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B.C. Securities Commission (C-*BCSC) - Street Wire
BCSC-known promoter Purdy loses Charter application
B.C. Securities Commission *BCSC
Monday September 8 2003 Street Wire
by Brent Mudry
In a bid unprecedented in Canadian courts, Vancouver penny stock promoter John (Jack) Purdy has lost an application to get a Vancouver judge's declaration that his Canadian rights were violated when an RCMP officer taped a dozen cross-border calls with him while on U.S. soil. Had he succeeded, Mr. Purdy's lawyers hoped a Miami judge would accept this evidence at his upcoming second Bermuda Short money laundering trial as part of his "outrageous government misconduct" defence and several other defences.
Mr. Purdy's Vancouver defence team, consisting of David Martin, Richard Peck and Kimberly Eldred argued the application Tuesday, Sept. 2, and Wednesday, Sept. 3, in a chambers hearing in the Supreme Court of British Columbia before Mr. Justice William Grist, opposed by Canadian Department of Justice lawyers Hans Van Iperen and Jeffrey G. Johnston. Judge Grist delivered his ruling Monday, Sept. 8.
The timing was tight. On Tuesday, Sept. 2, the same day Mr. Purdy's Canadian lawyers appeared in court in Vancouver, the U.S. trial judge, Judge Michael Moore of United States District Court for the Southern District of Florida, granted a one-month trial delay in Miami. Judge Moore rescheduled Mr. Purdy's trial from Sept. 15 to Oct. 16. The Miami judge also ordered lead Miami defence counsel Neal Sonnett to file all defence pretrial motions by Wednesday, Sept. 10, which is just two days after the Canadian court decision.
Mr. Purdy was the initial key target in the money laundering arm of Operation Bermuda Short, a joint FBI-RCMP undercover sting aimed at American and Canadian penny stock promoters, brokers and executives. Mr. Purdy, the only individual named in two separate grand jury indictments, was acquitted after his first 10-day trial in February. He remains presumed innocent unless proven guilty beyond reasonable doubt by a jury at his upcoming second trial.
THE VANCOUVER APPLICATION
Mr. Purdy's precedent-setting application was detailed in a court-filed 12-page outline, prepared for Mr. Martin and Mr. Peck by Ms. Eldred, Mr. Martin's junior, and dated Aug. 14.
The application sought a court declaration that Mr. Purdy's rights were violated under Section 8 of the Canadian Charter of Rights and Freedoms, which protects Canadians from unlawful search and seizure by government agents. Mr. Purdy's defence team claims the RCMP breached his rights when they repeatedly made electronic intercepts of phone calls with him, without a Part 6 judicial wiretap authorization under the Criminal Code of Canada.
On a secondary point, the application sought a supplemental court order of disclosure of further RCMP records relating to the electronic intercepts, including any documentation regarding any decision not to apply for any such authorization.
The outline asserted that in March, 1999, RCMP officer Bill Majcher, a Vancouver-based Integrated Proceeds of Crime unit, or IPOC, agent recently promoted from corporal to inspector, first made contact with Mr. Purdy as part of an undercover RCMP investigation called Project E-POS, a money laundering sting. The outline asserted that the RCMP suggested May 3, 2000, to develop the Purdy investigation with foreign jurisdictions, and the FBI in Miami subsequently opened a sub-file on the Vancouver promoter on June 30, 2000.
The defence filing further asserted that in February, 2001, members of the RCMP met in Vancouver with the Miami FBI and the U.S. Attorney's Office for the Southern District of Florida and agreed to target Mr. Purdy in securities fraud and money laundering investigations. Special Agent Ricardo Pagan of the Miami FBI field office was assigned as the FBI's undercover operative.
According to the outline, the RCMP suggested in a May 17, 2001, internal memo to its headquarters in Ottawa that it believed there was a better prospect of convicting Mr. Purdy if he were charged and tried in the U.S. Six days later, on May 23, 2001, FBI Special Agent Pagan was briefed by the Miami FBI and the RCMP on the undercover operation. The outline noted that RCMP Insp. Majcher played a "leading role" in the Bermuda Short investigation and was the principal undercover contact with Mr. Purdy until his arrest in August, 2002.
