United States Court of Appeals For the First Circuit
No. 23-1159
UNITED STATES OF AMERICA,
Appellee,
v.
RANDALL CRATER,
Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Denise J. Casper, U.S. District Judge]
Before
Gelpí, Howard, and Rikelman, Circuit Judges.
Scott P. Lopez, with whom Lawson & Weitzen, LLP was on brief, for appellant.
David M. Lieberman, Attorney, Criminal Division, Appellate Section, with whom Joshua S. Levy, Acting United States Attorney, Donald C. Lockhart, Appellate Chief, Christopher J. Markham, Assistant United States Attorney, District of Massachusetts, Nicole M. Argentieri, Acting Assistant Attorney General, and Lisa H. Miller, Deputy Assistant Attorney General, were on brief, for appellee. February 23, 2024 RIKELMAN, Circuit Judge. After an eight-day trial, a
jury convicted Randall Crater of wire fraud, unlawful monetary
transactions, and operating an unlicensed money transmitting
business based on his involvement in a cryptocurrency scheme. On
appeal, Crater challenges two of the district court's trial
rulings. First, Crater argues that the district court violated
his Sixth Amendment right to compulsory process by refusing to
enforce subpoenas against three federal agency witnesses on the
ground that Crater had failed to comply with the agencies' Touhy
regulations. Second, Crater contends that the district court
abdicated its gatekeeping duty by admitting testimony from the
government's cryptocurrency expert without conducting a Daubert
hearing. Because Crater's arguments cannot be squared with
controlling precedent or the record in this case, we affirm.
I. BACKGROUND
A. Relevant Facts
We begin with the facts, recounted in the "light most
favorable to the verdict." United States v. Guerrero-Narváez, 29
F.4th 1, 5 (1st Cir. 2022).
In the early 2010s, interest in cryptocurrency was
rapidly growing. The first well-known cryptocurrency, Bitcoin,
rose in value from less than one dollar in 2010 to nearly $100 per
coin in 2013. That same year, Randall Crater took advantage of
the market by launching My Big Coin (MBC), a new virtual currency
- 3 - and company. Crater credited himself as MBC's "Creator/Developer"
on LinkedIn, and his colleague John Roche served as the company's
chief executive officer.
MBC implicitly touted its similarities to Bitcoin on its
website and social media pages. Like Bitcoin, MBC was purportedly
a "virtual currency" that could be mined, bought, sold, traded,
saved, donated, or "sen[t] to friends and family around the world."
But MBC also claimed several unique features. First, MBC's virtual
currency ostensibly was "backed 100 percent by gold." Second, MBC
claimed to have a partnership with Mastercard, which would allow
coin-holders to "buy stuff all over the world" using a Mastercard
linked to their MBC account.
Crater also emphasized these unique features on his own
social media and in communications with potential customers. On
LinkedIn, he boasted that MBC was "the only cryptocurrency to be
backed by gold" and that "[w]e are partners with Mastercard, which
gives us a closed loop system so your [sic] able to brake [sic]
down into any currency that's needed!" In an email to one
customer, he wrote that "we have 300 million in gold backing us."
To another, he wrote that a bank in Spain held "100 million dollars
in my name in gold." Crater also told potential customers about
MBC's "elite deal" with Mastercard. In one instance, he claimed
via text message to have "[b]een with [the] Mastercard guys all
[morning]."
- 4 - These representations successfully enticed customers to
purchase MBC. For example, one customer, John Lynch, invested
more than $5.6 million in MBC based on his understanding that the
currency "mimicked Bitcoin in many ways" but "had the additional
advantage of being backed by gold."
Once customers purchased MBC, they were stuck with it.
Although MBC purportedly could be sold on an exchange hosted on
MBC's website, of the four MBC investors who testified for the
government at trial, none were ever able to sell their coins on
this exchange. Lynch, who needed liquidity to pay his taxes, tried
to work with Crater to sell some of his investment outside of the
exchange. Crater told Lynch that he had found a buyer and
repeatedly assured Lynch that money was coming -- he claimed to be
"[c]ounting cash," "waiting on the armored car service," and wiring
funds from Europe -- but no sale ever materialized.
