Friends of Nevin Shetty
Excerpts From Motion to Suppress
"The government’s warrant affidavit (“Affidavit”) shows why this case is unusual. "
"To create the veneer of criminality, the Affidavit relies on false and misleading statements and material omissions."
Not Terminated
"The Affidavit claims that Shetty made the investment after receiving a notice of termination, perhaps to imply that he had some nefarious motive to make the investment. But this is false. Shetty never received a notice of termination. According to an FBI FD-302a (“302”) summary of interview of Alex Shimamoto drafted by Beckley, Shimamoto confirmed that “Shetty did not receive a formal termination letter or paperwork.”
"Shetty never received a notice of termination and had full authority to make investments on Fabric’s behalf at the time of the HighTower investment."
Not Secret
"...while the Affidavit claims that Shetty did not notify Fabric about the investment before making it, it omits the fact that there was no disclosure or approval requirement in place for the CFO. Although there was no approval or disclosure requirements in place, Shetty commonly discussed his financial activities with members of the finance team—including the HighTower investment."
"The Affidavit also omits the facts that multiple employees knew about Shetty’s investment in HighTower and that it was booked both in Fabric’s accounting system and on its balance sheet."
"Leung confirmed that Shetty told her about it. Specifically, “Shetty told [her] that he opened the HighTower account to gain more interest for Fabric and that the HighTower account provided an opportunity to make money.” Leung even had a login to the HighTower account."
Investment Policy
"To begin, the Investment Policy describes its “objectives” and “investment guidelines”."
“[t]o begin with, the Treasury Program will invest in money market, deposit accounts, and treasury accounts with daily liquidity.”
"Finally, and most critical here, is the policy’s final section: “Policy Review & Exceptions.” Id. at 3. It addresses investments that fall outside the quantitative guidelines—i.e., the preapproved “list.” It explains that both the COO and CFO have authority to approve investments beyond those delineated in the policy:
The investment policy is intended to provide operational guidelines for the management of the investment portfolio. Under some circumstances, Investment Managers may learn of an investment transaction which falls outside of this investment policy but may present financial merits of the Company. In those circumstances, a written exception to the quantitative guidelines may be approved by the Company’s Chief Operating Officer or Chief Financial Officer.
Put more simply, both the COO and CFO were not bound by the investment guidelines in the policy and could approve any investment."
"Shetty invested Fabric’s money in accordance with his authority as CFO—like he had done many times before. He did not seek approval from other officers or the board because none was required. The investment was visible on Fabric’s books, and at least two other people at Fabric knew about it."
Excerpts From Motion to Dismiss
Having extensive experience with corporate structure and investment policies, Professor Painter will provide his analysis of Fabric’s investment policy. Ultimately, Professor Painter’s view is that it is flawed because it gave Shetty, the CFO, too much control over Fabric’s finances. He will also testify about how the policy is so poor it could very likely represent a breach of fiduciary duty by the board, which approved the policy.
The board’s actions and motives in initiating the prosecution are relevant and will be at issue in the trial. The potential civil liability of the board is relevant here, in part, because it arguably motivated Fabric to initiate criminal charges against Shetty to save face. Put plainly, it is much easier to tell investors (such as the venture capital firms that funded Fabric) that a rogue officer “embezzled” money than to explain that he lost $35 million on an investment that he was authorized to make under the investment policy the board approved.
Excerpts From Motion to Dismiss
“A CFO’s bad investment—even a self-interested one—does not constitute wire fraud.”
“To be sure, the HighTower investment turned out poorly for Fabric. But Shetty never sought to deprive Fabric of the funds he invested in HighTower, just as he did not intend to deprive Fabric of funds he invested elsewhere on Fabric’s behalf”
Cryptocurrency Investment Does Not Equal Fraud
"The government’s admission is dispositive, as that scenario is exactly what happened here: Shetty was tasked with investing Fabric’s money. The government adding the words “cryptocurrency … platform” around “investment” in its response provides it no excuse to bring a self-dealing case. Investments in cryptocurrency platforms are investments, and Shetty chose one. Nothing about the fact that the investment he chose involved cryptocurrency (rather than some other asset class) makes his decision a fraud"
First, even if Shetty violated the policy’s “investment guidelines,” which he did not, the policy violation did not cause the deprivation of a traditional property interest. The investment policy is the company’s guidance about how it wants its funds invested.
Authorized to Make Investments
"The HighTower investment was authorized by Fabric’s board under the resolution adopting the investment policy.1 It says that “the officers of the Company are authorized and empowered to take any and all such further action . . . as any such officer may deem necessary or advisable to effectuate the purposes and intent” of the investment policy. (Exhibit 1: Fabric Board Resolution at 1.) It adds that “the taking of such actions . . . by any such officer [is] conclusive evidence of his or her authorization hereunder and the approval thereof.”
"In other words, Fabric’s board explicitly authorized officers like Shetty to take actions contrary to the letter of the policy, so long as the officer deemed such actions “advisable to effectuate the purposes and intent” of the policy."
“the HighTower investment did not violate the investment guidelines as a matter of law. As described in Shetty’s motion to suppress filings, the HighTower investment was a “treasury account[] with daily liquidity,” HighTower qualifies as an “investment manager,” the investment satisfied the requirements of “other obligations” under the policy, and Shetty as the CFO had authority to approve investments beyond the policy.”