Starting in October, 2001, the Vancouver RCMP undercover officer taped phone calls he had with Mr. Purdy, using a Canadian cellular phone with Montreal's 514 area code. According to U.S. pretrial disclosure, the Canadian officer taped at least 13 such calls with Mr. Purdy, seven of which while the officer was in the border town of Blaine, Wash. The calls were made to Vancouver's 604 area code, with Mr. Purdy reportedly on Canadian soil.
Under American law, the Canadian officer, on U.S. soil, was required to follow an FBI one-party consent authorization, which was done, but no judicial authorization was required. Canadian government agents need a Canadian judge's wiretap authorization for any such recordings made on Canadian soil.
Mr. Purdy's Canadian lawyers claimed that even though the Canadian officer was on U.S. soil, in this case he must be fully bound by Canada's Charter to protect Mr. Purdy's Canadian rights. Such an extraterritorial application of Canada's Charter on foreign soil would be unprecedented in Canadian legal history.
THE AFFIDAVIT MATERIAL
The defence outline summarized supporting materials from two defence affidavits filed concurrently in court, mainly one sworn by Mariah Creed, Mr. Martin's legal assistant. An affidavit of Miami counsel Neal Sonnett was included.
During the two-day Vancouver hearing, Judge Grist reviewed all these filed materials, hearing and responding to various arguments and submissions of counsel. It should be noted that while Mr. Purdy won disclosure of various RCMP materials in an earlier precedent-setting ruling, the documents are primarily internal police reports and papers. None of the allegations made in these internal reports have ever been proven in court, and Mr. Purdy has had no opportunity in court to refute, challenge or otherwise answer any police allegations.
The first exhibit was the first and last page of a 34-page internal RCMP investigation report dated May 3, 2000, and entitled "Projects EPOS and EHOY CHAMBERS, PURDY et al." The only paragraph in this excerpt relates to the "Development of further UCO (undercover) strategies concerning PURDY."
"It was determined by investigators that while a window of engagement concerning UC approaches to PURDY remains open in the medium term, both the dollar values mentioned by PURDY and the high level criminal background of the individual suggest that greater credibility needs to be established by HQ857 prior to any further approaches. The investigators are currently developing further strategies with respect to plausible scenarios, and may develop such strategies in co-operation with foreign jurisdictions," states the memo. (HQ857 is the code identity for Insp. Majcher, who used the alias Bill McDonald in Bermuda Short.) The document is signed by high-ranking Vancouver IPOC officials Staff Sergeant Rudy Zanette and Insp. Keith Thorn, Detective Brad Desmarais, the lead investigator on Project EPOS, and an IPOC proceeds of crime consultant.
The second exhibit was a May 17, 2001, memorandum from the RCMP's Vancouver-based "E" Division to headquarters in Ottawa, outlining and seeking approval for the Project EPOS undercover operation. Significant portions of this document were redacted, or censored, by being blacked out or whited out prior to disclosure.
The three pages filed in court primarily related to Mr. Purdy, with identities of any other investigation individuals removed.
"That this major Undercover Operation will target John Kenneth (Jack) PURDY (B:50-08-15)... (and another party redacted) who are both suspected of being involved in significant securities violations involving the public stock markets in both Canada and the United States. PURDY is the primary target of this proposal being initiated by the 'E' Division Integrated Proceeds of Crime Unit in support of an ongoing US Federal Bureau of Investigation (FBI Miami) operation code named 'BERMUDA SHORT,'" states the first main paragraph.
"That PURDY is a Vancouver businessman and stock promoter with an extensive documented history of involvement in organized criminal activities, including stock manipulation, narcotics trafficking and smuggling of contraband. PURDY has historical connection to organized crime groups such as the Hell's Angels OMG (outlaw motorcycle gang.) Although PURDY has been the target of numerous criminal investigations since the early 1980's he has never been convicted of a criminal offence," states the next paragraph.