Nor could customers spend their coins via Mastercard, as
Crater had promised. In lieu of a Mastercard linked to their MBC
account, MBC customers received a plastic card embossed with the
words "preferred customer," which provided no conduit to spend
their coins. And Mastercard had no record of any proposal or deal
with MBC.
Crater's representations about MBC's gold backing were
also false. Crater had communicated with an individual about a
"product" stored in barrels in a bonded warehouse in Texas -- but
- 5 - that product was high-grade mining waste, not gold bullion. And
the documentation Crater had from the warehouse at the time he
represented to investors that the coin was backed by $300 million
in gold said no such thing.
Customers purchased MBC by wiring money into one of three
bank accounts: an account registered to Crater's other company,
Greyshore Technology, or accounts registered to Crater's family
members. Collectively, between 2014 and 2016, $7.8 million flowed
into these three accounts, over $6.3 million of which could be
traced to MBC purchases.
B. Legal Proceedings
The government charged Crater with four counts of wire
fraud under 18 U.S.C. § 1343, three counts of unlawful monetary
transactions under 18 U.S.C. § 1957, and one count of operating an
unlicensed money transmitting business under 18 U.S.C. § 1960(a),
(b)(1)(B).
Before trial, the government advised Crater that it
planned to call an expert, Pamela Clegg, a "Certified Anti-Money
Laundering Specialist," to testify about virtual currencies
generally and MBC specifically. Clegg worked as the Director of
Financial Investigations and Education for CipherTrace, a
blockchain analytics firm. In that role, she was responsible for
"conduct[ing] cryptocurrency financial investigations and
educat[ing] others to understand and investigate financial crimes,
- 6 - money laundering and other criminal activity within the
cryptocurrency ecosystem." Among the parties Clegg had educated
on cryptocurrency were Interpol, Europol, and the United States
Departments of Treasury, Homeland Security, and Justice.
At the government's behest, CipherTrace had conducted a
"blockchain analysis" of MBC. As Clegg's expert report explained,
cryptocurrencies like Bitcoin use "cryptography to validate and
secure transactions that are digitally recorded on a distributed
ledger" known as a "blockchain." By analyzing these public
blockchains, which are "available to the public and reviewable on
several platforms," an investigator can gather information about
a cryptocurrency, such as transaction history and trading
frequency. CipherTrace's investigation had revealed that MBC was
not associated with a public blockchain and, therefore, lacked a
crucial indicator of operating as a cryptocurrency, until June
2017 -- long after Crater had marketed MBC as a virtual currency
comparable to Bitcoin.
Before trial, Crater moved to exclude Clegg's testimony
on several grounds. He argued that Clegg was not qualified to
render an expert opinion regarding cryptocurrency because her
undergraduate and graduate degrees were not in computer science
and that CipherTrace's investigation was based on unreliable
methods. He also contended that Clegg's proposed testimony was
irrelevant or, to the extent it was relevant, that the danger of
- 7 - unfair prejudice substantially outweighed its probative value.
Crater requested that the court hold a Daubert hearing to explore
these issues.
After the government filed an opposing brief, the
district court heard oral argument at the final pretrial conference
on Crater's motion to exclude Clegg. Crater emphasized that
Clegg's testimony risked confusing the jury because her opinion
was "limited to public blockchains" and thus did not sufficiently
allow for the possibility that MBC was associated with a private
blockchain during the relevant time. The district court rejected
this as a reason to exclude Clegg's testimony in its entirety but
noted that the public versus private blockchain issue would provide
Crater with "fertile ground" for cross-examination. The court
also explained that, based on its review of the papers, which
included Clegg's curriculum vitae, Clegg's qualifications were
sufficient to render expert testimony on the relevant issues.
The case proceeded to trial, at which Crater attempted
to call employees of three federal agencies -- the United States
Postal Service (USPS), Commodity Futures Trading Commission
(CFTC), and Federal Bureau of Investigation (FBI) -- as defense
witnesses. The government maintained that the agents were not
obligated to comply with Crater's subpoenas because Crater had not
followed the agencies' Touhy regulations.
