Former Ashland activist Pete Seda's 2010 money-laundering conviction for allegedly attempting to fund Islamic terrorists was thrown out Friday by federal appeals judges who chided the government for withholding and misrepresenting evidence to defense attorneys.
In a split decision with a spirited dissent from one judge, a three-judge panel of the 9th U.S. Circuit Court of Appeals also concluded that federal agents overstepped their bounds during the initial 2004 search of Seda's Ashland home, which served as the Oregon office of the now defunct Al-Haramain Islamic Foundation.
The judges in the majority accused the government of "tunnel vision" in the case, though the dissenting judge instead lauded the government for "extraordinary efforts" to handle evidence properly in a sensitive case involving national security and intelligence secrets.
Friday's ruling returned Seda's case to the U.S. District Court in Eugene for a new trial.
A jury convicted Seda on tax-evasion and conspiracy charges for using his charity to help smuggle more than $150,000 from Ashland to Saudi Arabia in 2000 and later signing a fraudulent tax return to cover it up.
Though prosecutors argued Seda's motive was to fund Islamic terrorists in Chechnya, U.S. District Court Judge Michael Hogan ruled during the trial they failed to prove that connection.
"This is a tax fraud case that was transformed into a trial on terrorism," the 9th Circuit opinion stated.
Seda's defense team and supporters said Friday's ruling affirmed what they had thought all along: that the government acted improperly in its eight-year-old investigation and prosecution of Seda, a former Ashland arborist who often spoke about how Muslims and Christians can coexist.
"Mr. Seda and his family and his defense team are pleased that his concerns about how the way the case was handled were vindicated," Steve Wax, Seda's lead defense attorney, said in a Friday interview.
Assistant U.S. Attorney Christopher Cardani, who was the lead prosecutor in the case, said he will have to review the 88-page opinion, as well as the classified opinion attached to the cases, before deciding how the government will proceed.
Options include asking the appeals court for reconsideration, appealing the ruling, going forward with a retrial or dropping its case.
"We're going to take the time necessary to review the decision and determine what our options are to move forward," Cardani said.
Including his time behind bars before his trial, Seda served more than two years of his 33-month sentence in jail or prison. He had been living in a Portland halfway house the past three months, Wax said.
Seda already was scheduled next week to be sent to his Portland residence for home confinement, Wax said.
Wax said "we anticipate some change in his status" next week, but he did not elaborate.
Wax argued after Seda's conviction to have him freed pending this appeal, but Hogan in 2012 ordered Seda imprisoned.
"Needless to say, it's most unfortunate and unfair he had to serve any time in prison," Wax said.
The 9th Circuit found fault with the government's unclassified substitution summary of some classified materials that was given to Seda's defense team, saying it misrepresented information and was incomplete.
"We conclude that the substitution's language unfairly colored presentation of the information and, even more problematic, that the substitution omitted facts helpful to Seda's defense," Judge M. Margaret McKeown wrote in the majority opinion.
"Although there is no indication of bad faith, the government appears to have looked with tunnel vision at limited issues that it believed were relevant," she wrote.
McKeown expounded on that decision in a classified opinion not made available.
Moreover, the appeals court ruled that the search of Seda's computer hard drives seized in the joint FBI-IRS 2004 raid on Seda's home in Ashland "went well beyond the explicit limitations of the warrant," the opinion stated.
The opinion also said prosecutors should have revealed to defense attorneys information about Barbara Cabral, the only witness offering testimony directly linking Seda to a desire for helping Chechen terrorists, making her a key prosecution witness.
It was not until after the trial but before Seda's sentencing that prosecutors revealed that Cabral was once married to an FBI informant who was paid $14,500 to spy on local Muslims and that an FBI agent offered to seek money for Cabral after the trial.
Hogan previously had ruled that the withheld information about the Cabrals was a violation of federal evidence rules but that the violation did not rise to the level of earning Seda a new trial.
Friday's opinion disagreed with Hogan's ruling.
Failing to disclose Cabral's FBI relationships before trial left Seda's lawyers improperly "empty handed" in their attempts to show that Cabral was anything but the "straightforward citizen witness" she appeared to be at trial, the opinion stated.
"The records of the FBI payments provide significant impeachment evidence that would have shaded the jurors' perceptions of Cabral's credibility," the opinion stated. "... Payments to a government witness are no small thing."
Left without this defense scrutiny, Cabral's testimony had a "significant impact on the jury," the opinion stated.
"Cabral appeared to be the government's only disinterested witness who was actually close to Seda, and she testified in a terrorism-tinged prosecution about an effort to help Muslim guerilla combatants," McKeown wrote.
However, in his dissenting opinion, Judge Richard Tallman wrote that the majority judges in the appeal improperly failed to take into consideration that Hogan held a separate hearing on the Cabral issues before ruling the evidence would not have changed the jury's verdict.
Tallman wrote that the appellate judges should not reverse Hogan's ruling without it being "clearly erroneous," which was not the case.
Moreover, Tallman's minority opinion argued that the scope of the search warrant was not breached by agents searching Seda's computers and that the other issues do not rise to the level necessary for overturning the jury's guilty verdict.
Tallman also took issue with the majority opinion's apparent dismissing of the key evidence in the actual tax fraud and conspiracy charges that were at the core of the case against Seda.
Seda and his codefendant, a Saudi national named Soliman Al-Buthe, went to great lengths and expenses to convert funds wired to Al-Haramain into $130,000 worth of hard-to-trace $1,000 cashier's checks that Al-Buthe then carried from Ashland to Saudi Arabia in 2000, according to Tallman's opinion.
Al-Buthe, also known as Al-Buthi, did so in violation of federal financial-reporting rules that he had complied with on nine other occasions, Tallman noted.
Also, Al-Buthe carried with him and failed to report that he was carrying a cashier's check made out to him at an Ashland bank for $21,000, which Al-Buthe deposited in his personal bank account in Saudi Arabia.
"A reasonable jury could have concluded on this evidence that this was Al-Buthe's 'cut' for serving as the courier," Tallman wrote.
The jury also heard plenty of evidence on what Tallman calls the "deceitful manner" in which Seda hid the smuggled money by falsely declaring on a tax return that the money went toward the purchase of a prayer house in Missouri.
Had the men's intent been not to smuggle the money to the Middle East, Seda simply could have wired the money directly to Al-Haramain's main office in Saudi Arabia for about $15, Tallman wrote.
"The jury obviously thought the entire handling of the money reeked of criminal intent, as evidenced by its verdict," Tallman wrote.
The appeals panel specifically did not rule on Seda's argument for a new trial based on the government's appeal to religious prejudices and guilt by association, including evoking references to Osama bin Laden.
However, McKeown warned that using such tactics could prejudice juries.
"The appeal illustrates the fine line between the government's use of relevant evidence to document motive for a cover-up and its use of inflammatory, unrelated evidence about Osama bin Laden and terrorist activity that prejudices the jury," she wrote.
Reach Mail Tribune reporter Mark Freeman at 541-776-4470, or email at email@example.com.