In United States v.
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
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
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
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
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
Prong one’s theory of liability
was not applicable because the target stocks were not listed on an American
The Third Circuit held under
prong two, irrevocable liability establishes the location of a securities
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.
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
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.
was not suppressed because it was equally available to the defense through the
exercise of due diligence.
the drug use was cumulative because it was disclosed pre-trial through
statements provided in discovery.
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. §
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.
waived his right to object to the district court’s forfeiture order.