Why the Government Keeps Failing to Re-Indict Letitia James

Not-really-U.S. Attorney for the Eastern District of Virginia Lindsey Halligan and her ragtag team of prosecutors seem to have taken the old adage very literally: If at first you don’t succeed, try, try again.

After their case against Letitia James was dismissed on the grounds that Halligan was improperly appointed, they attempted to indict the New York attorney general again in Norfolk—and again in Alexandria the following week. These efforts failed. (The possibility remains that the government may add another “try” to the time-worn saying on any given Thursday.) 

This series of events invites the question: Why can’t the office Halligan is continuing to pretend to lead seem to earn a second true bill? After all, when Halligan presented to the first grand jury herself two months ago, she emerged victorious … for about a month, at least. 

Arriving at a conclusive answer is impossible without seeing three separate grand jury transcripts. Informed speculation, however, is suddenly easier than ever.

That’s because the most recent grand jury, in Alexandria, made the unusual decision this week to present the indictment it rejected in open court, and U.S. Magistrate Judge William Porter issued an order Dec. 15 denying the government’s request to keep those records sealed. A comparison of this failed indictment to the version from the original prosecution may help explain why the U.S. attorney’s office’s tenacity isn’t yielding results.

What’s Old Is New Again

The essentials of the two indictments are the same: alleged violations of the bank fraud law (18 U.S.C. § 1344) and a law prohibiting false statements to a financial institution (18 U.S.C. § 1014). To have committed a crime under these statutes, James would have to have knowingly made a false statement that was intended to deceive as well as either intending, or tending, to influence the decision of a bank. 

The later indictment also focuses on the same property as the earlier—a three-bedroom, one-bathroom house in Norfolk on Peronne Avenue (though this is spelled alternately as “Peronne” and “Perrone” in the document, only the former of which corresponds to the spelling on Google Maps). The basic allegation of occupancy fraud carries over into this go-around, too. The government argues that James misrepresented herself to her lender, OVM Financial, when she indicated in mortgage forms that she would treat the property as a secondary residence.

And once again, a “Second Home Rider” is central to the case. This is a form Fannie Mae statement that bars borrowers from entering into “a timesharing or any other shared ownership arrangement” that requires them “either to rent the property or give any other person control over the occupancy or use of the property.” What was odd—or obfuscatory—about the initial indictment was that it never claimed that James breached that rule. It simply said she rented “the property to a family of (3),” implying that the terms of the rider weren’t honored, when really the rider explicitly allows short-term renting during the first year so long as the property remains under the borrower’s control and “available” for the borrower’s personal use.

The new indictment, similarly, zeroes in on the rider as the basis of one of its false statement counts. This time, it doesn’t mention rental to a family of three—probably because the family in question, as the New York Times reported shortly after the initial indictment, has turned out to be James’s own grandniece and her children, who appear to have lived in the house for years almost entirely rent-free. Indeed, when the indictment introduces the existence of the rider, it doesn’t mention rental at all; it merely says that James “never had any intention of occupying and using” the property “as a second home.”

This focus on occupancy frames the rest of the new indictment. But in this instance, it doesn’t resolve the old indictment’s central problem: There’s no evidence that James acted contrary to the rider’s specific requirements. And to have made a false statement to a financial institution, she would have to have actually stated or certified something false.

What’s New Isn’t Much Help Either

The most obvious difference between the revised indictment and its previous incarnation is the addition of another—third—count: also alleging false statements to a financial institution but based on a separate document. 

That document is an “Affidavit of Occupancy” that James signed when applying for the loan. Assuming that affidavit is the same one the government eventually submitted as supporting documentation in the now-dismissed case, this allegation has bones even barer than the allegation regarding the rider. Next to the line, “Second Home: At least one borrower will occupy the property as a second home (vacation, etc) while maintaining a principal residence elsewhere,” James has ticked a box.

The indictment says that James’s checking of this box constituted a false declaration of her “intent to occupy” the property “as a second home…when in truth and fact…she never had any intention” of doing so. And, as with the rider, there is scant discussion of how exactly James failed to occupy the property as a second home. The relevant Fannie Mae guidelines more or less mirror the second-home rider—and they state that the borrower must occupy the property “for some portion of the year.”

The prosecutors suggest James didn’t occupy the property at all, pointing to Schedule E tax forms on which she indicates zero “personal use days.” They also reference reservations she made at hotels in the area. The New York Times, however, reports that James makes “regular visits” to the property—and the credit card receipts for hotel reservations the government produced while its abortive case was still active cover only a single week around the time of purchase.

But the government’s trouble is deeper than just this. Prosecutors not only need to show the willful violation of rules for secondary residences—they also need to show that those violations influenced the decision of a bank. And the shift in focus away from allegedly renting the property to allegedly failing to occupy it renders that task even trickier. The old indictment sought to meet the bar by avowing, based on the Schedule E tax forms, that James had received “thousand(s) of dollars in rents” and was therefore treating her home as an investment property. Lying about whether the home was an investment property might have influenced the bank—because a mortgage for an investment property would have carried a higher interest rate.

