A former hedge-fund manager set to be tried next week on charges he threatened to kill regulators wants to show the jury that his statements were part of a public dialogue about the corruption of the financial system, an argument a judge could bar in a ruling today.
Vincent P. McCrudden, 50, is accused of threatening the lives of 47 current and former officials, including Securities and Exchange Commission Chairwoman Mary L. Schapiro and Commodity Futures Trading Commission Chairman Gary Gensler, as well as employees of the National Futures Association and the Financial Industry Regulatory Authority Inc.
McCrudden wants “to introduce evidence that there is an ardent and vocal community of people within the financial world who believe (rightly or wrongly) that these organizations are corrupt and/or inept,” his lawyer wrote in a court filing this month. A federal judge is expected to rule at a hearing today on what evidence will be allowed. Opening arguments are scheduled to begin July 18 in federal court in Central Islip, New York.
McCrudden, who was also a commodities trader, has been held without bail since he was arrested Jan. 13 returning from Singapore. He is charged with threatening the regulators in profanity-filled e-mails and, after the CFTC sued him in December, in Web postings. McCrudden has said he’s being persecuted for fighting back against unfair regulatory actions that destroyed his career.
‘No Logical Connection’
The government seeks to preclude evidence of alleged corruption at the agencies or of vendettas against McCrudden by their employees.
“The defendant offers no logical connection between his threats to kill more than 40 people and the vague beliefs of unidentified members of an undefined group,” Assistant U.S. Attorneys Christopher C. Caffarone and James McMahon wrote in court papers.
McCrudden’s lawyer, Bruce A. Barket, said in a filing the information would put his client’s comments “in the context of an ongoing public discussion about the honesty and efficacy of the financial regulatory system” to determine whether they were true threats or political opinion.
Barket included a Rolling Stone magazine article entitled “Why Isn’t Wall Street in Jail?” and a statement by former CFTC Administrative Law Judge George H. Painter saying a colleague told him he would never rule in favor of an investor against a broker.
Prosecutors “want to create the false impression that Mr. McCrudden is alone in his belief that the financial regulatory industry is ‘corrupt,’ that only he thinks the industry unfairly favors the large institutional banks over small brokers,” Barket wrote in a July 13 court filing. “That Mr. McCrudden’s speech is part of that mainstream of heated political debate cannot be withheld from the jury.”
The government charged that, after the CFTC accused McCrudden in the lawsuit of illegally starting his Hybrid Fund II LP in 2008 without registering it, he posted an “execution” list on his company website.
“Go buy a gun, and let’s get to work in taking back our country from these criminals,” he wrote on the site. “I will be the first one to lead by example.”
“No federal judge is going to allow a defendant to put federal regulators on trial where someone is threatening the life and safety of their officials,” Jacob Frenkel, a former federal prosecutor now in private practice in Potomac, Maryland, said in a phone interview. “Whether these were threats is certainly a question of fact for the jury.”
McCrudden wrote in a Sept. 30 e-mail to Daniel A. Driscoll, chief operating officer of the National Futures Association, that he had hired people to kill him, according to prosecutors. “It wasn’t ever a question of ‘if’ I was going to kill you, it was just a question of when,” McCrudden wrote, according to the government.
The e-mail was sent in CFTC Chairman Gensler’s name. Its language and origin in Singapore pointed to McCrudden, prosecutors said. McCrudden moved from Long Beach, New York, to the Southeast Asian country in September because his fiancée had gotten a position there.
McCrudden has denied sending the e-mail.
Gensler is expected to testify at the trial, according to Lonnie Soury, a spokesman for McCrudden’s family. Dennis Holden, a CFTC spokesman, didn’t immediately return a call seeking to confirm that.
Barket, of Quadrino Schwartz in Garden City, New York, argued in court papers his evidence would show “that there are a large number of disgruntled persons who bear considerable animus towards the CFTC and NFA, and who would have a substantial motive to send the anonymous e-mail.”
The prosecutors are also seeking to prevent expert testimony that the address from which the e-mail was sent -- the wireless system provided for guests at the Singapore hotel where McCrudden was staying -- was on computer-hacker lists of networks easily broken into.
Yesterday, Barket filed a motion asking the judge to free McCrudden on bail and postpone the trial because of new evidence concerning the computer address the e-mail was sent from.
Brian L. Rubin, a lawyer who represents defendants in regulatory actions, said in a phone interview that U.S. District Judge Denis R. Hurley, presiding over the case, could take a dim view of McCrudden’s attempt to justify what he wrote.
“Even if there is some animosity or some question about what regulators do sometimes, I’m not sure how that justifies his alleged conduct,” said Rubin, a partner at Sutherland Asbill & Brennan LLP in Washington, who isn’t involved in McCrudden’s case. “It’s common that people get upset, but making threats takes it to a different level.”
McCrudden argued in the Web postings that the regulators focus on small managers such as himself and ignore big players like Bernard Madoff, now serving a 150-year prison sentence for running the biggest Ponzi scheme in history.
“Civil disobedience is the only way to stop these fiefdoms,” he wrote on his website, referring to the regulatory bodies, several sentences before urging his readers to buy a gun. “Corrupt and biased processes that favor big business and punish the small guy in a deliberate anti competitive campaign can only end with violence against these lifelong lawyers that work at these agencies.”
“Not one word from the website contains any explicit threat to harm anyone,” Barket wrote in court papers.
The government also asked Hurley to limit how much the jurors, who were chosen July 11, can hear about McCrudden’s previous experiences with regulators and the criminal-justice system, as that “has no bearing on whether he sent true threats.”
McCrudden’s legal and regulatory entanglements began in 2000, when he was criminally charged with masking shortfalls in statements to his hedge-fund investors. The government alleged he included in his financial results money he expected to get from a lawsuit after Sumitomo Corp. was accused of manipulating the copper market.
In 2003, a federal jury in Central Islip acquitted McCrudden of all 15 counts of mail fraud he faced.
The National Futures Association in 2005 denied his registration application because of the alleged overstatements that resulted in that earlier criminal case. The CFTC and a federal appeals court upheld that decision.
In October 2009, the Financial Industry Regulatory Authority ruled that McCrudden induced Hedge Fund Capital Partners LLC, a New York broker-dealer where he had worked, to file a form saying he left voluntarily when he was fired, which McCrudden denied. The National Adjudicatory Council, which hears appeals of Finra decisions, upheld that finding.
McCrudden faces a maximum sentence of 10 years in prison on two federal counts of “transmission of threats to injure.”
The criminal case is U.S. v. McCrudden, 11-cr-61, and the civil case is U.S. Commodity Futures Trading Commission v. McCrudden, 10-cv-5567, U.S. District Court, Eastern District of New York (Central Islip).