PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION
MEMORANDUM
FROM: Conrad Ashby, Partner White Collar & Investigations Practice Group Calderwood & Harkness LLP 450 Park Avenue, 30th Floor New York, NY 10022
TO: Jonathan R. Caldwell 1140 Park Avenue, Apt. 14C New York, NY 10128
DATE: December 5, 2022
RE: Grand Jury Subpoena — Grand Jury No. 22-GJ-4481, U.S. District Court for the Southern District of New York; Representation by Calderwood & Harkness LLP (Matter No. 1034-00001)
NOTICE: This memorandum constitutes a confidential attorney-client communication and is protected by the attorney-client privilege and the work product doctrine. It is intended solely for the use of Jonathan R. Caldwell and should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP. If you are not the intended recipient of this memorandum, you are hereby notified that any dissemination, distribution, copying, or use of this communication or its contents is strictly prohibited.
I. Purpose and Scope of This Memorandum
Calderwood & Harkness LLP has been retained to represent you, Jonathan R. Caldwell, in connection with a federal grand jury subpoena issued on November 18, 2022, by the United States Attorney's Office for the Southern District of New York, bearing Grand Jury No. 22-GJ-4481. The subpoena was served on you personally on November 21, 2022, at your residence located at 1140 Park Avenue, Apt. 14C, New York, NY 10128. The original return date specified in the subpoena is December 9, 2022. The subpoena was issued by Assistant United States Attorney Miriam T. Goldfarb of the Complex Frauds & Cybercrime Unit, United States Attorney's Office for the Southern District of New York, 500 Pearl Street, New York, NY 10007.
The purpose of this memorandum is to provide you with comprehensive legal advice regarding the subpoena and the investigation to which it relates. Specifically, this memorandum will address the following topics:
(a) your legal obligations under the grand jury subpoena, including the duty to comply with both the documentary and testimonial demands contained therein;
(b) your document preservation obligations, which arise immediately upon receipt of the subpoena and which are of critical importance;
(c) the penalties and consequences for non-compliance with the subpoena, including potential criminal sanctions for obstruction of justice or destruction of evidence;
(d) Fifth Amendment considerations, including the limited circumstances under which the privilege against self-incrimination may be invoked in the grand jury context;
(e) the distinctions among target, subject, and witness status in a federal criminal investigation, and our assessment of your current status; and
(f) our recommended course of action for responding to the subpoena, including immediate steps, document collection and review, and preparation for potential testimony.
This memorandum also provides a summary of the key investments and transactions that we believe are potentially at issue in the investigation, identifies areas of likely government interest, and sets forth important instructions that you should follow throughout the course of our representation.
The engagement team assigned to your matter consists of the following attorneys:
• Conrad Ashby — Billing Partner, White Collar & Investigations Practice Group. Mr. Ashby will serve as lead counsel and will be the primary point of contact for all communications with the United States Attorney's Office.
• Bernard Crawford — Responsible Partner, Labor & Employment Practice Group. Mr. Crawford maintains the existing advisory relationship with you and facilitated the referral to the White Collar & Investigations Practice Group. He will remain available in a supervisory and advisory capacity.
• Daniel Obi — Lead Associate, Banking & Finance Practice Group. Mr. Obi will oversee the day-to-day document collection, review, and production process and will serve as the primary attorney managing the review team.
• Lisa Morrow — Working Associate, Banking & Finance Practice Group. Ms. Morrow will assist Mr. Obi in the document review and will prepare the privilege log and production correspondence.
We encourage you to read this memorandum carefully and in its entirety. If you have any questions about any of the topics addressed herein, please do not hesitate to contact me directly or any member of the engagement team at the numbers and email addresses provided to you separately.
II. Background: The Grand Jury Subpoena
A. Summary of the Subpoena's Documentary Demands
The grand jury subpoena commands the production of documents and communications falling within several broadly defined categories. In substance, the subpoena requests all documents and communications between you and Marcus W. Stavros; between you and any Aegean Realty Partners LLC entity, including but not limited to Aegean Realty Fund III LP, Aegean Realty Fund IV LP, and Aegean Realty Fund V LP; and between you and Westlake Fidelity Bank, N.A. or Harborview Trust Company. The subpoena covers the date range of January 1, 2014, through December 31, 2021 — a period of approximately eight years.
The subpoena identifies the following specific categories of documents to be produced:
(a) Real Estate Investment Documents. All documents relating to any real estate investment, co-investment, or syndication involving Aegean Realty Partners LLC or any of its affiliated funds, including but not limited to subscription agreements, limited partnership agreements, side letters, investor communications, capital call notices, distribution notices, quarterly and annual reports, and marketing or offering materials.
(b) Loan and Financing Documents. All documents relating to any loan, financing arrangement, or capital raise involving properties in which you and Marcus W. Stavros had a direct or indirect interest, including loan applications, term sheets, commitment letters, promissory notes, mortgage documents, guaranty agreements, and correspondence with lenders.
(c) Appraisals and Valuations. Any appraisal, valuation, or property inspection report for properties in which you and Marcus W. Stavros had a direct or indirect interest, whether such appraisals were prepared by Pinnacle Appraisal Group LLC or any other firm, and whether such appraisals were obtained in connection with acquisition, financing, refinancing, or disposition of the properties.
