Monday, October 30, 2017

A false arrest case in the white collar world

Many of the false arrest cases in the Second Circuit involve people arrested for street-level crimes. This case is different. It examines false arrest in the context of Wall Street-style insider trading. The Court of Appeals rejects the claim and finds the federal government had probable cause to arrest a man who was wrongfully accused of insider trading.

The case is Ganek v. Liebowitz, decided on October 17. Ganek's office was raided by the FBI after the feds began investigating alleged improprieties at Ganek's investment house, known as LG. A former LG research analyst named Adonkakis cooperated with the FBI. While Adonkakis told the FBI he did not provide insider information to Ganek, the search warrant that a magistrate judge signed incorrectly said that Adondakis told Ganek about the insider information. This is how Ganek got searched. The FBI then issued a report that included this false information. In the end LG had to close down due to the bad publicity. Ganek was never indicted.

Ganek cannot sue anyone under the Fourth Amendment, and his case is dismissed. If you are not familiar with false arrest law, this case would be a no-brainer. That would be incorrect. This case is a brainer. The Court of Appeals (Raggi, Chin and Carney) says the false statement does not entitle Ganek to a false arrest lawsuit because the statement was not necessary to probable cause. The rule is that "probable cause to search exists where circumstances indicate a fair probability that contraband or evidence of a crime will be found in a particular place."

Even accepting that the FBI proceeded despite false information about Ganek, the Court says that while evidence that Ganek had knowingly traded on false information would enhance the probable cause, the absence of such knowledge would not preclude probable cause for the search, because "the warrant affidavit clearly alleges knowing insider trading by various LG employees, as well as Ganek's trading on some of the same inside information." "There was at least a fair probability to think that his office was among the LG premises where evidence of an insider trading scheme would be found."

What it all means for Ganek is that while he lost his business, he also cannot proceed with his case. The trial court denied the government's motion to dismiss on qualified immunity grounds, but since the Court of Appeals says there was probable cause to search Ganek's office, the case is closed and Ganek cannot recover any relief.

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