YE GON CASE SPURS LITIGATION OVER LAWYERS

How the Justice Department's Massive Cross-Border Meth Case Fell Apart

A Review of Court Records and Hearing Transcripts Shows the Justice
Department May Never Have Held a Winning Hand

In the eyes of the Justice Department, Zhenli Ye Gon is a major
player.

The one-time fugitive allegedly amassed a fortune importing and
selling ingredients to methamphetamine producers in Mexico. A March
2007 raid on his mansion in Mexico City turned up $207 million in
bundled cash -- the single largest seizure of alleged drug money in
the world. When federal drug agents arrested him in an Asian
restaurant in suburban Maryland in July 2007, they were certain they
had nabbed a kingpin.

"With the arrest of Zhenli Ye Gon, we've apprehended not only the man
behind the money, but the man behind the meth," Karen Tandy, then
administrator of the Drug Enforcement Administration, declared in a
statement. The case was heralded as a collaborative feat by the
governments of Mexico and the United States.

This week, Justice Department lawyers will head to the U.S. District
Court for the District of Columbia, where a judge is expected to
dismiss the government's case against Ye Gon.

Two years after indicting Ye Gon on a single conspiracy count,
prosecutors admitted they didn't have much of a case. A key witness
recanted. Another refused to cooperate. A judge in Mexico turned down
American prosecutors' access to certain evidence. China presented
"stumbling blocks" when the Justice Department wanted to depose
witnesses there. And the trial judge accused prosecutors of hiding
critical information from the defense team for nearly a year.

Prosecutors are now asking that the indictment against Ye Gon be
dismissed without prejudice and that he be turned over to Mexico,
where he is charged with, among other things, organized crime and
firearm and drug violations.

The collapse of the Ye Gon case is the latest in a string of troubled
high-profile Justice Department prosecutions. In April, the Justice
Department asked that the public corruption guilty verdict against
former Sen. Ted Stevens, R-Alaska, be thrown out because prosecutors
had failed to turn over key evidence to the defense. Justice
prosecutors dropped charges in May against two pro-Israel lobbyists
who were accused of illegally passing on national security
information. And on May 8, a jury in federal court in Montana dealt
Justice a big loss in finding W.R. Grace & Co. not guilty on charges
that it knowingly exposed residents to asbestos.

"It is more likely to be viewed as an embarrassment because it comes
at a difficult time for the department," said Cadwalader, Wickersham &
Taft partner Jodi Avergun, a former chief of the Justice Department
Criminal Division's Narcotics and Dangerous Drug Section who practices
white-collar criminal defense in Washington. The government, Avergun
said, was right not to push to trial with a shaky case. "The Justice
Department laid its cards on the table," she said.

But a review of court records and hearing transcripts shows the
Justice Department may never have held a winning hand.

Building a Case

The DEA and the Mexican attorney general's organized crime unit
launched a joint investigation of Ye Gon and his pharmaceutical import
company, Unimed Pharm Chem of Mexico, in March 2006. The probe was
part of a crackdown on secret methamphetamine labs in Mexico and
tighter regulation of the sale of pseudoephedrine in the United States.

Unimed had permits to import pseudoephedrine and ephedrine into Mexico
until July 2005, when the Mexican government pulled the paperwork,
prosecutors said. Ye Gon, a 46-year-old native of China who moved to
Mexico in 1990, illegally continued importing the "chemical cousins"
of the two ingredients from a supplier in China and then made
pseudoephedrine, according to prosecutors.The drug was then sold on
the black market in Mexico, prosecutors alleged.

On March 15, 2007, Mexican authorities raided Ye Gon's home, seizing
$205 million cash -- mainly in $100 bills -- hidden in closets, false
walls and suitcases, according to prosecutors. There was another $2
million in other currency -- including euros, pesos and Hong Kong
dollars. Authorities said they found an automatic AK-47 assault rifle
and several handguns, including a pistol with an obliterated serial
number.

Then-DEA administrator Tandy issued a press release -- along with
photos of the seized money -- claiming that the search was "like law
enforcement hitting the ultimate jackpot."

A month after the raid, DEA agents traveled to a Unimed plant to
inspect chemicals and residue, according to court records. Mexican
authorities on June 13, 2007, filed criminal charges against Ye Gon
and sought his arrest. Ye Gon was far from Mexico when the authorities
found him.

Ye Gon was eating dinner at an Asian restaurant in Wheaton, Md., on
July 23, 2007, when DEA agents swarmed in and arrested him on a
criminal complaint. Three days later, a grand jury in Washington
indicted Ye Gon on a single charge of conspiring to aid or abet the
manufacture of more than 500 grams of methamphetamine, knowing that
the drug would be imported by the United States. The crime carries a
minimum-mandatory 10-year prison term. (A superseding indictment
lodged against Ye Gon in November 2008 added China to the countries
where the alleged scheme took place.)

Justice Department trial attorneys Paul Laymon and Wanda Dixon,
prosecutors in the Narcotic and Dangerous Drug Section, picked up the
Ye Gon case. Dixon spent seven years as an assistant U.S. attorney in
Washington before moving over to the section two years ago. Laymon, a
former federal prosecutor in Tennessee who has been with the section
for four years, is an expert in meth investigations. He helped
establish the Southeast Tennessee Methamphetamine Task Force in 1999.

Trouble From The Start

Just one week after Ye Gon's arrest, the government's case was already
under fire.