As noted earlier, none of these allegations have been ever been proven in court. Mr. Purdy's defence counsel only received these RCMP documents in recent weeks and months, and he had no chance to refute the allegations.
While no corroborating evidence was filed in court, another filed RCMP document, dated May 23, 2001, offered a brief comment on the force's linkage of Mr. Purdy with narcotics importations and the Hells Angels. "This linkage has been verified through reliable police intelligence sources and spans the past 20 years," stated this document, signed by RCMP Insp. Thorn and Frank Figliuzzi, Assistant Special Agent in Charge of FBI's Miami Field Division. None of these sources were identified in the Purdy documents filed in court.
After outlining this material on Mr. Purdy, the document then gave a brief summary of the RCMP investigators' operational meetings in Miami with FBI Supervisory Special Agent Ross Gaffney, a lead Miami-based Bermuda Short officer and plans for the undercover operation. In February, 2001, Special Agent Gaffney and Assistant United States Attorney Paul Pelletier also met with RCMP officials in Vancouver. "GAFFNEY and PELLETIER reconfirmed that the prior illegal activities of both PURDY (and another party redacted) made them viable targets for the FBI Operation 'BERMUDA SHORT,'" states the document.
This operational outline called for RCMP Insp. Majcher to introduce Mr. Purdy to an undercover FBI officer in Miami, who would pose as a money launderer for Colombian interests, and offer the Vancouver promoter large amounts of purported cocaine money to be laundered in market manipulations. This plan called for the RCMP officer to step back after the introduction and have minimal involvement after, while RCMP investigators would continue to act in a supporting role to the FBI investigation.
MAJCHER'S DIRECT TESTIMONY
Insp. Majcher was the only witness called to testify for either side at the Vancouver court hearing on Mr. Purdy's Charter application. The Canadian officer testified by video link from Miami, where he had just finished serving as the key witness at the Bermuda Short trial of Martin Chambers. (Following Mr. Purdy's lead, Mr. Chambers had filed a parallel application in the Vancouver court, but this was dropped a few days before the hearing.)
Insp. Majcher testified for 54 minutes in direct examination on Tuesday, Sept. 2, starting after being sworn in at 10:35 a.m. and closing at the morning break at 11:29 am. After court resumed 11 minutes later at 11:40 a.m., the RCMP officer testified for 30 minutes in cross examination, ending at 12:10 p.m. After this, he testified for one minute in redirect examination, and was then excused by Judge Grist at 12:11 p.m. The witness was not recalled at any point.
In direct examination by prosecutor Mr. Van Iperen, Insp. Majcher told the court he first contacted Mr. Purdy in March, 1999, in an investigation of the RCMP's Customs and Excise unit in Victoria, which wanted to establish if the promoter was the beneficial owner of a particular boat. The undercover officer met the promoter in Port Alberni, B.C., accompanied him in Bamfield, B.C., dubbed "Purdyville," and determined Mr. Purdy was indeed the beneficial owner.
Insp. Majcher testified that he next met Mr. Purdy in October, 1999, in the context of Project EVOY, which was still run by the RCMP Victoria unit. "They wanted me to flesh out any of his criminal activities," he told the court.
The witness testified the Bermuda Short targeting of Mr. Purdy evolved in the first half of 2000, after Det. Desmarais returned overseas from general discussions with FBI Special Agent Gaffney, who heads all white collar securities and money laundering cases in Southern Florida, and British authorities on international co-operation issues. At the time, British and American authorities had an alliance on policing white collar and money laundering crimes in offshore havens in the Caribbean.
"Jack Purdy's name arose," Insp. Majcher testified. British authorities told Det. Desmarais that Mr. Purdy was the subject of investigation in Anguilla, which the FBI was aware of. According to Insp. Majcher, Det. Desmarais was then told by the FBI of its Bermuda Short undercover operation focussing on the securities industry and told that Mr. Purdy fit the profile.