- 8 - These regulations, promulgated under the federal
housekeeping statute, 5 U.S.C. § 301, "govern the conditions and
procedures by which [agency] employees may testify about
work-related issues at trial." United States v. Soriano-Jarquin,
492 F.3d 495, 504 (4th Cir. 2007). They are known as "Touhy"
regulations after the Supreme Court's decision in United States ex
rel. Touhy v. Ragen, 340 U.S. 462 (1951), which held that the
housekeeping statute conferred upon agency heads the ability to
"validly withdraw from . . . subordinates the power to release
department papers" in civil proceedings. Id. at 467.
As a threshold step, before the employees would or could
testify, the regulations required Crater to submit to their
respective agencies a summary of the testimony he sought. 28
C.F.R. § 16.23(c) (DOJ, including FBI); 17 C.F.R. § 144.5(a)
(CFTC); 39 C.F.R. § 265.12(c)(2)(iii) (USPS).1 Crater made no
attempt to comply. Instead, he argued to the district court that
the agencies' regulations could not apply in criminal proceedings
because their application would impermissibly burden a defendant's
Sixth Amendment right to compulsory process.
1 By their plain text, the USPS regulations do not apply to any proceeding in which the United States is a party. 39 C.F.R. § 265.12(a)(3)(i). For reasons we will explain, however, we do not rely upon the Touhy regulations in affirming the district court's decision and thus do not need to address this issue.
- 9 - Over the course of the trial, the district court returned
to the Touhy issue several times. Although the court heard oral
argument on whether the regulations applied in criminal
proceedings, it also invited Crater to explain why he wanted the
agents to testify, indicating that the Touhy issue would be "moot"
if the testimony Crater sought was irrelevant. Crater clarified
that the purpose of subpoenaing the USPS and FBI agents was to
question them about "how [they] conducted [the] interviews" in
their investigation of Crater because, "in reading through the
reports of this investigation, [he] was struck by the approach
[the agents] took to questioning witnesses and essentially
corrupting their recollection of what was going on." As for the
CFTC agent, Crater explained that he wanted to question him about
Roche's refusal to comply with a CFTC subpoena, which Crater
thought could help him make out a "third-party culprit argument."
The government responded that this evidence was irrelevant because
Crater had not laid a foundation for it by questioning any of the
testifying witnesses about their interactions with the agents.
After Crater's proffer, the district court ruled on two
separate grounds that it would not compel the agents to testify.
First, it concluded that declining to compel the agents' testimony
would not deprive Crater of a defense because the testimony he
sought was not relevant or material. At most, the court reasoned,
the evidence could be used for impeachment, but given that the
- 10 - witnesses Crater sought to impeach were not called to testify by
the government, the evidence was entirely irrelevant. Second,
based on out-of-circuit case law applying Touhy regulations in
criminal cases, the court concluded that the agencies' regulations
were operable and thus cited Crater's non-compliance as a "separate
basis" for its ruling.
At the conclusion of the eight-day trial, at which Clegg
testified and the CFTC, FBI, and USPS agents did not, the jury
returned a guilty verdict against Crater on all counts. The
district court sentenced him to 100 months' imprisonment.
II. DISCUSSION
The issues on appeal are narrow. Crater challenges only
the district court's application of the Touhy regulations in a
criminal proceeding and its decision to admit Clegg's testimony
without holding a Daubert hearing. Either error, he contends,
requires us to vacate the final judgment and order a new trial.
We review each argument de novo and conclude that neither merits
reversal. See United States v. Adams, 740 F.3d 40, 43 (1st Cir.
2014) (explaining that questions of law are subject to de novo
review); Smith v. Jenkins, 732 F.3d 51, 64 (1st Cir. 2013) ("The
question of whether the district court actually performed its
gatekeeping function in the first place [under Daubert] is subject
to de novo review.").
- 11 - A. The Touhy Issue
Crater argues that the district court erred by treating
the agencies' Touhy regulations as valid procedural requirements
in the criminal context. He maintains that enforcing these
regulations in a criminal proceeding violates a criminal
defendant's rights under the Sixth Amendment's Compulsory Process
Clause, which provides that, "[i]n all criminal prosecutions, the
accused shall enjoy the right . . . to have compulsory process for
obtaining witnesses in his favor." U.S. Const. amend. VI. Such
restrictions on a defendant's right to call witnesses, he contends,
are incompatible with the text and history of this clause.2
Crater premises this argument on the claim that the
Supreme Court's decision in New York State Rifle & Pistol Ass'n v.