(d) Fund Transfer Records. Any records of transfer or movement of funds between accounts held or controlled by you and accounts held or controlled by Marcus W. Stavros or any Aegean Realty Partners entity, including wire transfer confirmations, check images, bank statements reflecting such transfers, and internal accounting records documenting such fund flows.
The breadth of these demands is significant. They encompass a wide range of business records, personal financial records, and communications spanning nearly the entirety of your business relationship with Stavros and the Aegean Realty entities. We will discuss strategies for managing the scope and volume of the production below in Section VIII.
B. Testimonial Component
In addition to the documentary demands, the subpoena also commands your testimony before the grand jury. The testimonial obligation is separate from and in addition to the document production obligation. Under the subpoena as currently drafted, you would be required to appear before the grand jury on the return date to provide testimony under oath.
It is our intention to negotiate a deferral of the testimony obligation pending the government's review of the document production. This is a standard and well-recognized approach in federal grand jury practice. Prosecutors routinely accommodate requests to defer testimony in cases where the witness is cooperating with document production, because the government typically benefits from reviewing the documents before conducting testimony. We anticipate that AUSA Goldfarb will agree to this arrangement, provided we demonstrate good faith in our document collection and production efforts. We will raise this issue during our initial telephone conference with the AUSA's office, which we have tentatively scheduled for the week of December 12, 2022.
C. Underlying Investigation
Based on the subpoena's demands, publicly available information, and our own experience with investigations of this nature in the Southern District, the investigation appears to focus principally on Marcus W. Stavros, the founder and principal of Aegean Realty Partners LLC. Aegean Realty Partners LLC is a Connecticut limited liability company formed on March 12, 2014, with its principal office at 280 Atlantic Street, Suite 510, Stamford, CT 06901. The firm operated as a real estate syndication vehicle, raising capital from individual and institutional investors to acquire, renovate, and operate commercial real estate properties along the Northeast corridor, primarily in New York, New Jersey, and Connecticut.
Based on the scope of the subpoena and publicly available reporting, we understand that the government suspects Mr. Stavros of engaging in the following conduct:
• Appraisal Fraud. Stavros is believed to have inflated property appraisals, through the use of Pinnacle Appraisal Group LLC, in order to obtain larger loan commitments from Westlake Fidelity Bank, N.A. than the properties would have supported on the basis of honest and accurate valuations.
• Investor Fund Diversion. Stavros is suspected of diverting approximately $18.7 million in investor capital from Aegean Realty Fund IV LP and Aegean Realty Fund V LP to personal accounts and to cover operating shortfalls in earlier fund vehicles, including Fund III.
• False Financial Statements. Stavros is suspected of causing false financial statements and reports to be submitted to Westlake Fidelity Bank, N.A. and Harborview Trust Company in connection with loan applications, covenant compliance, and ongoing reporting obligations.
The suspected criminal offenses include wire fraud in violation of 18 U.S.C. § 1343, bank fraud in violation of 18 U.S.C. § 1344, money laundering in violation of 18 U.S.C. § 1956, and conspiracy in violation of 18 U.S.C. § 371. These are serious federal offenses carrying substantial terms of imprisonment. Wire fraud and bank fraud each carry a maximum sentence of 30 years' imprisonment; money laundering carries a maximum sentence of 20 years' imprisonment; and conspiracy carries a maximum sentence of 5 years' imprisonment, though the penalty may be higher if the object of the conspiracy carries a greater maximum.
The estimated total investor losses across all Aegean Realty fund vehicles are reported to be approximately $43 million. The estimated total losses to lenders — principally Westlake Fidelity Bank, N.A. — are reported to be approximately $31 million. These are significant loss figures that, if substantiated, would likely drive the government to pursue the investigation aggressively.
We have confirmed that Mr. Stavros is separately represented by Victor A. Reddick of Reddick, Sorrento & Hale LLP, 1 Liberty Plaza, 37th Floor, New York, NY 10006. Westlake Fidelity Bank, N.A. (600 Summer Street, Stamford, CT 06901), which we understand to be the primary victim lender in the investigation (having extended approximately $127 million in total lending to Aegean Realty entities between 2016 and 2020), is represented by Catherine A. Falk of Graystone & Falk LLP, 100 Pearl Street, Suite 1600, Hartford, CT 06103. The government has retained Meridian Forensic Advisors LLC, with Nathan P. Solis serving as Managing Director, to perform forensic accounting analysis and trace the flow of funds through Aegean Realty entity accounts and related accounts.
We will continue to monitor public filings, news reports, and other available information sources for developments that may affect the investigation or your status therein.
III. Target, Subject, and Witness Status — Critical Distinctions
A. Definitions. It is essential that you understand the three categories of status that the government assigns to individuals who come within the scope of a federal grand jury investigation. These categories carry different legal and practical implications, and your status may influence the strategy we employ in responding to the subpoena.
