Drafting error leads to 10-year, $21 million mortgage fraud case

U.S. District Judge David O. Carter (left) and mortgage fraud defendant Mohamed Salah (right), who was convicted of conspiracy to commit bank fraud and wire fraud after Carter said the annulment of the trial of Salah’s co-defendant, Maher Obagi. (Photos: Meghann Cuniff and US District Court filing.)

A mid-trial drafting error led to the dismissal of a decade-old $21 million mortgage fraud case against a California man who had already been saved from jail by an appeals court ruling, a judge citing “the cumulative misconduct of the prosecution”.

At Maher Obagi co-defendant in the federal trial in Santa Ana, Calif., was not so lucky, however. A jury sentenced former mortgage broker Mohammad Salah conspiracy to commit bank fraud and wire fraud after U.S. District Judge David O. Carter last week, he denied his motion to vacate, determining that the failure of prosecutors to redact an exhibit as ordered only hurt Obagi.

That means Salah, though still free on bail, is likely heading to federal prison while Obagi faces the continued prospect of indefinite freedom after 10 years of battling allegations that he and several co-conspirators allegedly operated a scheme during the 2008 financial crisis.

Prosecutors called it a “builder bailout” conspiracy that fraudulently bought more than 100 condominium units across the country with $21 million from duped mortgage lenders who were unaware of the bribes paid to condo builders. Numerous loans defaulted, resulting in losses of more than $10 million for mortgage lenders, including at least $1.3 million by Freddie Mac and Fannie Mae.

In 2015, a jury found Obagi guilty of one count of conspiracy and three counts of wire fraud and Salah of one count of conspiracy. U.S. District Judge now retired Andrew J. Guilford in 2018 sentenced Obagi was sentenced to 78 months in prison and ordered to pay approximately $10 million in restitution, while Salah was sentenced to 57 months in prison and $7 million in restitution.

The two, however, were allowed to stay out of jail pending their appeals, and the 9th Circuit quashed their convictions in 2020 because prosecutors failed to notify defense attorneys of a witness’s cooperation with prosecutors in a related case, in violation of Brady v. Maryland and Giglio c. United States.

This 9th Circuit ruling is key to Carter’s decision to dismiss the case against Obagi, with the veteran legal scholar writing, “The government has now violated Mr. Obagi’s constitutional rights twice, and this cumulative misconduct amounts to misconduct.” flagrant in prosecution.

“Ultimately, the government has no right to continually judge his case until he gets a favorable outcome,” according to Carter’s nine-page decision.

When asked if prosecutors would appeal Carter’s order, Thom Mrozekspokesperson for the U.S. Attorney’s Office in Los Angeles, said in an email to Law&Crime: “We are continuing to review the decision.”

Obagi and Salah were on trial together again last week before Carter, who took up the case after Guilford pulled out of private mediation in 2020, when prosecutors played a recording of Salah and co-conspirator for the jury. Ali Khatib speaking in Arabic on the shredding of papers and the destruction of hard drives, with an English transcript.

Khatib, who managed investment and real estate companies that employed Salah and Obagi, was sentenced in a related case in 2019 to 27 months in prison. The transcript was released during the first trial with Obagi’s name removed from the conversation as ordered, but Obagi’s name was visible when released during the second trial last week.

Prosecutors told defense attorneys what happened during a break, and then everyone briefed Carter. Prosecutors said further jury instruction would suffice, along with the collection of juror transcripts, but lawyers for Obagi and Salah sought a mistrial. Carter only collected it for Obagi, then ordered a briefing on whether the case should be dismissed with prejudice, meaning prosecutors can’t seek another indictment.

Obagi’s lawyers, Craig Wilke and Sheila Mojtehedisaid such a drastic move was warranted because of prosecutors’ “repeated violations of Obagi’s constitutional rights during two trials, his false statements to defense counsel and the court about the redactions of co-defendant’s statement and its violation of the Court’s order in this regard.”

Their Short also stated that “with each new trial, the government refines its case to take advantage of information gleaned from the previous trial.”

Carter agreed, writing that “the government’s ability to continually improve its prosecution also illuminates why this lesser remedy of granting a new trial would be inadequate.”

“Asking the Defense to review its trial strategy a third time would be too onerous a task, even for the best of defenders,” the judge wrote.

Assistant U.S. Attorneys Kerry Quinn and Adam Schleifer objected to the dismissal, saying the missed redaction was “an inadvertent technical error” that went unnoticed by defense counsel.

“The government’s drafting error was inadvertent and unintentional and does not come close to being the type of gross and outrageous government misconduct that would call for the extreme remedy sought by the defendant,” according to their 16 page objection.

But Carter clarified that he was dismissing Obagi’s indictment not because of a violation of due process, but because he concluded the dismissal was justified under his “supervisory powers.” as a federal judge. While dismissals for violation of due process require “extremely shocking and outrageous” prosecutorial conduct, dismissals under supervisory powers can be based on “gross prosecutorial misconduct” and “substantial prejudice”. In Obagi’s case, he found both.

“This Court is satisfied that the cumulative misconduct of the prosecution during Mr. Obagi’s two trials has resulted in substantial prejudice that cannot be remedied by further trials,” according to the order. “The government has now twice violated Mr. Obagi’s constitutional rights, and this cumulative misconduct amounts to gross prosecutorial misconduct.”

Carter said it “should go without saying that the prosecutor has a sworn duty.” . . to ensure that the accused has a fair and impartial trial” and his “interest in a particular case is not necessarily to win, but to do justice,”” citing the 2001 Ninth Circuit decision Northern Mariana Islands c. Bowie.

“To violate Mr. Obaji’s constitutional rights not once, but twice, shows a reckless disregard for these sworn duties,” the judge wrote. “Accordingly, this reckless disregard amounts to gross misconduct against Mr. Obagi.”

Read Justice Carter’s full decision below.

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