Bruen, 597 U.S. 1 (2022), controls our analysis. In Bruen, the
Court announced the standard that courts must use to evaluate the
constitutionality of regulations that burden an individual's
Second Amendment right to bear arms: If the regulation at issue
burdens conduct that falls within the plain text of the Second
Amendment, then it is unconstitutional unless the government can
2 Crater also argues that application of the agencies' Touhy regulations violates a defendant's Sixth Amendment rights by "compel[ling] the defendant to sacrifice his work-product privilege." The parties dispute whether Crater forfeited this argument by failing to raise it in the first instance to the district court. Because our decision to affirm does not rest on the validity of the Touhy regulations, we do not need to address this argument.
- 12 - prove that its regulation is "consistent with the nation's
historical tradition of firearm regulation." Id. at 24. Crater
argues that we must apply this same analytical framework to the
regulations at issue here. And under this framework, he argues,
the Touhy regulations are unconstitutional as applied to criminal
proceedings.
The protections of the Compulsory Process Clause are
certainly critical to an individual's constitutional right to
mount a meaningful defense at trial against criminal charges
brought by the government. But Crater's argument here suffers
from a fundamental flaw: The Bruen decision articulated a "standard
for applying the Second Amendment," id., but it did not purport to
supplant existing case law on any other constitutional right. And
the Supreme Court has separately interpreted the Sixth Amendment's
Compulsory Process Clause. That case law, which provides an
entirely different test for evaluating whether a restriction
violates a defendant's right to compulsory process, necessarily
controls our constitutional analysis here, regardless of whether
it is consistent with the Court's mode of analysis in Bruen. See
Rodriguez de Quijas v. Shearson/Am. Exp., Inc., 490 U.S. 477, 484
(1989) ("If a precedent of this Court has direct application in a
case, yet appears to rest on reasons rejected in some other line
of decisions, the Court of Appeals should follow the case which
directly controls, leaving to this Court the prerogative of
- 13 - overruling its own decisions."); United States v. Ivery, 427 F.3d
69, 75 (1st Cir. 2005) ("It is not our place to anticipate the
Supreme Court's reconsideration of its prior rulings . . . .").
We briefly summarize the relevant Sixth Amendment case
law. The Supreme Court's decision in Washington v. Texas, 388
U.S. 14 (1967), "shaped the broad contours of the right to
compulsory process." United States v. Hoffman, 832 F.2d 1299,
1302 (1st Cir. 1987). There, the Court explained that the Sixth
Amendment's Compulsory Process Clause protects, "in plain terms[,]
the right to present a defense." Washington, 388 U.S. at 19. It
then found that a rule that arbitrarily deprived the defendant of
"relevant and material" testimony, which would have been "vital"
to the defense's theory, violated this constitutional right. Id.
at 16, 23.
The Court "narrowed" the "lens of [the compulsory
process] inquiry" in United States v. Valenzuela-Bernal, 458 U.S.
858 (1982). Hoffman, 832 F.2d at 1302. Based on Washington, the
Valenzuela-Bernal Court explained that "more than the mere absence
of testimony is necessary to establish a violation of the
[compulsory process] right." Valenzuela-Bernal, 548 U.S. at 867.
Instead, to establish a violation, a defendant "must at least make
some plausible showing of how [the excluded] testimony would have
been both material and favorable to his defense." Id.
- 14 - After the Supreme Court articulated these principles, we
incorporated them into the law of our circuit. Based on Washington
and Valenzuela-Bernal, we explained, "[t]here can be no violation
of the defense's right to present evidence . . . unless some
contested act or omission (1) can be attributed to the sovereign
and (2) causes the loss or erosion of testimony which is both (3)
material to the case and (4) favorable to the accused." United
States v. McLellan, 959 F.3d 442, 474 (1st Cir. 2020) (second
alteration in original) (quoting Hoffman, 832 F.2d at 1303).
Crater did not argue in his briefs that the district
court's ruling violated his Sixth Amendment right to compulsory
process under this standard. And when we offered him the
opportunity to reframe his position at oral argument, he declined.
