US judge questions special counsel's powers in Manafort case

ALEXANDRIA, Va., May 4 (Reuters) - A federal judge on Friday sharply criticized Special Counsel Robert Mueller's criminal case in Virginia against President Trump's former campaign manager, Paul Manafort, and said Mueller should not be granted "unfettered power."

At a tense hearing, U.S. District Judge T.S. Ellis III noted the charges of tax and bank fraud against Manafort had nothing to do with Mueller's investigation into whether the Trump campaign colluded with Russia during the 2016 U.S. election or tried to obstruct justice.

"It's unlikely you're going to persuade me the special counsel has unfettered power to do whatever he wants," Ellis, who was appointed by Republican President Ronald Reagan, said at a hearing on Manafort's motion to dismiss the Virginia charges.

Ellis repeatedly questioned the probe's $10 million budget and said the indictment appeared to serve as a way for Mueller to "assert leverage" over Manafort.

"The vernacular is to sing," he said.

The sharp tone of the judge's comments could spell trouble for Mueller's case against Manafort and put even greater pressure on Deputy Attorney General Rod Rosenstein to rein in the Russia investigation.

It was the first time Manafort's arguments about the scope of Mueller's powers appeared to gain any traction in a federal court.

Manafort also faces separate charges in Washington D.C., where he is accused of conspiring to launder money and failing to register as a foreign agent when he lobbied for the pro-Russia Ukrainian government.

Manafort attorney Kevin Downing has argued the charges must be dismissed because the FBI investigation dates to 2014, and therefore did not arise from Mueller's probe.

The hearing on Friday was the third time Manafort has tried to get charges against him dismissed. A civil case alleging the Justice Department's order appointing Mueller was overly broad was tossed last month.

He also asked for dismissal of the Washington-based criminal charges on similar legal grounds, but there has not been a ruling.

Ellis did not rule on the motion to dismiss on Friday.

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Michael Dreeben, the deputy solicitor general who is working with Mueller, conceded that Mueller inherited the probe into Manafort after his May 2017 appointment by Rosenstein but said the special counsel's investigative scope covered the activity in the indictment.

"Cover bank fraud in 2005 and 2007? Tell me how!" Ellis asked.

In an August 2, 2017, memo, Rosenstein authorized Mueller to investigate whether Manafort "committed a crime or crimes arising out of payments he received from the Ukrainian government before and during the tenure of President Viktor Yanukovych."

The former Ukrainian leader was removed from power and fled to Russia in February 2014, more than two years before Trump declared his candidacy for president.

REDACTED MEMO

Ellis complained the bulk of that August memo he received was highly redacted. He told Mueller's office to take two weeks to consult with U.S. intelligence agencies to see if they would sign off so that he can personally review a sealed, unredacted version of the memo.

Dreeben told him the redacted portions did not pertain to the Manafort case.

"I'll be the judge," Ellis said.

Ellis asked why a run-of-the-mill bank fraud case with no "reference to any Russian individual or Russian bank" could not be handed over to the U.S. Attorney's Office in the Eastern District of Virginia.

As an example, he pointed to the FBI probe into Trump's personal lawyer Michael Cohen and said the special counsel had turned that matter over to prosecutors in Manhattan.

Dreeben declined to discuss the Cohen case. Rosenstein's initial May 2017 order laying out the scope of the probe, he told the judge, did not reveal all the details because they involve sensitive national security and counterintelligence matters that could not be divulged publicly but were conveyed to Mueller.

Ellis said Dreeben's answer essentially meant the Justice Department was "not really telling the truth" about the probe. (Reporting by Sarah N. Lynch and Susan Heavey editing by Jonathan Oatis and Cynthia Osterman)