Justia U.S. 2nd Circuit Court of Appeals Opinion Summaries

Articles Posted in White Collar Crime
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Plaintiffs filed suit for fraud, rescission, conspiracy, aiding and abetting, fraudulent conveyance, and unjust enrichment alleging that defendants had misrepresented that collateral managers would exercise independence in selecting assets for collateralized debt obligations (CDOs). The district court granted summary judgment in favor of defendants.The Second Circuit affirmed and held that plaintiffs have failed to establish, by clear and convincing evidence, reliance on defendants' representations. In this case, plaintiffs based their investment decisions solely on the investment proposals their investment advisor developed; the advisor developed these detailed investment proposals based on offering materials defendants provided and on the advisor's own due diligence; plaintiffs premised their fraud claims on the advisor's reliance on defendants' representations; but New York law does not support this theory of third-party representations. The court also held that plaintiffs have failed to establish that defendants misrepresented or omitted material information for two of the three CDO deals at issue—the Octans II CDO and the Sagittarius CDO I. The court explained that defendants' representations that the collateral managers would exercise independence in selecting assets were not misrepresentations at all, and defendants did not have a duty to disclose their knowledge of the hedge fund's investment strategy because this information could have been discovered through the exercise of due care. View "Loreley Financing (Jersey) No. 3 Ltd. v. Wells Fargo" on Justia Law

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Percoco, a longtime friend and top aide to former Governor Andrew Cuomo, accepted payment in exchange for promising to use his position to perform official actions. For one scheme, Percoco promised to further the interests of an energy company, CPV; for another, Percoco agreed with Aiello to advance the interests of Aiello’s real estate development company. Aiello was convicted of conspiracy to commit honest services wire fraud, 18 U.S.C. 1349. Percoco was convicted of both conspiracy to commit honest-services wire fraud and solicitation of bribes or gratuities, 18 U.S.C. 666(a)(1)(B). The court had instructed the jury that the quid-pro-quo element of the offenses would be satisfied if Percoco wrongfully “obtained . . . property . . . in exchange [for] official acts as the opportunities arose.”The Second Circuit affirmed. Although the as-opportunities-arise instruction fell short of a recently clarified standard, which requires that the honest-services fraud involve a commitment to take official action on a particular matter or question, that error was harmless. A person who is not technically employed by the government may nevertheless owe a fiduciary duty to the public if he dominates and controls governmental business, and is actually relied on by people in the government because of some special relationship. View "United States v. Percoco" on Justia Law

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Defendant pleaded guilty to conspiracy to commit securities fraud in violation of 18 U.S.C. 371. Defendant, as a broker-dealer in the over-the-counter securities market, executed fraudulent trades for a co-defendant client with the effect of artificially inflating the share price of a sham company, Cubed. While defendant was involved in that activity, his co-defendants arranged the sale of Cubed shares outside the public market in a private placement. The district court concluded that defendant was liable under the Mandatory Victims Restitution Act of 1996 for restitution, both to purchasers of Cubed shares in the public market (in the amount of $479,000) and to purchasers in the private placement (in the amount of $1.85 million).The Second Circuit reversed and remanded, agreeing with defendant that the Government did not show that the private placement losses are attributable to his offense of conviction, as the MVRA requires. The court explained that the MVRA authorizes restitution only for losses "directly and proximately" caused by a covered "offense" of conviction, 18 U.S.C. 3663A(a)(2), (c). This proximate cause element requires that the Government prove, by a preponderance of the evidence, that the losses for which restitution compensates were foreseeable to the defendant in the course of committing the offense of conviction. In this case, because the Government has not adduced sufficient evidence that the private placement losses were foreseeable to defendant during his participation in the conspiracy to manipulate the public share price of Cubed, the MVRA does not authorize the $1.85 million in restitution for these losses. View "United States v. Goodrich" on Justia Law