Target. A target is a person as to whom the prosecutor or the grand jury has substantial evidence linking him or her to the commission of a crime and who, in the judgment of the prosecutor, is a putative defendant. Under the United States Department of Justice's internal guidelines, codified in the Justice Manual at Section 9-11.151, targets are ordinarily advised of their target status and of their Fifth Amendment rights before the grand jury. Receipt of a "target letter" is a significant development that ordinarily signals that the government is preparing to seek an indictment. Targets have the strongest basis for invoking the Fifth Amendment and the greatest need for defensive litigation strategies.
Subject. A subject is a person whose conduct is within the scope of the grand jury's investigation. A subject is someone who may have some involvement or connection to the criminal activity under investigation, but against whom the evidence is not yet sufficient for the prosecutor to consider the person a putative defendant. Subject status is a middle ground: it indicates that the government is scrutinizing the individual's conduct, but has not yet concluded that criminal charges are warranted. Subjects should proceed with caution, as their status may evolve into target status depending on what the investigation reveals.
Witness. A witness is a person who has information relevant to the investigation but who is not suspected of criminal wrongdoing. A witness is called to provide documents or testimony to assist the grand jury in understanding the facts and circumstances under investigation. Witness status is the most favorable classification, as it indicates that the government views the individual as a source of information rather than a potential defendant. However, witness status is not immutable, and it can change if the investigation uncovers evidence suggesting the witness's involvement in criminal conduct.
B. Mr. Caldwell's Current Status
Based on our review of the subpoena, the nature and scope of the documentary demands, the absence of any formal target letter or subject letter, and the government's framing of its requests, we believe that you are currently regarded by the government as a witness — not a target or subject — in this investigation. Several factors support this assessment:
• The subpoena seeks documents and communications that would illuminate Stavros's conduct and the operations of the Aegean Realty entities, not documents that would tend to establish your involvement in any criminal scheme.
• You have not received a target letter or subject letter from the United States Attorney's Office, which would be the customary method of advising you of any heightened status.
• The government's documentary demands are consistent with treating you as a source of information about Stavros's activities, rather than as a person whose own conduct is under scrutiny.
• You have no criminal history of any kind, which is a favorable factor in the government's assessment of your role.
We intend to seek informal confirmation of your witness status from AUSA Goldfarb during our initial discussions with the government. We have tentatively scheduled a telephone conference with AUSA Goldfarb's office for the week of December 12, 2022, at which time we will introduce ourselves as your counsel, discuss the scope of the subpoena, and inquire about your status. While the government is not required to provide this information, AUSAs in the Southern District will typically confirm a witness's status when asked by counsel, particularly when the witness is cooperating with the investigation.
It is critical that you understand, however, that witness status is not permanent. The government may change its assessment of your status at any time based on new evidence, changed circumstances, or information that emerges during the document review or testimony process. We will continuously monitor your status throughout the course of our engagement and will immediately advise you if we become aware of any change or any indication that the government's view of your role has shifted. Should your status change, we would promptly reassess our strategy and provide you with updated advice.
C. Implications of Witness Status
As a witness, you are obligated to comply with the grand jury subpoena — both the documentary demands and the testimonial component — unless a valid legal privilege or constitutional right provides a basis for withholding specific documents or declining to answer specific questions. This is an important point: witness status does not exempt you from the subpoena's requirements; rather, it means that the government's interest is in obtaining your cooperation as a source of information, not in prosecuting you for criminal conduct.
Failure to comply with a grand jury subpoena, absent a lawful basis for non-compliance, can result in civil and criminal contempt proceedings. A finding of civil contempt may result in fines or incarceration until the contemnor complies with the court's order. A finding of criminal contempt may result in a fixed term of incarceration and monetary penalties.
The practical benefit of witness status is significant. As a witness, you are in a position to cooperate with the government's investigation through document production and, if necessary, testimony, without facing the risk of self-incrimination that a target or subject would confront. The government's interest is in obtaining documents and testimony that shed light on Stavros's activities and the operations of the Aegean Realty entities, and our cooperative posture will reinforce the government's assessment that you are a witness whose assistance is valuable.
IV. Legal Obligations Under the Grand Jury Subpoena
A. Obligation to Comply
A grand jury subpoena carries the full authority of the United States District Court from which it is issued. It is not a request; it is a command. Under Rule 17 of the Federal Rules of Criminal Procedure, a subpoena issued by a federal grand jury compels the production of designated documents and/or the attendance and testimony of the subpoenaed individual. Compliance is mandatory unless the subpoena is lawfully quashed, modified, or its requirements are excused by the court.
The subpoena in this matter was issued out of the United States District Court for the Southern District of New York, 500 Pearl Street, New York, NY 10007, and bears the authority of that court. Non-compliance with the subpoena, without a lawful excuse, can result in a finding of contempt of court. The court may impose sanctions for contempt, including monetary fines and incarceration. In addition, willful refusal to comply with a grand jury subpoena may itself constitute an independent criminal offense — specifically, obstruction of justice under 18 U.S.C. § 1503 or contempt of court under 18 U.S.C. § 401.
We want to be clear: the obligation to comply with this subpoena is not discretionary. You must take it seriously and cooperate fully with our efforts to collect, review, and produce responsive documents.
