COVINGTON — A federal judge has set an October trial date for two Lexington-area lawyers accused of pocketing millions of dollars that should have gone to their former clients in a diet-drug settlement.
But an Oct. 14 start for the second criminal trial of William Gallion and Shirley Cunningham Jr. is unlikely. Federal prosecutors said in court Wednesday that they may seek additional charges against the two men, and defense lawyers told U.S. District Judge Danny Reeves that an October trial date will likely conflict with their schedules.
Also on Wednesday, court documents showed that Gallion had considered using assets of a company that owns Curlin, the 2007 Horse of the Year, as collateral for his bond. Gallion and Cunningham are minority owners of Curlin.
Assistant U.S. Attorney Laura Voorhees told Reeves that prosecutors may seek a new indictment — commonly called a superseding indictment — that could contain new charges against the two men.
After the hearing Wednesday, Voorhees declined to say what those charges may be or whether the federal government will offer new evidence at a second trial.
Cunningham, Gallion and Melbourne Mills Jr. were originally charged in June 2007 with one count each of conspiracy to commit wire fraud, which carries a maximum penalty of 20 years in prison.
Earlier this month, a jury acquitted Mills of all charges and deadlocked on the charges facing Cunningham and Gallion. A mistrial was declared July 3 after eight days of deliberations and in the eighth week of the trial. The jury foreman told the Herald-Leader that the vote was 10-2 to acquit the defendants.
The three men were accused of taking approximately $65 million of a $200 million fen-phen settlement that federal prosecutors say should have gone to 440 former clients who sued fen-phen maker American Home Products in Boone Circuit Court.
A new indictment will likely have to be issued to remove Mills from the indictment, Voorhees said in court. There will also be a new calculation on how much money Gallion and Cunningham allegedly took from their clients, Voorhees said after court.
Reeves, who was assigned the case after U.S. District Court Judge William Bertelsman abruptly recused himself after the July 3 mistrial, also said he was going to move the case to Frankfort, where he is based. But he said he reserved the right to reconsider the issue if defense lawyers filed motions opposing the move.
Reeves told prosecutors and defense attorneys that he was going to set the Oct. 14 trial date because rules require that the case be retried in 70 days unless there is a legitimate reason to delay the trial.
O. Hale Almand, a Georgia attorney who represents Gallion, told Reeves that he had two lengthy criminal cases that were to be tried in the late fall and early winter and those trials could not be moved.
Reeves said he would agree to look at Almand's motion to continue if he could not get the other two cases moved and asked that attorneys keep February open for a back-up trial date.
If a grand jury issues new charges against the two men, the 70-day rule would start after those indictments are issued.
The two men will remain for now in the Boone County Jail, where they have been held since Aug. 10, 2007. At that time, Bertelsman revoked their bond and remanded them to jail, saying they were too much of a flight risk. Bertelsman later set bond at $52 million for Gallion and $45 million for Cunningham.
The U.S. Sixth Circuit Court of Appeals has upheld the bond amount. Defense attorneys asked that Gallion and Cunningham be released after the mistrial was declared, but Bertelsman declined their motion, saying he believed there was even more evidence that the two men should remain in jail.
In a motion entered Wednesday, Gallion asked to be released on his own recognizance. David Davidson, an attorney for Cunningham, said Cunningham will also file a motion soon asking to be released.
Reeves declined to hear the issue of bond Wednesday, but said he would consider the matter after all motions regarding bond were filed. Reeves cautioned defense lawyers that their motions for bond must contain new information that has come up since Bertelsman declined to release the two men after the mistrial was declared.
“I'm not going to question the decisions of the court,” Reeves said, referring to Bertelsman's earlier decision not to release the two men.
In court documents, Gallion argues that Bertelsman had miscalculated his net worth to be $52 million when he set the bond amount. In fact, because Gallion is facing a $42 million civil judgement, he may be $32.5 million in debt or could have assets worth $4.2 million. (A state court judge has ruled that Gallion, Cunningham and Mills owe their former fen-phen clients at least $42 million.)
The motion explains the history of the controversy over Gallion's bond. In January 2008, Gallion and Cunningham had offered to use Tandy, a limited liability corporation that owns Curlin and other horses, as collateral for bond. Tandy LLC showed possible earning potential of “approximately $300 million,” the motion states.
However, federal prosecutors declined the offer of using Tandy LLC at the time because they were not allowed to know how much Tandy LLC was worth. That and other financial information concerning Gallion were kept under seal.
The motion asks that Reeves consider the acquittal of Mills and the 10 to 2 vote to acquit Gallion and Cunningham as reasons to allow Gallion to be released on his own recognizance.
Reeves set a pretrial conference for Oct. 7 in Frankfort.