Tuesday, February 17, 2015

Securities Fraud: Irrevocable Liability Establishes the Locus of a Securities Transaction For Purposes of Determining Whether a Transaction was Domestic

In United States v. Georgiou, Nos. 10-4774, 11-4587, and 12-2077, the Third Circuit upheld the defendant’s securities fraud, wire fraud, and conspiracy convictions against a host of legal challenges.  Georgiou was accused of engaging in a scheme to manipulate the markets of four over-the-counter stocks, i.e. stocks not listed on an American stock exchange.  Georgiou and his co-conspirators opened brokerage accounts in Canada, the Bahamas, and Turks and Caicos and then used these accounts to engage in manipulative trading in the target stocks.  By trading stocks between the various accounts they controlled, the co-conspirators were able to artificially inflate the stock prices to create an impression that each target stock had an active market.  The manipulation allowed Georgiou and his co-conspirators to sell their shares at inflated prices and to use the inflated shares as collateral to fraudulently borrow funds on margin and obtain millions of dollars in loans from different brokerage firms in the Bahamas.  These accounts experienced large trading losses.

The Supreme Court has explained the securities fraud statute, 15 U.S.C. §§ 78j(b) and 78ff, criminalizes deceptive conduct in two contexts:  (1)  transactions involving purchases or sales of securities listed on an American stock exchange; and (2) transactions involving purchases or sales of any other security in the United States (“domestic transactions”).  See Morrison v. National Australia Bank Ltd., 561 U.S. 247 (2010).  Prong one’s theory of liability was not applicable because the target stocks were not listed on an American stock exchange.  The Third Circuit held under prong two, irrevocable liability establishes the location of a securities transaction.   Relevant factors demonstrating irrevocable liability include the formation of the contracts, the placement of purchase orders, the passing of title, or the exchange of money.

 The evidence was sufficient to convict Georgiou under prong two’s domestic transaction theory of liability.  The evidence showed at least one of the fraudulent transactions in each target stock was bought and sold through U.S.-based market makers.  Some of the transactions required the involvement of a purchaser or seller working with a market maker and committing to a transaction within the United States, incurring irrevocable liability in the U.S., or passing title in the U.S.  There were also specific instances where target stocks were bought or sold at Georgiou’s direction from entities within the United States.  The district court’s jury instructions, which explained the jurisdictional requirements, were proper.  The district court was not required to preclude the jury from considering foreign activity in assessing guilt.

 Unlike securities fraud, wire fraud applies extraterritorially.  The wire fraud’s jurisdictional requirement is that a communication be transmitted through interstate or foreign commerce for the purpose of executing a scheme to defraud.  The evidence was sufficient to convict Georgiou of wire fraud because he regularly used e-mail to direct a cooperating witness and he wired money from a Canadian bank to an undercover FBI agent’s account in Pennsylvania.  

 The Third Circuit also upheld Georgiou’s conviction and sentence against a host of other challenges:
 
           Georgiou failed to raise a winning claim under Brady v. Maryland, 373 U.S. 83 (1963) or the Jencks Act based on alleged suppression of evidence regarding the cooperating witness’s mental health issues, drug use, and statements to the SEC.  Evidence of the cooperator’s drug use and mental health were discussed in his bail report and minutes of his guilty plea.  The evidence was not suppressed because it was equally available to the defense through the exercise of due diligence.  Evidence of the drug use was cumulative because it was disclosed pre-trial through statements provided in discovery.  The evidence was not favorable, nor material because there is no evidence to suggest it affected the reliability of the cooperator’s testimony, or that its introduction would have affected the verdict.  Likewise, Georgiou failed to identify any specific statements that were withheld under the Jencks Act.

           An SEC employee’s testimony making comparisons of stock quantities and prices did not require scientific, technical, or specialized knowledge and was therefore proper lay testimony under Federal Rule of Evidence 701.

