Cracks in a prosecution far from home

By Lloyd Green

The fraud and money-laundering trial of Jean Boustani, a Lebanese boat salesman, is in its third week at the federal courthouse in Brooklyn, New York. At stake there is the degree to which the U.S. government can impose American laws on foreign jurisdictions. Unfortunately for the prosecutors, the credibility of Andrew Pearse, a former banker who has pleaded guilty in a related case and the government’s star witness, took a hiton cross-examination. At the same time, the reach of U.S. securities laws is again being considered by the U.S. Supreme Court.

In its opening statement, the government told the jury in Brooklyn that Boustani, who is employed by a global shipbuilding company called Privinvest, had engaged in a series of misdeeds in connection with loans totaling nearly $2 billion made by two European-based investment banks to entities in Mozambique.

Counsel for the defense countered that “the United States is not the world’s policeman,” and stressed that his client’s alleged actions all occurred overseas. This echoes expressed Supreme Court sentiment and the words of the president. And in fact, none of Boustani’s communications in question were directed to or from the U.S.

Yet after seven days on the witness stand, it was Pearse whose credibility may have suffered. Pearse, a New Zealand native, had already pleaded guilty to accepting kickbacks.

During his testimony, he admitted to having an affair with Detelina Subeva, a junior banker who worked with him. Like Pearse, Subeva has entered a guilty plea, but has not yet testified. A Bulgarian resident, Subeva, along with a second person, is a purported beneficiary of Pearse’s windfall.

Contradictions appeared to have pocked Pearse’s testimony on matters such as loan terms and closing requirements. Questions also arose as to whether Pearse had withheld information and assets from the government. For a witness that is a bad place to be, and for prosecutors, the situation is problematic.

It is the prosecution’s burden in the U.S. to prove its case beyond a reasonable doubt. Pearse’s helpfulness on that score was put into doubt. By contrast, a defendant is not obligated to testify in his own defense.

Pearse was asked by defense counsel whether he had sought to hide his assets by transferring $267,000 to his wife after his arrest earlier this year. He responded only, “That, I don’t recall.”

Another time, Pearse conflated the sincerity of his “belief” with the truth. Pearse was confronted with a corporate organization chart that undermined his prior testimony about Boustani’s involvement in the alleged scheme. The document in question made no reference to Boustani. Pearse was asked, “And that was all false testimony, wasn’t it?” He responded, “It was the best of my understanding and belief.”

Under oath, Pearse also admitted to having lied to a bank regarding a transfer of funds, having falsely characterized them as a repayment of loan even though it was not. “That was a lie?” the defense counsel asked. “It was an untruth, yes” answered Pearse.

Among the case’s flashpoints is a securities’ offering circular emblazoned with the text: “The notes may not be offered or sold within the United States.” Indeed, the securities at the center of the prosecution were only traded outside the U.S. through foreign clearance systems.

The extraterritorial application of U.S. securities laws stands to play an outsized role in the possible disposition of the case. On Friday, the Supreme Court is slated to decide whether to hear arguments on the extraterritorial reach of America’s securities laws, which will almost certainly impact the case in Brooklyn. Court observers have already linked Scoville v. SEC, the case before the high court, to Boustani’s.

The trial is expected to last another three weeks. The prosecution has its work cut out.

An attorney in New York, Lloyd Green was opposition research counsel to George HW Bush’s 1988 campaign and served in the Department of Justice from 1990 to 1992.