B. Scope and Potential Objections
The subpoena is broad in both its temporal scope (covering an eight-year period from January 1, 2014, through December 31, 2021) and its subject matter coverage (encompassing all documents and communications related to Stavros, the Aegean Realty entities, the fund vehicles, and the two financial institutions). As a practical matter, this breadth means that the universe of potentially responsive documents is large and that the collection and review process will be time-intensive.
Under Second Circuit law, a grand jury subpoena may be challenged on grounds of unreasonableness, oppression, or lack of relevance. However, the threshold for obtaining an order quashing a grand jury subpoena is extremely high. The longstanding principle, articulated by the Supreme Court and followed consistently by the Second Circuit, is that the grand jury is entitled to "every man's evidence" and that its investigative power is broad. A motion to quash will succeed only where the subpoena is shown to be unreasonable or oppressive in a clear and demonstrable fashion, or where the materials sought are plainly irrelevant to the grand jury's inquiry. Courts in the Southern District are generally reluctant to interfere with grand jury subpoenas, and motions to quash are disfavored.
Our preliminary assessment is that a motion to quash is not warranted in this case. The subpoena's demands, while broad, are not facially unreasonable given the scope of the investigation and the nature of your business relationship with Stavros and the Aegean Realty entities. A motion to quash would be unlikely to succeed and could be perceived by the government as an attempt to obstruct or delay the investigation, which would be counterproductive to our objective of maintaining your cooperative witness status.
However, negotiation with the government to narrow, clarify, or prioritize the scope of the subpoena's demands is both appropriate and customary. Such negotiations occur regularly in grand jury practice and are not viewed as adversarial or obstructive. We recommend engaging with AUSA Goldfarb to discuss the scope of the document requests, propose a reasonable production timeline, identify priority categories of documents, and seek any necessary clarifications regarding the subpoena's terms.
C. Rolling Production and Extension of Return Date
The original return date of December 9, 2022, is impracticable given the volume of potentially responsive materials, the number of data sources that must be collected and processed, and the need for a careful review of documents for responsiveness and privilege. It is neither realistic nor expected that the entire document production could be completed within approximately two and a half weeks of the subpoena's service.
We will request an extension of the return date to January 20, 2023, and propose a rolling production schedule under which we will produce documents in batches as they are reviewed and cleared for production. This approach is standard practice in the Southern District and is routinely granted when the subpoena respondent demonstrates good faith and a genuine willingness to cooperate with the investigation. The government benefits from receiving documents on a rolling basis, as it allows the investigative team to begin its review while we continue to process the remaining materials.
We anticipate that the request for an extension will be granted without difficulty, particularly given that we will be sending the extension request promptly (by December 7, 2022) and will simultaneously begin the document collection process.
V. Document Preservation Obligations — Litigation Hold
A. Duty to Preserve
Upon receipt of the grand jury subpoena on November 21, 2022, you assumed an immediate and continuing obligation to preserve all documents, communications, and electronically stored information ("ESI") that may be responsive to the subpoena's demands. This obligation is absolute and non-negotiable. It applies to all documents in your possession, custody, or control, regardless of format, location, or perceived relevance.
The preservation obligation extends to all of the following categories of documents and data sources:
• Email. All email communications sent, received, or stored in your personal email account (jrc@caldwellcap.com), including archived or deleted emails that remain recoverable, as well as any other email accounts you may have used for business or personal communications during the relevant period (January 1, 2014, through December 31, 2021).
• Text Messages and Messaging Applications. All text messages (SMS and Westmark Software) and messages sent or received through any messaging applications on your personal mobile device, including but not limited to Meridian Services Inc., Signal, Kestrel Data Systems, or any other platform you may have used to communicate with Stavros, Aegean Realty personnel, or representatives of the financial institutions named in the subpoena.
• Physical Files. All paper documents, files, and records stored at your residence at 1140 Park Avenue, Apt. 14C, New York, NY 10128, and at the offices of Caldwell Capital Advisors LLC, 590 Madison Avenue, 22nd Floor, New York, NY 10022, that relate to the subjects covered by the subpoena.
• Electronic Files. All documents, spreadsheets, presentations, and other electronic files stored on your personal computer, laptop, or any shared drives or cloud storage systems used by Caldwell Capital Advisors LLC or accessible to you.
• JRC Realty Holdings LLC Records. To the extent that any records of JRC Realty Holdings LLC (590 Madison Avenue, 22nd Floor, New York, NY 10022) contain material responsive to the subpoena, such records must also be preserved.
B. Specific Preservation Instructions
We cannot overstate the importance of the following instructions. Please read them carefully and ensure that you and any personnel at Caldwell Capital Advisors LLC who may have access to relevant documents comply fully:
1. Do not delete, destroy, alter, modify, or discard any documents, emails, text messages, or files — whether electronic or paper — that relate in any way to Marcus W. Stavros, Aegean Realty Partners LLC, any Aegean Realty fund vehicle (including Aegean Realty Fund III LP, Aegean Realty Fund IV LP, and Aegean Realty Fund V LP), 710 Flatbush Holdings LLC, Stavros-Caldwell Industrial LLC, Westlake Fidelity Bank, N.A., Harborview Trust Company, or Pinnacle Appraisal Group LLC.