           The district court did not abuse its discretion when it prohibited Georgiou from introducing extrinsic evidence of, and limited the cross-examination of the cooperating witness regarding his alleged post-cooperation fraud, under Federal Rules of Evidence 608(b) and 403.

           District courts are not required to consider the impact of market forces when making a loss calculation in securities fraud cases under U.S.S.G. § 2B1.1(b)(1)(M).  Even if the district court were required to do so, however, any error would be harmless because the district court properly found that Georgiou’s intended loss was over $100 Million, which would have resulted in an offense level two points above the guideline maximum.

           The district court properly assessed a six-level upward adjustment for 250 or more victims under U.S.S.G. § 2B1.1(b)(2)(C).  The jury found that he participated in a “pump and dump” scheme, and the SEC witness identified 1,918 investor accounts that purchased the stock during the scheme.  All of them lost over $1,000.

           Georgiou waived his right to object to the district court’s forfeiture order. 

 

Tuesday, January 13, 2015

Interlocutory Appeal Dismissed for Lack of Jurisdiction Because Preclusion of Evidence Would Not Require Dismissal of Any Count

United States v. Wright, Nos. 13-1766, 1767, 1768, -- F.3d --, 2015 WL 106198 (3d Cir. Jan. 8, 2015).  In an earlier iteration, United States v. Wright, 665 F.3d 560 (3d Cir. 2012), the Court vacated the fraud convictions of Wright, Chawla, and Teitelman under Skilling v. United States, 561 U.S. 358 (2010).  On remand for retrial, the defendants sought to limit the scope of the retrial to prevent relitigation of issues they viewed as necessarily decided in their favor when the jury acquitted them on several counts, and to bar certain government arguments that they believed would constructively amend the indictment.  The district court denied the motion, and the defendants took an interlocutory appeal.  The Court dismissed the appeal for lack of jurisdiction, finding that the district court’s order was neither a collateral order subject to immediate review nor a final order pursuant to 28 U.S.C. § 1291.

A collateral order is not final in the traditional sense, but conclusively resolves an important issue separate from the merits, and is effectively unreviewable on appeal.   Collateral order appeals are permitted only in exceptional circumstances, including when double jeopardy may be at issue.  The Court adopted a test used by most of the other circuits to determine whether double jeopardy is sufficiently implicated to permit collateral order review:  would the claim, if successful, require dismissal of – at a minimum – an entire count?
Here, the defendants were acquitted of several substantive counts predicated on a mailing or email relating to a particular transaction.  They argued that the jury necessarily decided that they lacked criminal intent as to those transactions.  Thus, they argued, the government should be precluded from presenting any evidence of those transactions at trial.  They conceded, however, that this would not prevent the government from presenting other evidence of criminal intent on the remaining counts, and that even if they prevailed in precluding the specified evidence, no count of the indictment would be dismissed.  Thus, the Court concluded, it lacked jurisdiction.  (In the process, it rejected an argument that United States v. Serafini, 167 F.3d 812 (3d Cir. 1999), which permits the government to seek review of orders of dismissal excising portions of counts, authorized review here, distinguishing the statutory provision – 18 U.S.C. § 3731 -- at issue.)
The Court held that the constructive amendment aspect of the motion was not appealable either, because constructive amendment, if it occurs, may be addressed on appeal after trial.
Finally, the Court refused to grant mandamus relief, because it identified no irreparable harm.

Monday, January 12, 2015

Striking Recommendation from Plea Doesn't Preclude Government from Arguing Enhancement

In United States v. Davenport, No. 13-3644, --- F.3d ---, 2014 WL 64698 (3d Cir. Jan. 6, 2015), the Court affirmed denial of 2255 relief in a case involving a question of breach of plea agreement. 