Insp. Majcher and Det. Desmarais subsequently flew to Miami in June, 2000, to meet with FBI Bermuda Short authorities, with investigators from the U.S. Postal Service and the National Association of Securities Dealers also in attendance. "Some of the investigators were very familiar with the activities of Mr. Purdy, and in conjunction ... made the determination that Mr. Purdy was the ideal candidate if you will for the Bermuda Short operation," testified the officer.
He confirmed the plan was for him to introduce Mr. Purdy to an undercover FBI operative, then "find a venue to segue out of the operation." This plan fell through when the FBI undercover officer became unavailable at the last minute due to other operational or family conditions, and the FBI was unable to quickly parachute in another Hispanic speaking and looking undercover agent who was conversant in securities matters. As a result, Insp. Majcher stayed on as the primary Purdy undercover contact, He was sent to Quantico, Va., in January, 2001, to take the FBI's undercover course to make sure he was consistent with FBI undercover procedures.
The FBI, however, remained the lead agency. "There was no (Canadian) criminal investigation consummated with Mr. Purdy ... he was already involved in an investigation by the Americans, and we merely provided assistance to the FBI," Insp. Majcher testified.
Canadian prosecutor Mr. Van Iperen then asked Insp. Majcher to detail how he recorded calls with Mr. Purdy while the promoter was in Vancouver. Under the FBI operational protocol, each time Insp. Majcher got a voicemail message from Mr. Purdy, he would contact FBI Special Agent Gaffney in Miami for directions, who would usually ask him to call Mr. Purdy back and record the call.
Special Agent Gaffney would then contact the FBI's Supervising Special Agent for Washington State to gain clearance for Insp. Majcher to cross the border and tape such calls. Insp. Majcher would then call Ramon Garcia, the FBI's legal attache in Vancouver, who operated out of the U.S. consulate, coincidentally a block or two from Mr. Purdy's office headquarters, and seek country clearance to enter the U.S. Mr. Garcia would then contact the FBI's Special Agent in Charge in Seattle, confirm the arrangements and arrange to clear Insp. Majcher to cross the border for the purpose of making a phone call.
Insp. Majcher testified that in this elaborate protocol, he followed the explicit directions of FBI Agent Gaffney, not his RCMP superiors.
MAJCHER'S CROSS EXAMINATION
In cross-examination, defence counsel Ms. Eldred repeatedly challenged Insp. Majcher, but he stuck by his direct testimony. The defence lawyer tried to demonstrate that it was really the RCMP, not the FBI, which was the lead agency investigating Mr. Purdy in Bermuda Short.
Insp. Majcher confirmed that he was under the direction of the FBI, while the RCMP supplied his cellular phone, operational assistance and occasionally transcription support when FBI personnel were overloaded. Insp. Majcher confirmed that his salary was paid by the RCMP and he was never sworn in as a member of the FBI. The Canadian officer described his role akin to being a "investigative aide" to the FBI, not an investigator.
"Were you regarded by the Americans as a foreign police officer?" asked Ms. Eldred.
"Yes," replied Insp. Majcher
"If you were an FBI officer you would not need to go through these machinations" to tape such calls, asked Ms. Eldred.
"No," replied the RCMP officer.
Mr. Purdy's lawyer then directed the witness to a court-filed exhibit, the May 3, 2000, RCMP investigation report noted above.
"The FBI's plan was predicated on the approval of RCMP participation?" asked Ms. Eldred.
"That is not correct," replied Insp. Majcher. The officer then explained the purpose of such a report. A report is required "anytime the RCMP lends out personnel to other agencies, to ensure that RCMP policies and safety interests are met... to not place personnel in hazardous or very risky positions," he replied.
The defence lawyer then reviewed several paragraphs of the redacted report.
"You will agree that nothing on those paragraphs shows a subordinate relationship between the FBI and the RCMP?" asked Ms. Eldred.
"To me it lays out the planned sequence of events," replied Insp. Majcher.
"Regarding a subordinate relationship?" asked Ms. Eldred.
"I cannot offer any opinion or the other on these three paragraphs," replied the Canadian officer.