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Picard was appointed as the trustee for the liquidation of Bernard L. Madoff Investment Securities LLC (BLMIS) pursuant to the Securities Investor Protection Act, 15 U.S.C. 78aaa, to recover funds for victims of Bernard Madoff’s Ponzi scheme. SIPA empowers trustees to recover property transferred by the debtor where the transfers are void or voidable under the Bankruptcy Code, 11 U.S.C. 548, 550, to the extent those provisions are consistent with SIPA. Under Sections 548 and 550, a transferee may retain transfers it took “for value” and “in good faith.” Picard sued to recover payments the defendants received either directly or indirectly from BLMIS. The district court held that a lack of good faith in a SIPA liquidation requires that the defendant-transferee has acted with “willful blindness” and that the trustee bears the burden of pleading the transferee’s lack of good faith. Relying on the district court’s legal conclusions, the bankruptcy court dismissed the actions, finding Picard did not plausibly allege the defendants were willfully blind to the fraud at BLMIS.The Second Circuit vacated. Nothing in SIPA compels departure from the well-established rule that the defendant bears the burden of pleading an affirmative defense. The district court erred by holding that the trustee bears the burden of pleading a lack of good faith under Sections 548(c) and 550(b)(1). View "In Re Bernard L. Madoff Investment Securities, LLC" on Justia Law

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The Second Circuit affirmed defendant's conviction of bank fraud, making false statements in support of a passport application, and aggravated identity theft. Defendant argues that the district court erred by failing to grant her motion for an acquittal based on her failure to complete the passport application paperwork and swear an oath affirming to its veracity.The court agreed with the district court's determination that submitting a fraudulent passport application, even when unsigned and without swearing the required oath, satisfies the elements of 18 U.S.C. 1542. The court explained that defendant's argument that an oath and signature on the passport application form are required to establish criminal liability is not supported by the statute and regulations defining a passport application. Furthermore, the statute and regulations define a passport application as the submitted application form and supporting documents. Because submission occurs when a person provides a federal official with an application form and any supporting materials for review, and defendant acknowledged submission of a falsified application form to a passport officer, the district court did not err by failing to grant defendant's motion for acquittal. View "United States v. Gu" on Justia Law

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Defendant is a French banker who is charged with transmitting false, misleading, and knowingly inaccurate commodities reports, and with conspiracy to do the same, in violation of the Commodity Exchange Act (CEA). On appeal, defendant challenged the district court's application of the fugitive disentitlement doctrine and denial of her motions to dismiss the indictment.The Second Circuit concluded that it has jurisdiction to review the disentitlement ruling, but none to review the merits of extraterritoriality or due process. The court concluded that defendant is not a fugitive and, even if she were a fugitive, the district court abused its discretion in disentitling her. In this case, given her innocent residence as a foreign citizen abroad, given the nature of the charged offense and her remoteness from the alleged harm that it caused, given her line of work, and given her nonfrivolous challenge to the extraterritoriality of the criminal statute, the exercise of discretion to disentitle her was an abuse. Accordingly, the court reversed the order disentitling defendant and remanded for further proceedings to consider or reconsider the merits of her motions to dismiss. The court dismissed this appeal insofar as it seeks review of the (alternative) rulings on extraterritoriality and due process. View "United States v. Bescond" on Justia Law

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The Second Circuit followed the logical course charted by longstanding precedent to reach two conclusions with respect to 18 U.S.C. 666(a)(2): first, the "agent" of a federally funded organization need not have control over the federal funds, and the agent need not work in a specific program within the organization that uses those federal dollars; and second, the "business" of a federally funded organization need not be commercial in nature.The court affirmed Defendants Dawkins and Code's conviction for conspiracy to commit bribery in violation of 18 U.S.C. 371 and 666(a)(2), as well as Dawkins's conviction of substantive bribery in violation of section 666(a)(2). Defendants' convictions stemmed from their involvement in a scheme to bribe basketball coaches at NCAA Division I universities in exchange for the coaches' agreement to steer their student-athletes toward Dawkins's sports management company after leaving college and becoming professional basketball players.In this case, the court concluded that the superseding indictment properly alleged a violation of section 666(a)(2); the Government proved a violation of section 666(a)(2) where section 666(a)(2) does not require a nexus between the "agent" of a federally funded organization and the federal funds the organization receives, and the bribes paid by defendants to the university basketball coaches in exchange for influence exerted over student-athletes were "in connection" with a university's "business;" the statute is constitutional as applied to defendants; the district court did not abuse its discretion when making the challenged evidentiary rulings; and the district court made no reversible errors in providing the challenged jury instructions. View "United States v. Dawkins" on Justia Law