2. Suspend any automatic deletion policies on email accounts, mobile devices, or document management systems. If your email provider or IT system is configured to automatically delete emails or files after a specified period, this function must be disabled immediately for all accounts that may contain responsive material.
3. Preserve all documents regardless of whether they appear favorable or unfavorable. The obligation to preserve is not limited to documents that support your position or reflect well on your conduct. All potentially responsive documents must be preserved, without exception.
4. Do not move documents from their current storage locations without first consulting with us. If documents must be relocated for practical reasons, we should be informed in advance so that we can maintain an accurate chain of custody.
5. Inform any employees or personnel at Caldwell Capital Advisors LLC or JRC Realty Holdings LLC who may have access to responsive documents of the preservation obligation. We will issue a formal Litigation Hold Notice to the appropriate individuals, but in the interim, please ensure that no one takes any action that could result in the loss or alteration of documents.
A separate, formal Litigation Hold Notice will be issued today, December 5, 2022, to you individually and to Caldwell Capital Advisors LLC. That notice will provide detailed, written instructions regarding the scope of the preservation obligation and the specific categories of documents and data sources to be preserved. Please ensure that all personnel who receive the Litigation Hold Notice acknowledge receipt and confirm their understanding and compliance.
C. Consequences of Spoliation
The destruction or alteration of documents that are responsive to a grand jury subpoena is a serious federal crime. Two statutes are of particular relevance:
• 18 U.S.C. § 1519 — Destruction of Records in Federal Investigations. This statute makes it a crime to knowingly alter, destroy, mutilate, conceal, cover up, falsify, or make a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States, or in relation to or contemplation of any such matter. The maximum penalty is 20 years' imprisonment.
• 18 U.S.C. § 1512(c) — Obstruction of an Official Proceeding. This statute makes it a crime to corruptly alter, destroy, mutilate, or conceal a record, document, or other object, or attempt to do so, with the intent to impair the object's integrity or availability for use in an official proceeding (including a grand jury proceeding). The maximum penalty is 20 years' imprisonment.
These are serious felony offenses. The penalties are severe, and the government takes document destruction in the context of grand jury investigations extremely seriously. Even negligent loss of documents — while not necessarily criminal — can result in adverse inferences being drawn against you and may expose you to sanctions in related civil proceedings.
We cannot emphasize strongly enough the absolute importance of diligent compliance with the preservation obligation. If you have any doubt about whether a particular document or category of documents falls within the scope of the subpoena, err on the side of preservation and consult with us immediately.
VI. Fifth Amendment Considerations
A. General Framework
The Fifth Amendment to the United States Constitution provides that no person "shall be compelled in any criminal case to be a witness against himself." This right, commonly known as the privilege against self-incrimination, applies in the grand jury context and may be invoked by a witness called to testify before a grand jury.
In the grand jury setting, the Fifth Amendment privilege operates on a question-by-question basis. Unlike a trial setting where a defendant may choose not to testify at all, a grand jury witness does not have the right to refuse to appear before the grand jury entirely. Rather, the witness must appear and may assert the Fifth Amendment privilege in response to specific questions where a truthful answer would tend to incriminate the witness — that is, where the answer could furnish a link in the chain of evidence needed to prosecute the witness for a crime.
With respect to documents, the Fifth Amendment generally does not protect against the compelled production of pre-existing documents. The Supreme Court's decisions in Fisher v. United States, 425 U.S. 391 (1976), and United States v. Hubbell, 530 U.S. 27 (2000), establish what is known as the "act of production" doctrine. Under this doctrine, the Fifth Amendment may provide limited protection in circumstances where the act of producing documents is itself testimonial and incriminating — for example, where the act of production would authenticate documents, establish their existence, or concede that they are in the witness's possession. However, this protection does not extend broadly to business records held in one's personal or business capacity, and courts have construed it narrowly.
B. Application to Mr. Caldwell
Based on the information currently available to us — including our review of the subpoena, our discussions with you, and our preliminary analysis of the transactions at issue — we do not believe that you have exposure to criminal liability in connection with the matters under investigation. This assessment is based on the following considerations:
• Your investments in the Aegean Realty fund vehicles — totaling $10.0 million across Fund III, Fund IV, and Fund V — were made in the capacity of a limited partner and passive investor. You relied on representations made by Stavros and the Aegean Realty management team, as any limited partner would, and you did not participate in the day-to-day management of the funds or the acquisition, financing, or operation of the properties.
• Your joint venture co-investments — totaling $4.224 million in equity contributions across 710 Flatbush Holdings LLC and Stavros-Caldwell Industrial LLC — appear to have been arm's-length transactions in which you served as a co-investor with Stavros. While you had a more direct role in these ventures than in the LP investments, your participation does not, on the information available, suggest knowledge of or involvement in any fraudulent conduct.
• Your receipt of distributions totaling approximately $2.505 million from the LP investments and JV entities does not, in itself, suggest criminal culpability. Receipt of distributions from an investment is normal and expected conduct for an investor.
• You severed your business relationship with Stavros in late 2019 following a dispute over management fees. The separation agreement, effective December 15, 2019, was negotiated through independent counsel at Whitmore & Kessler LLP, and the terms of the separation were arm's-length and commercially reasonable.