Magistrate Judge Alan Kay, who was deciding whether to keep Ye Gon
locked up, questioned the government's evidence. Kay said the Mexican
government's seizure of 19 tons of a chemical containing
pseudoephedrine in December 2006 suggested the illegal importation of
chemicals into Mexico -- not the United States. But the judge said
overall the "government proffered only thin evidence in support of its
case," court records show. Aside from the cash and weapons seized, the
judge said in an order, "there was little before the Court at the
hearing to establish defendant's involvement in a conspiracy to import
illegal drugs into the United States." Still, Kay ordered Ye Gon
detained on the serious nature of the conspiracy allegation itself and
noted that Ye Gon was a potential flight risk.

Defense lawyers point out that single-count indictments without
underlying drug offenses generally suggest that authorities did not
let the investigation play out long enough to catch a suspect closer
to the drugs. "Any smart lawyer who sees a single-count indictment in
a case of this size knows he will have his day in court," said Bernard
Grimm, a partner in the Washington office of Philadelphia-based Cozen
O'Connor who is not involved in the Ye Gon case.

Ye Gon, according to his lawyers, was a legitimate businessman against
whom the Mexican government conspired because of his Chinese heritage.
In a July 2007 affidavit, Ye Gon called himself an "ultra-successful"
entrepreneur. "I am not a drug dealer, neither am I a drug lord, much
less a drug kingpin," he said.In the course of two years, Ye Gon hired
and fired several lawyers; his latest counsel -- retained in October
2008 -- are Washington-based attorneys Manuel Retureta of Retureta &
Wassem and solo practitioner A. Eduardo Balarezo.

Lawyers for Ye Gon said the $207 million seized from their client's
home has been spent by the Mexican government.

Two months into the case, Laymon pitched the possibility of a deal,
according to Ye Gon's lawyer Martin McMahon of Washington's McMahon &
Associates. "He sat down in my office here and said, 'You know,
Martin, there is a way here to plead him out. We can do a deal.' I
said, 'Paul, that is impossible. This is going to trial one way or
another,' " recalled McMahon. Laymon declined to comment, as did a
Justice spokeswoman.

Judge Emmet Sullivan was also skeptical of the government's case. He
asked prosecutors about how they planned to prove that Ye Gon knew the
chemicals he was selling ultimately became meth that was then
distributed in the United States as opposed to any other country.
Justice lawyers, who were reluctant to reveal details of their
investigation in open court, told the judge that most of the
methamphetamine in the United States is made in secret labs in Mexico.

Defense lawyers argued there was no physical evidence tying Ye Gon to
methamphetamine. "Ask yourself, your honor, if this guy is into meth,
was any meth found at the house? No. Was any meth found at the
facility? No. At the warehouse? At his executive office? I mean, give
me a break, your honor. This case is a travesty," McMahon said at a
2007 hearing.

When pressed by the defense to turn over chemical samples taken from
Ye Gon's property in Mexico, prosecutors said a judge in Mexico was
preventing that information from being released.

One issue that consumed a considerable amount of time in court and in
briefs dealt with the Chinese government. Last September, Justice
trial attorneys asked for permission to depose witnesses in China at
the company that reportedly sold chemicals to Ye Gon.

Laymon said in court papers in September 2008 that the depositions
would show that Ye Gon imported "staggering" amounts of chemicals
from China and that he only sold a "relatively small portion" to
other pharmaceutical companies. In May, the government suddenly
backed off. Laymon sent a one-sentence e-mail to Ye Gon's lawyers
that said: "Counsel: The government is no longer seeking depositions in China."

At a June 2 hearing, Laymon explained that, while "trying to negotiate
with the Chinese government, the terms of the depositions, we
encountered some stumbling blocks" over conditions China wanted to
impose on the Justice Department. "So the bottom line is you don't
have cooperation from China then?" Sullivan asked.

"Well, yes and no, judge, because as I've learned in this case, things
have a habit of turning quickly or changing quickly so that since..."
Laymon said. The judge cut him off.

"Is this case due for a change real quickly?" Sullivan
asked.

Prosecution Under Fire

On June 22, Laymon filed a five-page motion to dismiss the Ye Gon
indictment, noting that the Justice Department expected Mexico to take
the lead in prosecuting Ye Gon. "It is among the most significant
cases that Mexico has brought as part of its strong enforcement
actions against illicit importation and manufacture of methamphetamine
precursor chemicals," Laymon wrote.

The prosecutor included a single sentence in the motion identifying
the evidentiary concerns. A key witness who is incarcerated in Mexico
had recanted and another witness was refusing to testify, fearing reprisal.

Sullivan, who just two months earlier agreed to throw out the
indictment against Ted Stevens because of alleged prosecutorial
misconduct, did not hold back his frustration at a hearing later that
day. "I'm not pleased at all with anything I've heard from the United
States government," Sullivan said. Prosecutors, the judge said, knew
the witness in Mexico recanted more than a year ago but did not tell
the defense until May 22.

On June 30, Ye Gon walked into Sullivan's court unshackled and wearing
an orange jumpsuit with the initials of the Central Virginia Regional
Jail on his back. "This is the second time in less than three months
in a high profile case that the Department of Justice has come before
this Court and asked it to dismiss an indictment after allegations
that ... information was not timely produced to the defense," the
judge said. Sullivan noted the government made its "belated
disclosure" about the witnesses after Ye Gon filed a motion for sanctions.

Paul O'Brien, chief of the Narcotics and Dangerous Drug Section, said
in court that some of the judge's "characterizations may not be
accurate." Prosecutors said in court papers that they followed their
obligations to disclose material to the defense and did not make any
misrepresentations to the court. A hearing is scheduled for July 30.

Ye Gon is not likely to be released from custody anytime soon. Ye
Gon's lawyers are fighting extradition, saying he cannot get a fair
trial in Mexico. "If they had a strong case they would try the case,"
Balarezo said. "As much as they made of this case, they would try it
here if they could. The problems existed long ago."