Cleary Gottlieb and its co-counsel Wilmer Hale represented Michael Carroll, former CEO of Brixmor Property Group Inc. (Brixmor), in securing dismissal of a criminal accounting fraud indictment.
Following presentations by Cleary and Wilmer Hale, the U.S. Attorney’s Office for the Southern District of New York has sought and secured dismissal of a criminal accounting fraud indictment against Michael Carroll (and co-defendant Michael Pappagallo, represented by Greenberg Traurig) in United States v. Michael Carroll and Michael Pappagallo, 19 Cr. 545 (McMahon, C.J.). On April 1, 2021, on the motion by the U.S. Attorney, a nolle prosequi was entered by Chief Judge McMahon dismissing all the criminal charges against Mr. Carroll and Mr. Pappagallo.
Brixmor is a publicly traded REIT (real estate investment trust). In 2019, Mr. Carroll was indicted along with Brixmor’s former CFO Michael Pappagallo, CAO Steven Splain, and Senior VP of Accounting Michael Mortimer in connection with alleged “smoothing” of Brixmor’s reporting of a non-GAAP metric, same property net operating income. Mr. Splain and Mr. Mortimer had entered into cooperation agreements with the U.S. Attorney’s Office, leaving Mr. Carroll and Mr. Pappagallo as co-defendants.
Cleary joined Mr. Carroll’s defense team as trial counsel shortly after the indictment and, in collaboration with Wilmer Hale and Greenberg Traurig, made presentations to the U.S. Attorney’s Office regarding Mr. Carroll’s innocence and the lack of impropriety of various accounting adjustments that formed a significant portion of the allegedly misstated metric charged in the indictment. Based on this presentation, the U.S. Attorney’s Office ultimately concluded that they could not “prove beyond a reasonable doubt that the conduct that resulted in these particular accounting adjustments . . . was part of a scheme to defraud.” In particular, the U.S. Attorney’s Office noted that they would be unable to “establish beyond a reasonable doubt the quantitative materiality of the alleged misstatements with respect to the multi-year scheme alleged in the Indictment, which goes to an essential element of the charged offenses.” Accordingly, on March 31, 2021, the U.S. Attorney’s Office filed a letter to Chief Judge McMahon stating that they “do not believe it is in the interest of justice to continue this prosecution,” and enclosing a proposed order of nolle prosequi. Judge McMahon entered an order dismissing the indictment on April 1, 2021.
“We are pleased that the government now agrees with what we have said from the beginning: this prosecution should never have been brought. Mike Carroll has always acted with integrity and honesty throughout his life, including during his time at Brixmor.” said Cleary partner Victor Hou, who led the Cleary team.
Mr. Hou added that he was “gratified that in the best traditions of the office, the new trial team reexamined the evidence and reached the right conclusion and dismissed all the charges.