The new indictment doesn’t do that. Indeed, it dispenses with the “thousand(s) in rent” language entirely, perhaps because the Schedule E forms include only $1,350 in rents received and reveal a matching $1,350 in utilities paid. Read carefully, the Schedule E forms indicate that after taking into account mortgage interest, taxes and depreciation, James lost money on the property in 2020.

Yet the truth can hurt, and in this matter the indictment’s (relative) honesty may harm the government’s case in the eyes of a reasonable grand juror. After all, if this house wasn’t a second home, what was it—and how did James’s alleged misrepresentations of her occupancy of it influence the decision of a bank to issue a loan at a given rate? The government does eventually say the property would have been “accurately represented…as an investment property.” But, because this time around prosecutors didn’t include any facts even remotely suggesting James was profiting from her ownership, they haven’t come close to demonstrating that she viewed the house as an investment at all.

Prosecutors rely instead only on the Schedule E forms and New York financial disclosures. The Schedule E forms report income or losses from “rental real estate”; the New York disclosure forms instruct respondents not to list property that is their primary or secondary residence, and James has indicated that the general nature of the property is “investment.” These filings, however, don’t necessarily mean that the home wasn’t “available” for James’s use (as the second home rider requires) or that she did not use it “for some portion of the year” (as the affidavit of occupancy attests). Quite possibly, James was attempting to cross “i”s and dot “t”s by disclosing the origin of any income she was receiving that would otherwise be unaccounted for, rather than accidentally admitting to having defrauded a financial institution when she obtained her loan.

(The closest the indictment comes to catching James in anything that looks even a little like a lie is when it introduces an insurance policy James signed, not featured in the previous indictment, that indicated the total number of residents in the household including children would be one. But, besides the fact that James isn’t charged with insurance fraud, it’s unclear whether she would have been obligated to include the family members who eventually lived in her property as members of the economic unit that makes up her household. Arguably if the residents actually were tenants rather than household members, they should have obtained their own policy.)

Ultimately, the indictment betrays its lack of confidence in its own contention that the “Peronne Property” was legally an investment property—waffling over whether James was perpetrating a money-making ploy or doing a family member a favor by “secur[ing] a mortgage…that her family member could not have qualified for.” The latter would be illegal if the family member were secretly responsible for the home and the mortgage payments. But, as far as we know and apparently as far as the government knows either, the family member was not.

What’s the Story?

So why did Assistant U.S. Attorney Roger Keller—who took charge of this case, including the presentation of the indictment to the grand jury, after the improper appointment debacle—fail not once, but twice now, to do what Lindsey Halligan in all her inexperience managed to do two months ago?

One possible explanation is random variance in the grand jury pool. Different grand juries have different grand jurors, and these latter grand jurors may have been less persuadable than the earlier ones, even though persuading 12 or so people of probable cause is notoriously, and historically, easy.

Another possible explanation resides in the indictment itself: This time, the government has done even less than last time to demonstrate that the house was anything other than a second home according to Fannie Mae’s malleable guidelines; or that Letitia James knew as much; or that any gap between her representations and reality had any influence on her lender’s decisions. And at least some of the reason it has done less may be that it feels more bound by normal procedure than it did last time.

The defense submitted a motion for the disclosure of certain grand jury materials in the since-dismissed case questioning whether Halligan may have “infected” the grand jury proceedings with “instructional error”—as the record shows she did in former FBI Director James Comey’s case. A grand jury in Norfolk originally heard testimony from the grandniece; but the grand jury that returned the indictment was seated in Alexandria, and the niece wasn’t asked to testify again. The inspector general for a key housing agency was ousted after he reportedly attempted to provide constitutionally required information to EDVA—suggesting there may have been exculpatory evidence that prosecutors should have but did not present to the Alexandria grand jury.

In other words, the case may look weaker this time around, because the case always was weaker but now the government is doing less to hide that weakness.

The final possible explanation: Grand jurors have been reading the news. In declining the government’s request to seal the rejected indictment after the grand jury presented it in open court, the judge said he wouldn’t speculate why the grand jury had taken that extraordinary step. But he also said that making the no bill public “serves the interest of transparency when an individual has already suffered the stigma of public criminal charges.” The grand jury—aware of President Trump’s efforts to punish a political opponent come hell, high water, or dismissal on the basis of improper appointment—may have thought along the same lines. It, or some members of it, may also have been aware of prior grand jury rejection of charges. And grand jurors may have been aware of the judicial dismissal of the previous charges.

The full explanation could be some combination of the above. But the inability of the Department of Justice to secure the retribution it has been ordered to seek suggests that trying, trying again doesn’t always lead to success. Sometimes, it just leads to repeated failure.