When Lawyers Go Undercover For The Feds
DealBook’s Peter Henning recently wrote about lawyers who testify against their own clients. It is an odd situation where a client had assumed some expectation of confidentiality with their attorney then he/she turned around and shared that information with authorities. As Henning wrote, “ There may be no more fertile ground for obtaining damaging information in an investigation than from a lawyer about a client.” That exception may be a lawyer wearing a wire for the feds.
Derian Eidson. a former attorney, is serving a 10 year prison term for negotiating a business transaction on behalf of her client, and boyfriend, Steven Zinnel. Zinnel was convicted of 15 counts of bankruptcy fraud and money laundering in an 11-day trial in July 2013. Edisonwas cleared of the charges related to the bankruptcy fraud (she played no part in Zinnel’s bankruptcy filing), however she was convicted on money laundering charges for her role in a government-staged business transaction. Zinnel would be sentenced to one of the longest prison terms for a bankruptcy fraud case in U.S. history.
Eidson, who was involved in two negotiation meetings in early 2009 on behalf of Zinnel, would end with no agreement for Zinnel to be bought out of his business interests he had with System 3. System 3, a commercial electrical contractor, was started with seed money from Zinnel but over the years he had become an unwelcome consultant by the company’s owner Tom Wilbert.
The FBI believed that Zinnel was hiding his interests in System 3 in order to avoid paying money in his contentious divorce. They also believed that Eidson was assisting him. Wilbert was approached by the FBI to set up a negotiation to offer Zinnel a deal he could not refuse, $4 million to walk away from System 3. Wilbert arranged for Eidson to meet with his attorney, Frank Radoslovich, in early 2009 to negotiate the deal. Radoslovich, Eidson and an FBI agent posing as a paralegal representing System 3, entered discussions on the settlement but no settlement ever came out of the discussions. No money was transferred and no deal was ever signed, however, in June 2011 Eidson and Zinnel were indicted.
Eidson argued that, “the government cannot create a false conspiracy to just try to produce admissions.” Evidently they can, because Eidson was convicted in July 2013 and sentenced to 121 months in prison. She is currently incarcerated in the women’s federal prison in Victorville, CA CA +0.50% with a release date of August 10, 2022.
She has now filed an appeal to have her conviction overturned for the aggressive tactics used in the sting, the amount of money calculated as a “loss” and faulty jury instructions. As to the aggressive nature of the sting, even the cooperating attorney, Radoslovich, testified that he had not entered into this arrangement without some pressure, saying, “So that’s why I did it [wear wire], because he [Wilbert] wanted me to cooperate and I was his lawyer.” Eidson contends that the jury only heard portions of the taped settlement talks and did not hear portions where she was relying on Radoslovich’s opinion as a lawyer representing System 3.
As to the money laundering instructions to the jury, Eidson states that there was no settlement and no money was ever exchanged … nor did the perceived settlement have anything to do with Zinnel’s bankruptcy fraud charges. A more general money laundering instruction was allowed to be considered by the jury. On the loss amount used to sentence Eidson, $4 million, it triggered additional points (more months in prison) under the Federal Sentencing Guidelines, when there was no real loss because there was no settlement … there was no money. In the end, System 3 would end up paying a much lesser amount on behalf of a real settlement with Zinnel that was paid to the Bankruptcy Court … $2.8 Million.
Zinnel has also filed an appeal as well, noting that his sentence is longer than any other bankruptcy criminal case in the history of the U.S.Now, both Zinnel and Eidson will have an even longer wait. The government recently filed for and received an extension to reply to their appeal … 9 months. The 9th Circuit of Appeals has granted the government until February 23, 2017 to give their position on the appeals of Zinnel and Eidson … it appears the right to a Speedy Appeal are as likely as aSpeedy Trial. If their convictions are overturned, it may not be decided until early 2018 when both have already served four years in prison.By any measure, Eidson’s and Zinnel’s prison terms rank as some of the longest for white collar-type crimes. In comparison, of all those pleading guilty or convicted in the Bernie Madoff scandal, only Bernie is serving a longer prison term than either Eidson or Zinnel.The tactic of using a lawyer for settlement negotiations in a sting is good one when looking to nail someone. There is an environment of trust, where discussions can be candid so that a deal can be struck. In fact, confidential settlements are just as important to commerce as they are to justice … and in this case, it appears both have been compromised by an aggressive prosecution.