• You have had no business contact with Stavros since the separation.
For these reasons, we do not recommend blanket invocation of the Fifth Amendment at this time. Invoking the privilege in a blanket fashion would be inconsistent with your witness status and could invite closer government scrutiny of your conduct. It could signal to the government that you have something to conceal, which could prompt a reassessment of your status from witness to subject or even target. Moreover, a blanket assertion of the Fifth Amendment would lack a good-faith factual basis, given that the information available to us does not indicate that you engaged in criminal conduct.
We will keep this assessment under continuous review throughout the engagement. Should any facts emerge during the document collection and review process — or through any other source — that suggest potential criminal exposure on your part, we will immediately reassess our position and provide you with updated advice. Your interests and your protection are our paramount concern.
C. Act-of-Production Considerations
As noted above, the act-of-production doctrine provides limited Fifth Amendment protection in circumstances where the act of producing documents would itself be testimonial and incriminating. In evaluating whether this doctrine might apply to your situation, we have considered the following:
The testimonial aspects of document production are minimal in your case. The government already knows of your relationship with Stavros and the Aegean Realty entities — the subpoena itself identifies these relationships and specifies the entities and individuals whose documents are sought. The act of producing documents in response to the subpoena would not reveal any information that the government does not already possess regarding the existence or nature of these relationships. The documents themselves are pre-existing business records, and their production would not require you to create any new testimonial content.
Accordingly, we do not recommend asserting an act-of-production privilege at this time. The doctrine is unlikely to provide a viable basis for withholding documents, and any attempt to assert it would likely be challenged successfully by the government and could be viewed as an obstructive tactic.
VII. Attorney-Client Privilege and Work Product Protections
A. Privileged Communications in the Document Universe
During the course of our review of documents collected from your files and email accounts, we anticipate identifying certain communications that are protected by the attorney-client privilege and that will be withheld from production to the government.
In particular, we expect to identify communications between you and your prior counsel at Whitmore & Kessler LLP — specifically Patricia Sheldon, Partner, Commercial Real Estate Practice — relating to the 2019 negotiation of the separation agreement with Stavros. These communications were made in the course of an attorney-client relationship for the purpose of obtaining legal advice regarding the terms and structure of the separation, and they are squarely within the scope of the attorney-client privilege. We will withhold these communications from production.
We also anticipate identifying communications with Thornberg & Whitfield CPAs (Helen R. Thornberg, Senior Partner, 521 Fifth Avenue, 17th Floor, New York, NY 10175) where tax advice was rendered at the direction of counsel. To the extent that these communications fall within the scope of the Kovel doctrine — which provides that communications made to an accountant at the direction of an attorney, for the purpose of enabling the attorney to provide legal advice, are protected by the attorney-client privilege — we will assert the privilege and withhold them from production. The applicability of the Kovel doctrine is a fact-intensive inquiry, and we will evaluate each such communication individually during the privilege review.
All documents withheld from production on the basis of attorney-client privilege or any other applicable privilege will be listed on a privilege log that we will prepare and provide to the government, as is required by law and standard practice. The privilege log will identify each withheld document by date, author, recipient, subject matter, and the privilege or protection asserted as the basis for withholding.
B. Communications with Calderwood & Harkness
All communications between you and Calderwood & Harkness LLP in connection with this engagement — including this memorandum, all emails, telephone calls, meetings, and any other correspondence or work product — are protected by the attorney-client privilege and the work product doctrine. These communications will not be produced to the government under any circumstances.
To maintain the integrity of the privilege, you should exercise care to ensure that our communications remain confidential. Specifically:
• Do not forward any emails from Calderwood & Harkness attorneys to third parties.
• Do not copy or share any written communications, memoranda, or documents prepared by Calderwood & Harkness with anyone outside the attorney-client relationship.
• Do not discuss the substance of our legal advice with third parties.
Any disclosure of privileged communications to a third party — even an inadvertent or well-intentioned disclosure — could result in a waiver of the attorney-client privilege, potentially making the disclosed communications available to the government.
C. Importance of Not Waiving Privilege
We want to underscore the importance of maintaining the confidentiality of all privileged communications. The attorney-client privilege exists to protect your ability to communicate openly and candidly with your attorneys. Once waived — whether intentionally or inadvertently — the privilege may be lost, and the government may be able to compel production of the previously protected communications.
• Do not discuss this memorandum or any of our legal advice with anyone other than your spouse. While the spousal communications privilege may provide some protection for communications between you and your spouse, we advise caution in this area and recommend that you limit the substance of any discussions with your spouse to the minimum necessary.
• Do not discuss the investigation or the subpoena with Marcus W. Stavros, any representative of Aegean Realty Partners LLC, any representative of Westlake Fidelity Bank or Harborview Trust Company, or any other person who is or may be a witness in the investigation. Communications with other witnesses or potential witnesses could be discoverable by the government, could create the appearance of coordination or obstruction, and could result in serious complications for your position.
If you are unsure whether a particular communication or disclosure would risk waiving the privilege, please contact us before proceeding.
