United States District Court, D. Minnesota
J. MacLaughlin and Tracy L. Perzel, Assistant United States
Attorneys, Counsel for Respondent.
W. Lundquist and Kevin C. Riach, Fredrikson & Byron,
P.A., Counsel for Petitioner Patrick Kiley.
MEMORANDUM OPINION AND ORDER
Michael J. Davis United States District Court
matter is before the Court upon Petitioner Patrick
Kiley's Motion to Vacate, Set Aside, or Correct his
Sentence pursuant to 28 U.S.C. § 2255.
order to be entitled to the relief sought in this petition,
Kiley must demonstrate that 1) his trial counsel had an
actual conflict of interest; and 2) that such conflict
adversely affected his performance at trial. For the reasons
stated below, the Court finds that Kiley has failed to meet
an eight week trial, Patrick Kiley was found guilty of
multiple counts of wire fraud, mail fraud, money laundering
and conspiracy to commit wire and mail fraud. These
convictions arose from a Ponzi scheme that operated between
July 2006 and July 2009, in which Kiley and others received
over $193 million from hundreds of investors. The evidence
presented at trial demonstrated that Kiley and others
defrauded victims by convincing them to invest their money in
a sham currency program. For his part, Kiley had a radio show
called “Follow the Money” during which he
embellished his financial background and promoted the
currency program to his listeners. Through this show, Kiley
successfully recruited a number of investors in the currency
program by assuring them their money would be kept in a
separate account and that they would be able to get their
money back at any time. The evidence at trial also
demonstrated that Kiley attended many meetings with
co-conspirators and that he had direct control over bank
accounts in the name of Crown Forex LLC and Basel Group LLC;
each of which held millions of dollars of victim funds.
Motion for Inquiry
to trial, the government filed a motion for inquiry, asking
the Court to inquire as to whether Kiley's defense
counsel, H. Nasif Mahmoud, may be a necessary witness at
trial and whether Mahmoud had an actual or potential conflict
of interest with one former client and one current client.
[Doc. No. 80] In addition, if the circumstances warranted,
the government requested that the Court secure appropriate
waivers of the conflict or issue an order of
disqualification. The matter was referred to the Magistrate
Judge for hearing.
motion to inquire, the government asserted that during a
pretrial phone conference, Mahmoud informed the government
that he flew to Minneapolis in July 2009, at Kiley's
request, to attend a number of meetings with co-conspirator
Trevor Cook, Kiley and various attorneys to discuss
the Phillips lawsuit. He further informed the
government that while in Minneapolis, he had stayed at the
Van Dusen mansion, which was the locus of the fraudulent
activity charged in the Indictment. He also stated that Cook
specifically told him that Cook initiated the wire transfer
that was the subject of the money laundering asserted in
Count 23, and that Mahmoud was the recipient of such funds.
Based on that information, the government raised the concern
that Mahmoud may have to be a witness at trial.
the hearing on the government's motion, the Magistrate
Judge found that it was “undisputed that the attorney
referenced in Count  is Mr. Mahmoud, whom Defendant Kiley
had retained in a related civil action” and that there
were other attorneys present at the meetings at the Van Dusen
mansion who could testify as to what happened. Based on the
submissions of the parties, the Magistrate Judge was
satisfied that Mahmoud had a trial strategy without having to
rely on his own testimony. The Magistrate Judge thus
recommended that Mahmoud need not be disqualified on the
basis that he would be a witness at trial.
government also raised the concern that Mahmoud's
relationship with a former client created a conflict
requiring disqualification. In 2005, Mahmoud represented Duke
Thietje for the purpose of creating a foreign trust; legal
work unrelated to Kiley or the charged Ponzi scheme. Through
the course of this representation, Thietje made certain
disclosures to Mahmoud regarding his financial and employment
situation. The attorney/client relationship ceased after a
Thietje was also an early investor in the currency program
promoted by Cook and Kiley. Thietje's initial $300, 000
investment was placed with a large currency trading firm
called Refco, Inc. One week after this investment was placed,
Refco declared bankruptcy. Subsequent to the bankruptcy,
Thietje repeatedly made inquiries of Kiley as to the status
of his investment. Ultimately, when Thietje was not able to
get his money back, he sued Kiley in state court. Based on
Thietje's experience with the currency program, the
government informed the parties that it intended to call
Thietje as a key witness in its case in chief against Kiley.