The government did not breach Davenport’s plea agreement when it advocated for -- and obtained -- a two-level upward adjustment for possessing a firearm in connection with his conspiracy to distribute narcotics offense.  Even though the defendant and his attorney had stricken and initialed a joint recommendation regarding the U.S.S.G. § 2D1.1(b)(1) enhancement from the written agreement during plea negotiations, the government never agreed not to argue for the enhancement.  Therefore, when the firearm clause was stricken from the agreement, it merely meant that the parties no longer jointly agreed on that specific sentencing recommendation.   Reading the plea agreement as a whole, the government was entitled to put the district court on notice of all relevant information and to respond to all of Davenport’s objections.  Since the government did not breach the plea agreement, Davenport’s trial counsel was not ineffective for failing to make the argument.  The district court properly denied Davenport relief under 28 U.S.C. § 2255.  

(Thanks to Chistofer Bates, EDPA, for his assistance in digesting this case.)

Thursday, January 01, 2015

Manager of Medicare/Medicaid Provider Properly Received Sentencing Adjustment for Abuse of a Position of Trust




In United States v. Ashokkumar R. Babaria,  ___F.3d ___, No. 14-2694 (3d Cir. 12/31/14)Dr. Babaria pled guilty to 42 U.S.C. §1320a-7b(b)(2)(A) for making kickbacks to physicians in order to obtain referrals to his business for the purpose of performing medical diagnostic testing on patients whose bills were paid by Medicare and Medicaid.  He received the kickbacks while at the same time certifying, on behalf of the lab doing the testing, that there were none. The government’s payments for services that resulted in kickbacks exceeded two million dollars. Despite the illegal activity, medical records were not falsified, the government was not billed for testing that did not occur, and patient care was not compromised.

At sentencing, Dr. Babaria objected to a two-level adjustment for abuse of a position of trust pursuant to USSG §3B1.3, and a four-level adjustment for aggravating role pursuant to USSG §3B1.1(a), resulting in a recommended Guidelines range of 70-87 months’ imprisonment . The statutory maximum capped the guidelines range at 60 months imprisonment, and the District Court, applying both adjustments, imposed a sentence of 46 months’ incarceration, a $25,000 fine, and reimbursement of all government fees paid as a result of patients whose doctors received kickbacks. 

On appeal, Dr. Babaria argued that it was error to apply the §3B1.3 adjustment because he neither occupied nor abused a position of trust. The Court, after reviewing the Comments to 3B1.3, restated prior case law describing three factors that determine whether a position of trust exists: “(1) whether the position allows the defendant to commit a difficult-to-detect wrong; (2) the degree of authority to which the position vests in defendant vis-à-vis the object of the wrongful act; and (3) whether there has been reliance on the integrity of the person occupying the position.”  Using these criteria, the Court concluded Dr. Babaria held a position of trust, as in his position he certified compliance with anti-kickback rules, yet concealed the kickbacks. He held a position that both allowed him to commit wrongs and allowed him to make those wrongs harder to detect. He was not subject to any supervision over his actions with respect to the business and its relations with the government. His position in the organization was a significant factor in his ability to commit the crime.

The Court cautioned that Dr. Babaria’s medical license was not the determinative factor in applying 3B1.3. His actions in his minimally supervised position led to application of the enhancement, not his medical license. While the District Court considered his medical license when applying the enhancement, the license was not the sole determinant.

The Court summarily dismissed Dr. Barbaria’s other arguments and allowed his sentence to stand.


Image from The New Yorker.





Thursday, December 04, 2014

Passenger has no expectation of privacy in a car that isn’t his and in which he is not present when car is seized and searched. For a 924(c) count, indictment does not necessarily have to allege that a gun was possessed “in furtherance of” a crime of violence. Even after Alleyne, prior convictions that trigger mandatory minimums do not have to be proven to a jury beyond a reasonable doubt. Within guideline sentence did not violate 8th Amendment.



