The definition of a machine gun should not be an issue here because the weapon did not malfunction causing it to fire automatically. The weapon in question was clearly modified with parts from an M16 and that is what caused it to fire automatically.
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Actually, there may very well have been a Brady violation here, but iirc, a Brady violation qua Brady violation is still evaluated on it's effect on the outcome.
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I believe the defense would have to show that the withheld evidence would have changed the outcome of the case. The appeals court will determine this issue. But unless the letter stated that all of the parts in the rifle were made that way at the factory I don't see how this would be a valid claim. I don't know any AR 15s that come stock with a 3 position selector switch.