determining whether Mahmoud should be disqualified from
representing Kiley in light of his prior relationship with
Thietje, the Magistrate Judge looked at whether privileged
attorney/client information may be implicated in the course
of Mahmoud's cross-examination of Thietje. The Magistrate
Judge found that it was likely such privileged information
could be implicated, and that a conflict existed. The
Magistrate Judge further found that the conflict was not
severe, that the attorney/client relationship ended years
before Kiley became Mahmoud's client and that when the
Kiley/Mahmoud attorney/client relationship commenced, Thietje
was no longer investing with Cook or Kiley.
Magistrate Judge then inquired of Kiley as to whether he
would waive the conflict of interest between Mahmoud and
Thietje. On the record, Kiley provided an unequivocal waiver
of any conflict of interest and stated that he wanted Mahmoud
to continue as his attorney. Based on this waiver, the
Magistrate Judge recommended that disqualification was not
necessary based on a conflict of interest involving Duke
Thietje, noting that co-counsel could cross- examine Thietje
Magistrate Judge also addressed the question of a conflict of
interest arising from Mahmoud's prior as well as current
representation of Stephen Nortier. The government asserted
that Nortier had information adverse to Kiley based on
Nortier's prior relationship with Kiley when he was hired
to secure radio air time for Kiley's radio program. The
government asserted that during that relationship,
Nortier's business created the website
www.patkiley.com, and that the website contained
false claims about Kiley's qualifications as an
investment advisor and about the safe and secure nature of
the currency program Kiley promoted. If called as a witness
at trial, the government asserted that Nortier would testify
that Kiley was the source of this false information.
response, Mahmoud asserted that Nortier would provide a
waiver indicating that he had no objection to Mahmoud
representing Kiley at trial or that Mahmoud could
cross-examine him. He further argued that Nortier did not
create Kiley's website.
Magistrate Judge found that with respect to Nortier, a
conflict of interest existed, and advised Kiley of his right
to separate and independent counsel free from any conflict of
interest that may arise from Mahmoud's representation of
Nortier, and explained the difficulties his counsel may have
in representing both Kiley and Nortier. On the record, Kiley
again stated his unequivocal waiver of any conflict of
interest and that he wanted Mahmoud to be his attorney.
Report and Recommendation dated November 10, 2011, the
Magistrate Judge recommended that Mahmoud not be disqualified
at that time. Neither party objected to the Magistrate
Judge's recommendation and this Court adopted the Report
and issued an Order finding that Mahmoud would not be
was sentenced on July 16, 2013 to a term of imprisonment of
240 months: 180 months on Counts 1 through 13 to be served
concurrently; and 60 months on Counts 22 and 23 to be served
concurrently, but consecutive to the term of imprisonment for
Counts 1 through 13. The sentence was a downward variance
from the applicable guideline range of life imprisonment.
appeal, the Eighth Circuit affirmed Kiley's conviction
and sentence. United States v. Beckman et al., 787
F.3d 466, 488 (8th Cir. 2015) reh'g denied (Jun.
17, 2015) and reh'g and reh'g en banc denied
(Jun. 17, 2015). One argument Kiley raised on appeal was
whether he was denied effective assistance of counsel on the
basis that trial counsel labored under multiple conflicts of
interest while representing him. Kiley argued that despite
the pretrial hearing on the government's motion to
inquire and Kiley's unequivocal waiver, the Court
nonetheless erred by not considering the conflict inherent in
Count 23 - that Kiley was convicted of a crime that
implicated Mahmoud. Id. 787 F.3d at 488.
argued that at trial, several witnesses testified as to
Mahmoud's receipt of the charged wire transfer, and that
Mahmoud even referred to himself in the first person when
questioning Kiley's administrative assistant. Kiley
argued the potential conflict regarding Count 23 was so
obvious that the Court should have investigated the matter
whether or not Mahmoud raised it on Kiley's behalf and
that such conflict was so grave it violated Kiley's Fifth
Amendment right to due process. Id. at 489. The
Eighth Circuit disagreed.