After an unsuccessful motion to suppress, Burnett went to trial and was convicted of robbing a jewelry store at gunpoint.  At sentencing, the district court found that ACCA applied and that the career offender guidelines applied and sentenced Burnett to a total of 288 months, a within guideline sentence.  The Third Circuit addressed several issues on appeal:

·       Burnett’s motion to suppress was properly denied because Burnett lacked standing to challenge the search.  Burnett was the passenger in a getaway car.  He and the driver abandoned the car on the street and fled.  The police found the car, got a search warrant, and found evidence of the robbery in the car.  The Court held that Burnett, who did not own the car and who left it before the police seized it, had no standing to challenge the search of the car because he had no privacy interest in the car.  REMEMBER, under Brendlin v. California, 551 US 249 (2007), passengers of cars still have standing to challenge an illegal traffic/car stop and can move to suppress any evidence found inside the car as fruit of the bad traffic stop.

·       The photo array in this case was not unduly suggestive.  The men in the array all had similar skin color, were similarly aged, were all balding, and all had goatees – like Burnett.

·       The indictment was not deficient for failing to allege the “in furtherance of” element of an offense under § 924(c).  924(c) has two prongs: (1) using or carrying a gun during and in relation to an underlying offense, and (2) possessing a gun “in furtherance of” the underlying offense.  Burnett’s indictment alleged that he used or carried a gun during the robbery and therefore did not have to allege the “in furtherance of” prong. 

·       Burnett waived his claim that the government’s evidence was insufficient by making only a conclusory assertion that the evidence was insufficient.  Even if this claim wasn’t waived, the evidence (eyewitness & co-defendant testimony and DNA evidence) was sufficient.

·       The district court did not err under Alleyne when it found Burnett was an Armed Career Criminal without his predicate convictions having been alleged in the indictment and submitted to the jury.  The Supreme Court has not extended the Apprendi rule to proof of prior convictions.  Judges can find, based on a preponderance of the evidence, the existence of prior convictions leading to a mandatory minimum. 

·       Burnett’s 24 year sentence, which was within the guidelines, was not cruel and unusual punishment under the 8th Amendment because the sentence was proportionate to the gravity of the offense.  During the robbery, Burnett terrorized victims with a gun, forced them to the floor, and bound them with ties. He also clubbed a victim who tried to escape, requiring seven surgical staples to the victim’s head. This was also not aberrant behavior for Burnett, who had a prior record for violent robberies and assault. Finally, Burnett threatened the arresting officers in this case with a box cutter, resulting in an altercation that led to him getting shot in the chest.  The fact that sentence was within the guidelines in and of itself is strongly suggestive of proportionality.

Thursday, November 20, 2014

Delay in presentment in pursuit of cooperation was unreasonable. Defendant's motion to suppress confession should have been granted.

In United States v. Thompson, 13-1874, the Third Circuit Court of Appeals affirmed the district court's denial of Mr. Thompson's motion to suppress fruits of an unlawful search, but reversed the suppression ruling regarding his statements.

Thompson was the subject of a traffic stop in Texas.  During the stop officers located a quantity of marijuana and cocaine.  He was charged locally with the marijuana and posted bond.  He was not charged locally with the cocaine, nor was he informed that law enforcement discovered it.  Weeks later, the DEA believing Thompson to be involved with a drug trafficking group known as the "Cali Connect" executed search warrants at residences believed to be associated with that group in various states, including Pennsylvania, Indiana, and California.  Agents searched Thompson's home in California and discovered a quantity of cocaine.  He was subsequently taken the DEA head-quarter's which was an hour and a half drive.  During the drive the agents "laid the case out" for him.  More than 6 hours after his arrest, Thompson agreed to cooperate.  Agents then interrogated Thompson and had Thompson place phone calls in an effort to do a "reverse buy bust" on a co-conspirator.  The agents did not present Thompson with a written waiver of his right to prompt presentment until more than 12 hours after his arrest.  Once they did, Thompson ceased the interview.  Although the cooperative efforts resumed the next day, it was clear that the reverse buy bust" would not come to fruition.  Thereafter Thompson was taken for his initial appearance, which was nearly 48 hours after his arrest.