Crater has therefore abandoned any argument that his inability to
compel the agents to appear at trial resulted in the loss of
material and favorable testimony. Instead, he contends that he
need not make such a showing because, after Bruen, Valenzuela-
Bernal is no longer "good law." As we explained above, however,
Bruen concerned only the Second Amendment, and we do not interpret
it to alter the Supreme Court's Sixth Amendment jurisprudence given
that the "Court does not normally overturn, or so dramatically
limit, earlier authority sub silentio." Shalala v. Ill. Council
on Long Term Care, Inc., 529 U.S. 1, 18 (2000).
- 15 - Crater also contends that Valenzuela-Bernal does not
control because it is factually distinguishable. In Valenzuela-
Bernal, the government deported two non-citizens before a criminal
defendant charged with transporting them could interview them.
458 U.S. at 861. In reaching the conclusion that the deportation
did not violate the defendant's compulsory process right, the Court
explained that such prompt deportation of non-citizens both
"satisf[ied] immigration policy" and was justified by several
practical considerations unique to the immigration context, such
as the "financial and physical burdens" that detaining non-
citizens impose on the government. Id. at 864-65. Thus, Crater
argues, the Court's decision in Valenzuela-Bernal does not apply
here because "the government's dual role of enforcing both criminal
law and immigration law" informed its reasoning.
Crater is correct that the immigration context crucially
informed the Court's decision in Valenzuela-Bernal. The Court
announced the "material and favorable" standard for deported
witnesses but noted that it "express[ed] no opinion on the showing
which a criminal defendant must make in order to obtain compulsory
process for securing the attendance at his criminal trial of
witnesses within the United States." Id. at 873 & n.9 (emphasis
added). Nonetheless, our prior cases, by which we are bound, have
not confined the "material and favorable" standard to the
immigration context. See, e.g., Hoffman, 832 F.2d at 1303. We
- 16 - have explained that "[t]he showing of materiality and
favorableness that an accused must make in one setting may not be
the same as in another," but we have never held that a defendant
can entirely decline to make this showing and still succeed on
their Sixth Amendment claim. United States v. Bailey, 834 F.2d
218, 223 (1st Cir. 1987).
As Crater acknowledged at oral argument, our rejection
of his Bruen argument is fatal to his compulsory process claim.
In declining to enforce the trial subpoenas, the district court
relied not only upon Crater's non-compliance with the agencies'
Touhy regulations but also on Crater's proffer. Because it was
"not clear from the proffer that the [agents'] testimony would be
relevant, material, and vital to the defense," the court held that
declining to enforce the subpoenas would not violate Crater's
compulsory process right. By abandoning any argument under the
material and favorable standard, Crater fails to oppose this
conclusion.
We end our analysis here. Crater bases his
constitutional challenge to the Touhy regulations on inapplicable
precedent. The district court separately declined to enforce the
subpoenas because the agents' testimony was irrelevant, and Crater
has not argued that this decision violated his right to compulsory
process by depriving him of material and favorable testimony.
Thus, without expressing any opinion on the constitutionality of
- 17 - enforcing Touhy regulations against criminal defendants, we
conclude that the district court's decision not to compel the
agents' testimony did not violate Crater's right to compulsory
process. Cf. United States v. Vázquez-Rosario, 45 F.4th 565,
571-73 (1st Cir. 2023) (declining to rule on the sufficiency of a
defendant's Touhy request and instead affirming the district
court's decision to quash trial subpoenas against federal officers
on relevance grounds).
B. The Daubert Issue
Crater also challenges the district court's decision to
admit Clegg's expert testimony without holding a Daubert hearing,
which is "an evidentiary hearing . . . used by district courts to
resolve factual issues related to admissibility" of expert
testimony. Santos-Arrieta v. Hosp. Del Maestro, 14 F.4th 1, 5
n.11 (1st Cir. 2021). See generally Daubert v. Merrell Dow
Pharms., Inc., 509 U.S. 579 (1993). Crater argues that a hearing
was necessary to evaluate Clegg's qualifications, her
investigatory methods, and whether the risk of unfair prejudice or
confusing the jury substantially outweighed the probative value of
her proposed testimony.
Our case law does not support Crater's argument. As we
have previously explained, "Daubert establishes that before
admitting expert testimony, the trial court must fulfill its
'gatekeeping role' by making an independent determination that the
- 18 - expert's proffered . . . knowledge is both reliable and relevant."