VIII. Recommended Course of Action
Based on our assessment of the subpoena, the underlying investigation, and your current witness status, we recommend the following course of action. We have organized our recommendations into a phased approach, beginning with steps to be taken immediately and progressing through document collection, review, production, and potential testimony.
A. Immediate Steps (This Week)
The following steps should be completed this week, by or before December 9, 2022:
1. Engagement Formalized. You have signed the engagement letter with Calderwood & Harkness LLP dated today, December 5, 2022, and the engagement is now effective. The agreed-upon retainer of $150,000 should be deposited into the firm's IOLA trust account (Account No. 4401-8827-6650 at Northern Capital Bank, N.A.) no later than December 7, 2022. Receipt of the retainer is a condition of our continued representation, and prompt payment will ensure that we can commence work on all aspects of the subpoena response without delay.
2. Litigation Hold Issued. A formal Litigation Hold Notice will be issued today, December 5, 2022, to you individually and to Caldwell Capital Advisors LLC. The notice will set forth in detail the categories of documents and data sources that must be preserved and will require written acknowledgment of receipt and compliance. You should ensure that the notice is distributed to all relevant personnel at Caldwell Capital Advisors LLC and JRC Realty Holdings LLC.
3. Extension Request. We will prepare and send a letter to AUSA Goldfarb requesting an extension of the December 9, 2022, return date to January 20, 2023, together with a proposal for a rolling production schedule. This letter will be sent by December 7, 2022. The letter will explain that the volume of potentially responsive materials requires additional time for collection, processing, and review, and will affirm your commitment to cooperate fully with the investigation.
4. Government Communication. We will schedule an initial telephone conference with AUSA Goldfarb to: (a) formally introduce Calderwood & Harkness LLP as your counsel of record; (b) seek confirmation of your witness status; (c) discuss the scope of the subpoena and identify any priority areas for the government; and (d) request deferral of your testimonial obligation pending the government's review of the document production.
B. Document Collection (Week of December 5–16, 2022)
The document collection phase will commence immediately and will proceed in parallel with our communications with the government:
1. Identify All Custodians and Data Sources. We will work with you to identify all custodians and data sources that may contain responsive documents. Based on our initial discussions, the principal data sources include: (a) your personal email account (jrc@caldwellcap.com); (b) your personal mobile device; (c) physical files stored at your residence (1140 Park Avenue, Apt. 14C) and at the offices of Caldwell Capital Advisors LLC (590 Madison Avenue, 22nd Floor); and (d) the shared drive and any cloud storage systems used by Caldwell Capital Advisors LLC.
2. Engage E-discovery Vendor. We will engage Clearpath Document Solutions Inc. (15 Maiden Lane, Suite 800, New York, NY 10038; project manager: Raj K. Anand) to assist with the processing, hosting, and production of electronic documents. Clearpath is a reputable and experienced e-discovery vendor that Calderwood & Harkness has worked with on numerous prior matters. Their involvement will ensure that the electronic documents are processed in a forensically defensible manner, hosted on a secure review platform, and produced in the format required by the government.
3. Forensic Imaging. Clearpath will perform forensic imaging of your email accounts and a backup of your mobile device. This process preserves a complete, bit-for-bit copy of the electronic data as of the date of collection, ensuring that the data's integrity is maintained and that any questions about completeness or authenticity can be addressed.
4. Physical Document Processing. Relevant physical files stored at your residence and office will be collected, scanned, and processed into electronic format for integration into the document review platform.
5. Estimated Volume. Based on the date range (2014–2021) and the breadth of your business relationship with Stavros and the Aegean Realty entities, we estimate that the collection will encompass approximately 14,200 documents and approximately 8.3 gigabytes of data. This is a preliminary estimate that may be refined as the collection proceeds.
C. Document Review (December 2022 – February 2023)
The document review phase will be conducted in multiple passes to ensure thoroughness and accuracy:
1. Search Term Application. We will apply keyword search terms, date filters, and custodian filters to the collected data to cull the universe of documents down to those that are potentially responsive to the subpoena's demands. The search terms will be developed in consultation with you and will be refined as the review progresses.
2. First-Pass Responsiveness Review. Daniel Obi and Lisa Morrow will lead a first-pass review of the culled document set to identify documents that are responsive to the subpoena's specific demands. Documents that are clearly non-responsive will be set aside; documents that are responsive or potentially responsive will be advanced to the next stage of review.
3. Second-Pass Privilege Review. A second-pass review will be conducted to identify documents that are protected by the attorney-client privilege, the work product doctrine, or any other applicable privilege. This review will focus with particular attention on communications with Whitmore & Kessler LLP and Thornberg & Whitfield CPAs, as discussed in Section VII above.
4. Privilege Log Preparation. For all documents withheld from production on the basis of privilege, we will prepare a privilege log containing the information required by applicable law and the government's standard requirements.
5. Quality Control. Before each production is transmitted to the government, a quality control review will be conducted to ensure that all documents have been correctly categorized, that no privileged documents have been inadvertently included, and that the production is complete and properly formatted.
D. Rolling Productions
We will target the first rolling production to be delivered to AUSA Goldfarb by the extended return date of January 20, 2023. Subsequent rolling productions will be delivered on a schedule to be agreed with the government, with the aim of completing all document productions by late February 2023.