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The Second Circuit affirmed the district court's amended judgment following defendant's conviction for one count of conspiracy to commit securities fraud in violation of 18 U.S.C. 371, one count of securities fraud in violation of 18 U.S.C. 1348 and 2, and six counts of insider trading in violation of 15 U.S.C. 78j(b) and 78ff, 17 C.F.R. 240.10b-5 and 10b5-2, and 18 U.S.C. 2.In viewing the evidence in the light most favorable to the government, the court concluded that defendant's execution of confidentiality agreements with a company whose acquisition he was exploring was sufficient to subject him to prohibitions against insider trading. In this case, there is no dispute that defendant signed two nondisclosure agreements (NDAs) with the company; that in both NDAs, each party agreed not to disclose any confidential or proprietary information of the other; and that the fact that the parties' exploration and evaluation of the potential acquisition of the company was explicitly classified as "Proprietary Information" that was to remain "Confidential." Therefore, the evidence was sufficient to support inferences that defendant knowingly and intentionally breached his duty of confidentiality by disclosing material nonpublic information as to the prospects for a merger agreement between the company and his fund, intending for the third party to make trades based on that information. Furthermore, defendant's challenges to his convictions for securities fraud and conspiracy to commit such fraud also fail. Finally, venue was proper in the Southern District of New York. View "United States v. Chow" on Justia Law

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The Second Circuit affirmed Defendants Dean and Adam Skelos' convictions on multiple public corruption charges. Dean was a Republican senator from Nassau County, and was the Majority Leader of the New York State Senate. Defendants, father and son, were convicted in 2015 of conspiracy to commit extortion under color of official right; extortion under color of official right; conspiracy to commit honest services fraud; and solicitation and acceptance of bribes and gratuities. Defendants' convictions stemmed from their involvement in the Glenwood, AbTech, and PRI schemes.In 2016, while defendants' appeal was pending, the Supreme Court decided McDonnell v. United States, which narrowed the definition of the "official act" that a public official must exchange for benefits in order to be convicted of Hobbs Act extortion or honest services fraud, where those crimes have been defined by reference to the term "official act" in the federal bribery statute, 18 U.S.C. 201. In 2018, a second jury convicted defendants on all counts.The court concluded that any error in the jury instructions in the wake of McDonnell were harmless; the language in the indictment was sufficient where the language in an indictment is not required to be as precise as the attendant jury charge, nor is it required to delineate how the government will prove the elements set forth in the indictment; the district court empaneled a fair and impartial jury, and the district court did not abuse its discretion in denying the motion to transfer venue; there is no basis to vacate defendants' conviction under 18 U.S.C. 666 where a special verdict form specified that the jury found each defendant guilty under section 666 on both the gratuity theory and the unchallenged bribery theory; the district court did not abuse its discretion in deciding to quash certain subpoenas and there was no infringement of defendants' Fifth and Sixth Amendment rights in the district court's denial of requests for documents that were irrelevant, inadmissible, obtainable by other means, or part of discovery fishing expeditions; and the district court did not abuse its discretion in denying an evidentiary hearing. Finally, the court rejected Adam's evidentiary challenges and his challenges to the sufficiency of the evidence. View "United States v. Skelos" on Justia Law

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The Second Circuit affirmed defendant's conviction and sentence for charges related to his operation of an illegal payday-loan scheme. The jury found that defendant violated the Racketeer Influenced and Corrupt Organizations Act (RICO), the Truth in Lending Act (TILA), and federal wire fraud and identity theft statutes from 2004 through 2014.As to the RICO counts, the court rejected defendant's contention that the district court erred as a matter of law by instructing the jury that, as to his business's loans to New York borrowers, New York usury laws governed the transaction rather than the laws of the jurisdictions specified in the loan agreements, which set no interest rate caps. Rather, the court ruled that New York law applies and that the district court was correct when it so instructed the jury. As to the TILA conviction, the court rejected defendant's contention that his loan agreements disclosed the "total of payments" borrowers would make, as TILA requires, and that the evidence was insufficient to show that these disclosures were inaccurate. The court held that the evidence supported the jury's guilty verdict under TILA. The court rejected defendant's remaining contentions, finding them unpersuasive. View "United States v. Moseley" on Justia Law