005)).

The potential personal knowledge issue was waived, however, because double-hearsay is what was argued and there was no ruling on personal knowledge in the first place. See Norton v. Sam's Club, 145 F.3d 114, 117 (2d Cir. 1998).

Without indicia of evasiveness, it is not necessary to look for the speaker behind every sentence written in the passive voice. It is unlikely that the email was carefully drafted for hearsay subterfuge, especially in view of the incautious discussion about AIG answering to God about its accounting practices. This is not an instance in which a sentence is carefully manipulated to smuggle hearsay evidence into pending litigation. See, e.g., Official Comm. of Unsecured Creditors v. Hendricks, No. 1:04-cv-066, 2008 U.S. Dist. LEXIS 116318, at *12 (S.D. Ohio Aug. 1, 2008) (striking passive-voice sentence in affidavit submitted with motion for summary judgment).

In any event, the unnamed speaker need not be identified to conclude that the statement is nonhearsay. First, the statement was not offered for its truth; it was offered solely for the purpose of showing that the statement was made to Ferguson. See, e.g., George v. Celotex Corp., 914 F.2d 26, 30 (2d Cir. 1990) ("[A]n out of court statement offered not for the truth of the matter asserted, but merely to show that the defendant was on notice of a danger, is not hearsay."). Second, no nonmember of the conspiracy could have given Ferguson the advice about potential reputational risk, because only co-conspirators would have been aware of the particular reputational risk that the conspiracy's object entailed (especially in view of Ferguson's order for an unusual level of internal secrecy about the deal). The statement, made in furtherance of the conspiracy, is thus also a nonhearsay co-conspirator statement under Rule 801(d)(2)(E).