In this case, the district court relied on (1) Mahmoud's
assurance that no conflict existed and his adamant response
to the government's motion for inquiry and (2)
Kiley's clear statement to the magistrate judge he wanted
Mahmoud to represent him-“I want to keep Mr.
Mahmoud.” Unlike Wood, the government's
motion for inquiry did not apprise the district court of the
Count 23 issue Kiley now raises. We therefore reject
Kiley's due process challenge raised under the Fifth
Amendment, and we find the district court was not required to
address sua sponte the potential Count 23 conflict in the
midst of this complex and lengthy trial.
Id. at 490.
respect to Kiley's ineffective assistance of counsel
claim, the Eighth Circuit noted that the district court had
not heard arguments about the inherent conflict in Count 23,
and because Kiley had to show that the alleged conflict of
interest had an adverse effect on counsel's performance,
the court declined to address it on direct appeal.
Id. “Whether the alleged Count 23 conflict
resulted in ineffective assistance by Mahmoud is more
appropriately addressed in a § 2255 proceeding with the
benefit of the fact-finding and appraisal by the trial judge,
who is in a better position to assess Mahmoud's
performance.” Id. On January 22, 2016, Kiley
filed the instant habeas petition and on December 16, 2016,
the Court held an evidentiary hearing and heard testimony
from H. Nasif Mahmoud, Stephen Nortier and Robert Sicoli and
admitted a number of exhibits.
Standard of Review
28 U.S.C. § 2255, “[a] prisoner in custody under
sentence . . . claiming the right to be released upon the
ground that the sentence was imposed in violation of the
Constitution or laws of the United States, or that the court
was without jurisdiction to impose such sentence . . . or is
otherwise subject to collateral attack, may move the court
which imposed the sentence to vacate, set aside or correct
the sentence.” 28 U.S.C. § 2255(a). Section 2255
is intended to provide federal prisoners a remedy for
jurisdictional or constitutional errors. Sun Bear v.
United States, 644 F.3d 700, 704 (8th Cir. 2011). It is
not intended to be a substitute for appeal or to relitigate
matters decided on appeal. See Bousley v. United
States, 523 U.S. 614, 621 (1998); Davis v. United
States, 417 U.S. 333, 346-47 (1974)).
Relief under 28 U.S.C. § 2255 is reserved for
transgressions of constitutional rights and for a narrow
range of injuries that could not have been raised on direct
appeal and, if uncorrected, would result in a complete
miscarriage of justice. A movant may not raise constitutional
issues for the first time on collateral review without
establishing both cause for the procedural default and actual
prejudice resulting from the error.
United States v. Apfel, 97 F.3d 1074, 1076 (8th Cir.
1996) (citations omitted).
Claim of Actual Conflict of Interest
petition, Kiley claims that his convictions should be vacated
and set aside because his trial counsel labored under an
actual conflict of interest that violated his constitutional
right to effective assistance of counsel based on
counsel's connections to the fraudulent currency program.
right to counsel includes the right to representation that is
free from conflicts of interest. Wood v. Georgia,
450 U.S. 261, 271 (1981). When counsel is burdened by an
actual conflict of interest, “counsel breaches the duty
of loyalty, perhaps the most basic of counsel's
duties.” Strickland v. Washington, 466 U.S.
668, 692 (1984). An actual conflict of interest exists when
the interests of the attorney and that of the client
“diverge with respect to a material factual or legal
issue or to a course of action.” United States v.
Edelmann, 458 F.3d 791, 807 (8th Cir. 2006). To be
entitled to relief, however, a defendant raising an
ineffective assistance of counsel claim, who did not object
to his attorney's conflict of interest at trial,
“must demonstrate that an actual conflict of interest
adversely affected his ...