Excerpts From Motion to Continue Trial
“Mr. Shetty has filed two substantive motions—a motion to suppress and a motion to dismiss, provided more than 100 pages of expert disclosures, and responded to the government’s motion to exclude expert testimony. In addition, Mr. Shetty and his counsel have reviewed discovery consisting of nearly 400,000 pages from 64,000 documents”
Exculpatory Evidence From Do Kwon Terra Luna Case
“Mr. Shetty made an oral Brady demand three months ago for exculpatory evidence from the criminal and civil cases brought by the government against Do Kwon, co-founder of TerraUSD and Luna, the cryptocurrencies at issue in Mr. Shetty’s case. The evidence from Mr. Kwon’s case is exculpatory in this case.”
“In the indictment, the government alleged that “KWON engaged in a scheme to defraud individuals selling digital commodities for cryptocurrencies issued by TFL, including LUNA and UST, by using market manipulation and false statements to deceive those individuals about the effectiveness and sustainability of the algorithmic mechanism that purportedly ensured the stability of UST’s price.” Indictment at 4, United States v. Do Kwon (S.D.N.Y.) (No. 1:23-CR- 00151).”
“One overt act alleged in the indictment was that “KWON . . . [conspired to] alter[] the market price of UST.” Id. at 9. The indictment also alleged that he “made a false and misleading statement concerning the effectiveness and sustainability of the algorithmic mechanism that purportedly ensured the stability of UST’s price.” Id.”
“These allegations bolster Mr. Shetty’s defense in two ways: First, these public statements and pleadings confirms that the government knows, and believes, that Mr. Kwon defrauded people like Mr. Shetty into believing that UST’s price would be stable due to the algorithms supporting it. Mr. Shetty’s reasonable belief about the stability of UST directly rebuts the government’s claim that he was acting like a gambler with Fabric’s funds. Second, the government’s statements indicate that it is Mr. Kwon, not Mr. Shetty, who is responsible for the losses that Fabric suffered due to the UST collapse”
“evidence from Mr. Kwon’s criminal and civil cases are potentially exculpatory to Mr. Shetty”
Excerpts From Amicus Brief
“The Supreme Court has intervened again and again—often unanimously—to check overzealous prosecutors’ attempts to criminalize purportedly fraudulent conduct that falls outside the lines Congress has drawn”
“Amicus National Association of Criminal Defense Lawyers (NACDL) believes this case reflects yet another improper attempt by the government to stretch the wire-fraud statute beyond its breaking point. In this instance, the government is attempting to criminalize an allegedly self-interested investment decision made by an executive with the authority to make such an investment”
“That is not wire fraud, as evidenced by the governments’ moving-target attempts to characterize the purported criminality. And even if the Court ultimately concludes that this case falls within the grey area of the fraud statute’s ambit, it should nevertheless dismiss as a matter of statutory interpretation, due process, and lenity.”
“As Mr. Shetty has explained, the alleged investment “was authorized by Fabric’s board under the resolution adopting the investment policy.” Reply 6 (emphasis added). And the policy further explicitly instructed that an officer’s investment action—like Mr. Shetty’s alleged actions here—is to be deemed “conclusive evidence of his or her authorization.”
“The government simply fails to reckon with the fact that as CFO, and under the company’s investment policy in particular, Mr. Shetty was authorized to make investments.”
“The government’s unpled contention that “this is a case about an embezzlement,” Opp’n 11, is entirely undermined by that reality—and is contrary to the indictment as well.”
“Mr. Shetty was authorized to invest and to self-authorize exceptions to the investment policy (to the extent any exception was even necessary).”
“Moreover, the government’s maximally flexible interpretation would empower federal prosecutors—without congressional authorization—to “enforce [their] view of[] integrity in broad swaths of state and local policymaking” or, as here, to transform their mistaken interpretations of internal company policies into trip wires for criminal liability.”
“Unable to articulate a cognizable fraud, the government pivots (at 11) to arguing that “this case is about an embezzlement,” but the indictment does not charge embezzlement. The government’s moving target approach suggests that even the government itself is unsure how the indictment’s allegations amount to wire fraud—rather than a workplace policy dispute.”
“In the face of prosecutorial overreach, the Court’s role in applying the rule of lenity and the fair-warning requirement is not just a matter of good government and congressional authorization. It is also an important check on the dangers of overcriminalization.”
Excerpts From Corporate Law Supplemental
“Under the Investment Policy, which was passed by resolution and therefore capable of limiting or expanding Shetty’s power, Shetty was expressly “authorized to execute transactions and perform day to day management of investments.”
“Fabric’s Investment Policy was adopted and directors had the opportunity to discuss, question, and weigh options before resolving to accept the proposal. As established, the policy was adopted in an official board action, making it binding. The board’s later dissatisfaction with the consequences of their past decision does not negate the fact that the board officially (1) approved and adopted the Investment Policy Statement; which (2) included a list of “approved investment instruments” that was not exhaustive; and (3) provided an exception for officers to make investments that “fall[] outside of this investment policy but may present financial merits for the Company.”
“Furthermore, the board’s resolution adopting the Investment Policy authorized officers to make investments contrary to the policy so long as the officer deemed such actions “advisable to effectuate the purposes and intent” of the policy. (Dkt. 62-1 at 1.) “
“The fact that the board adopted a policy that was not particularly specific, and which failed to account for certain possible outcomes, does not transform an officer who acted on the power and authority the board granted into a criminal.”
“To be sure, the government claims that Shetty violated the investment policy. But Shetty has explained in other pleadings (1) why the HighTower investment complied with the investment policy and (2) why violating the investment policy does not establish a criminal act.”