Thompson filed a motion to suppress the traffic stop in Texas and the statements in California.  Both were denied.  Thompson pled guilty to conspiracy to distribute 5 kilograms or more of cocaine with a plea agreement that permitted an appeal of the denial of his suppression motions.  He was sentenced to 292 months imprisonment and this appeal followed.

Thompson first argued that the extension of the traffic stop to include a K-9 search was not based on reasonable suspicion.  At the outset, the parties agreed the initial stop was valid because Thompson was speeding.  But once the purpose for that stop ended, Thompson argued the extension of the stop was unlawful.  The Third Circuit disagreed, finding that the stop was lawfully extended based on the totality of the circumstances which included the following:  1) the officer has approximately 1500 traffic stops, 10 of which involved the discovery of contraband on the very corridor that Thompson was traveling; 2) the officer was trained to recognize indicators of drug smuggling; 3) Thompson's explanation about his travel to Indiana for three weeks and corresponding small amount of luggage was suspicious; 4) Thompson was visibly nervous with a shaky voice and a visible pulse in his neck; and 5) when questioned about his criminal history he only mentioned one firearms conviction but neglected to mention his prior convictions for drug offenses.

Thompson next argued that his confession should be suppressed because it was taken in violation of the McNabb-Mallory exclusionary rule, i.e. per F.R.Cr.P Rule 5(a)(1)(A) one who is arrested must be taken "without unnecessary delay before a magistrate judge" for presentment.  This way, a judge can inform the defendant of the right to remain silent, inform him/her of the charges, and the right to counsel - all in an effort to prevent Government overreaching.    In reviewing this claim, the Court determined without difficulty that Thompson's confession occurred outside of the "safe-harbor period" - i.e. beyond the first 6 hours of the his detention.  The Court next reviewed whether the confession made outside this time period was reasonable and necessary.  It found neither.  The Court remarked that delays related to transportation and related to searching Thompson's residence were reasonable.  But, the Court found the remaining hours of delay were "in pursuit of cooperation" and that was unreasonable.  The Court held firmly that, "[w]e must hold that pursuit of cooperation is not a reasonable excuse for the delay in presentment.  Were we to hold otherwise, the resulting imprecision would lead to confusion on where to draw the line between engagement based on a mutual desire to cooperate, versus law enforcement's desire to interrogate, with the hope that cooperation may result."  The Court did not want any grey area on this issue.  As such, Thompson's statements should have been suppressed and the judgment was vacated and the matter remanded.

McKee, Fuentes, and Greenaway, Jr.

Monday, November 10, 2014

Exclusionary rule does not apply when agents executing an otherwise valid search warrant fail to provide to the homeowner a list of items sought

U.S. v. Franz, No. 13-2406, 2014 WL 5565457 (3dCir. Nov. 4, 2014)

A police officer executing an otherwise valid search warrant failed to provide the list of items sought to the homeowner.  Although it acknowledged that the warrant, as presented to the homeowner, was constitutionally deficient, the Court examined the totality of the circumstances. It considered the officer's conduct in obtaining and executing the warrant, and what the officer knew or should have known.  The rookie officer consulted with federal prosecutors and explained to the homeowner what items the warrant sought, but mistakenly believed that an order sealing the warrant prohibited him from providing the list of items sought to the homeowner.  Under these circumstances, application of the exclusionary rule would have little deterrent effect since the officer’s conduct was not deliberate, reckless, or grossly negligent.  

During trial, the court allowed the prosecutor to show graphic images of children being sexually assaulted to the jury using a projector that enlarged the images on a screen.  The trial court later ruled that the images were inadmissible, told the jury to disregard them, and gave a curative instruction.  On appeal, the Third Circuit agreed with the government that the display of the graphic images to the jury was harmless beyond a reasonable doubt.