United States v. Phillipos, 849 F.3d 464, 470 (1st Cir. 2017)
(quoting Daubert, 509 U.S. at 597). But "[t]here is no particular
procedure that the trial court is required to follow in executing
[this] gatekeeping function," Smith, 732 F.3d at 64 (quoting United
States v. Diaz, 300 F.3d 66, 73 (1st Cir. 2002)), and we have
specifically rejected the argument that a district court must
necessarily hold an evidentiary hearing, see Phillipos, 849 F.3d
at 471.
Crater does not grapple with this precedent or explain
why the district court's procedure was nonetheless insufficient,
such that it "entirely abdicated its gatekeep[ing] role." Lestage
v. Coloplast Corp., 982 F.3d 37, 49 (1st Cir. 2020). Nor could
he, given that the record demonstrates that the district court
took its gatekeeping role seriously. The court heard oral argument
on Crater's motion outside of the presence of the jury, during
which it noted that it had reviewed Crater's motion, the
government's opposition, Clegg's report, and the defense's expert
summary. These documents cataloged Clegg's extensive professional
experience in blockchain investigations: In addition to her work
as the Director of Financial Investigations and Education for
CipherTrace, she had created multiple training courses, conducted
trainings for Interpol, Europol, and the United States Departments
of Treasury, Homeland Security, and Justice, authored articles,
- 19 - and lectured at conferences and universities on blockchain
technology and cryptocurrency investigations. Thus, the court was
unpersuaded by Crater's argument that Clegg's educational
background alone rendered her unfit to opine as an expert. Given
that Federal Rule of Evidence 702 -- which governs the
admissibility of expert testimony -- allows an expert witness to
be qualified by "knowledge, skill, experience, training, or
education," we conclude that the district court did not abandon
its gatekeeping function by declining to hold a Daubert hearing to
further explore Clegg's qualifications. Fed. R. Evid. 702
(emphasis added).
Crater also suggests that Clegg's report "did not
demonstrate that her conclusions were based on sufficient facts or
data, or that her proposed testimony was the product of reliable
principles and methods." But he has not identified which of
Clegg's facts, data, methods, or principles he objects to, and
given that Crater's own expert agreed that CipherTrace's
blockchain analysis could "reveal a number of details of [a] system
and its contents," we reject the argument that the district court
should have held an evidentiary hearing because of Crater's vague
methodological objections.
Finally, we disagree with Crater that the district court
abdicated its gatekeeping function by resolving his relevancy and
Federal Rule of Evidence 403 objections to Clegg's testimony
- 20 - without holding a Daubert hearing. In fact, Crater does not
explain what more a Daubert hearing could have accomplished with
regard to these inquiries. He argued to the district court that
allowing Clegg to opine that MBC was associated with a public
blockchain after 2017 would lead to the "unduly prejudicial"
inference that it was not associated with any blockchain, and
therefore was not a cryptocurrency, prior to 2017. The record
shows that the district court carefully considered this claim. At
oral argument, it both asked for clarification and offered him the
opportunity to respond to the government's opposing points. At
the end of this colloquy, the court explained that Crater did not
provide a compelling reason to exclude the testimony based on
relevance or unfair prejudice but offered to return to the issue
if Crater had more to add. Under these circumstances, we conclude
that the district court faithfully executed its gatekeeping
function under Daubert.3
3To the extent Crater challenges the district court's decision to actually admit the testimony under Federal Rules of Evidence 401 and 403, we see no abuse of discretion in the district court's ruling. See Smith, 732 F.3d at 64 ("If we are satisfied that the court did not altogether abdicate its role under Daubert, we review for abuse of discretion its decision to admit or exclude expert testimony."). Clegg's testimony was undoubtedly relevant, given that Crater had advertised MBC as a cryptocurrency with functionality analogous to Bitcoin. Moreover, Crater does not explain why the inferences a juror might draw from Clegg's testimony were "unfairly" prejudicial. United States v. Ross, 837 F.3d 85, 90 (1st Cir. 2016) ("In balancing the scales of Rule 403, it is important to note that only 'unfair' prejudice is to be
- 21 - III. CONCLUSION
For all these reasons, we affirm the judgment.
avoided, as 'by design, all evidence is meant to be prejudicial.'" (citation omitted)).
- 22 -