All documents will be produced in TIFF format with corresponding load files, consistent with the standard production specifications used in the Southern District of New York. Documents will be Bates-stamped using the convention CALDWELL-NNNNN (e.g., CALDWELL-00001, CALDWELL-00002, etc.) to facilitate tracking and reference.
E. Testimony. As discussed above, we intend to seek a deferral of your testimonial obligation. If testimony before the grand jury is ultimately required, we will prepare you thoroughly. The preparation process will include the following:
• A comprehensive review of all documents produced to the government, with particular focus on those documents that the government is likely to ask about during testimony.
• Multiple preparation sessions in which we will address the likely areas of government questioning, discuss the rules and procedures of grand jury testimony, and conduct practice examinations.
• A review of the legal framework governing grand jury testimony, including your rights and obligations as a witness.
We will accompany you to any grand jury appearance. It is important to note that, under federal law and grand jury rules, counsel is not permitted to be present inside the grand jury room during testimony. However, we will be stationed immediately outside the grand jury room and will be available for consultation during breaks. You may request a break at any time to consult with us, and we encourage you to do so whenever you have any uncertainty about how to respond to a question.
IX. Summary of Key Investments and Transactions Potentially at Issue
The following is a summary of the key investments and transactions that we believe are potentially responsive to the subpoena and of interest to the government. This summary is based on information you have provided to us and on our preliminary review of available records.
A. LP Fund Investments
You made limited partner investments in three Aegean Realty fund vehicles over a period of approximately two and a half years:
Your interests in Fund III and Fund IV were redeemed as part of the separation from Stavros pursuant to the separation agreement effective December 15, 2019. Your interest in Fund V was redeemed in March 2020, following the expiration of a six-month notice period, at a value of $3.15 million (representing a loss of $350,000 on the original $3.5 million investment).
B. Joint Venture Co-Investments
In addition to your LP fund investments, you made two joint venture co-investments alongside Stavros:
710 Flatbush Holdings LLC (50/50 Joint Venture with Stavros):
• Property: 710 Flatbush Avenue, Brooklyn, NY 11225 — a 42-unit mixed-use building
• Acquisition date: April 2016
• Purchase price: $11,200,000
• Your equity contribution: $2,800,000
• Westlake Fidelity Bank, N.A. loan: $5,600,000
• Ownership: 50% Caldwell / 50% Stavros
Stavros-Caldwell Industrial LLC (60% Stavros / 40% Caldwell):
• Property: 1500 Commerce Boulevard, Newark, NJ 07114 — a 65,000 square foot industrial warehouse
• Acquisition date: October 2017
• Purchase price: $8,900,000
• Your equity contribution: $1,424,000
• Westlake Fidelity Bank, N.A. loan: $5,340,000
• Ownership: 60% Stavros / 40% Caldwell
C. Distributions. Over the course of your investment relationship with Stavros and the Aegean Realty entities, you received the following distributions:
D. Separation and Buyout (December 2019 – March 2020)
In approximately October 2019, a dispute arose between you and Stavros over approximately $340,000 in management fees that Stavros had unilaterally charged to the 710 Flatbush Holdings LLC operating account. You believed that these fees were unauthorized and excessive, and you raised the issue with Stavros directly. When the dispute could not be resolved informally, you retained Patricia Sheldon at Whitmore & Kessler LLP to negotiate a comprehensive separation of your business interests from those of Stavros and the Aegean Realty entities.
The separation agreement, which became effective on December 15, 2019, provided for the following:
• Stavros purchased your 50% interest in 710 Flatbush Holdings LLC for $3,400,000.
• Stavros purchased your 40% interest in Stavros-Caldwell Industrial LLC for $1,850,000.
• Your interests in Aegean Realty Fund III LP and Aegean Realty Fund IV LP were redeemed pursuant to the terms of the separation agreement.
• Your interest in Aegean Realty Fund V LP was subject to a six-month notice period and was ultimately redeemed in March 2020 at a value of $3,150,000.
You have had no business contact with Marcus W. Stavros since the effective date of the separation agreement. This is an important fact that supports our assessment of your witness status and the absence of criminal exposure.
X. Potential Areas of Government Interest Regarding Mr. Caldwell
Based on our analysis of the subpoena and the investigation, we anticipate that the government's interest in your documents and potential testimony will focus on the following areas:
• Investor Communications and Representations. Your documents may contain communications from Stavros to you (and potentially to other investors) regarding fund performance, use of investor capital, property acquisitions, and financial returns. These communications may be relevant to the government's effort to establish that Stavros made false or misleading representations to investors.
• Fund Flow Records. Bank statements, wire transfer confirmations, and other financial records showing the movement of capital between your accounts and Aegean Realty entity accounts are likely of interest to the government's forensic tracing effort, which is being conducted by Meridian Forensic Advisors LLC.
• Appraisal-Related Communications. Any communications in your possession regarding appraisals from Pinnacle Appraisal Group LLC on properties in which both you and Stavros had interests — particularly the two JV properties — may be relevant to the appraisal fraud aspect of the investigation.