A short while later, Ms. Eldred referred to another court-filed exhibit, a May 28, 2002, operational report on RCMP letterhead headed and signed by RCMP Insp. Ryan and Miami Assistant Special Agent in Charge Figliuzzi.
"The first page indicates as the first supplemental that the RCMP is the lead for any offences occuring in Canada?" asked Ms. Eldred.
"Yes -- to the extent that there were any?" replied Insp. Majcher.
This refers to the second paragraph of the agreement, which states, "The RCMP will be regarded as lead agency with respect to offences or operations occurring within Canadian operation."
The witness was not questioned on other paragraphs that suggested the FBI was the lead agency for Bermuda Short.
"The FBI will continue to maintain lead agency status with respect to the offences occurring in U.S. jurisdiction," states the first paragraph of the agreement. "Notwithstanding the foregoing (the first and second paragraphs), any RCMP operations undertaken will adhere to the timetable for termination of the FBI Operation," states the third paragraph.
The defence lawyer later referred to another court-filed exhibit, a May 7, 2002, RCMP investigation report.
"Throughout this process of Bermuda Short you would still be reporting back on your activities to your RCMP superiors?" asked Ms. Eldred.
"That is correct. I still have to account for my time," replied Insp. Majcher.
THE CLOSING SUBMISSIONS
In closing submissions and arguments, Ms. Eldred argued strenuously that Canadian law enforcement officials cannot sidestep Canada's Charter by crossing the border to tape calls in the U.S. without a Canadian judge's approval.
"The very phone he (the RCMP officer) was using was supplied by the RCMP. Cpl. Majcher in order to avoid the Section 8 Charter protection that Mr. Purdy would be entitled to drove a few miles across the border into the United States. The petitioner (Mr. Purdy and his defence) says that an investigation of Canadian citizens that affects Charter rights while in Canada cannot be dictated by U.S. or policy of the FBI," stated Ms. Eldred.
Ms. Eldred explained that the intention of Mr. Purdy's Miami trial defence counsel Mr. Sonnett is not to find evidence inadmissible in the Florida proceeding, but to use any Canadian declaration in his defence of outrageous government misconduct.
Judge Grist then asked Ms. Eldred if this defence would include allegations the U.S. government was involved in any Canadian breach. The judge pointed out this element of the defence in Florida might only work if any Canadian breach was suborned by the U.S. "If it was solely by the RCMP, I doubt it would apply," he suggested.
Prosecutors Mr. Van Iperen and Mr. Johnston argued that there was no evidence that Insp. Majcher did anything wrong, there is no way that Canadian laws can be upheld in another country in a case like this, and Canada's Charter obligations cannot follow a Canadian officer into another country in a joint investigation led by another country.
THE JUDGE'S RULING
As scheduled, Judge Grist delivered his oral decision on Monday, Sept. 8.
Summarizing the Purdy application, the Canadian judge noted that the declaration sought, of a Charter breach, was stated in Mr. Sonnett's affidavit to be important in advancing the defences of entrapment, innocent intent and outrageous government misconduct.
In his summary, Judge Grist noted that the Crown opposed the application on two grounds: first, that the declaration was not appropriate in this case, and second, that Canada's Charter does not apply in the U.S.
"The second has no merit. The Charter rights and obligations were engaged in this application, including those in the U.S.," stated the judge.
"The first, however, is well taken," he stated.
Judge Grist noted that court remedies should be appropriate and just, and a declaratory judgment such as that sought by Mr. Purdy should be capable of settling a question of contention.
"Mr. Sonnett's evidence does not explain how the RCMP's (conduct) in breach of the Canadian Charter, but which would be lawful in the U.S. supports the defences he suggests," stated Judge Grist.
The Canadian judge noted that any such declaration would offer little assistance to a U.S. trial judge in the absence of understanding the principles of Canada's Charter, the effect on the Charter breach regarding the admissibility of evidence, and the admissibility of other evidence, such as the testimony of the police officer involved.
"In my view the declaration sought would be superficial. It would only offer a first step. The preferred approach in my view is (presenting) the evidence of foreign law at the trial itself," stated Judge Grist. "This application is dismissed."
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