Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca2-14-04443/USCOURTS-ca2-14-04443-0/pdf.json

Parties Involved:
Kristofor J. Lange

William C. Lange

Joseph G. Pascua

Frank E. Perkins

Brad A. Russell
Appellant
United States of America
Appellee USA

Document Text:

14‐2442‐cr (L)

United States v. Lange

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

      

    August Term 2015

(Argued:   February 17, 2016   Decided:   August 15, 2016)

Docket Nos. 14‐2442‐cr, 14‐4443‐cr, 14‐4559‐cr

      

UNITED STATES OF AMERICA,

        Appellant‐Cross‐Appellee,

v.

WILLIAM C. LANGE, AKA Kris Lange, JOSEPH G. PASCUA, FRANK E. PERKINS,

Defendants,

KRISTOFOR J. LANGE,

                                Defendant‐Appellee‐Cross‐Appellant,

BRAD A. RUSSELL,

                                Defendant‐Appellant.1

     

                                               1 The Clerk of Court is respectfully directed to amend the official caption to

conform to the above.

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ON APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF NEW YORK

      

Before:

JACOBS, CHIN, and DRONEY, Circuit Judges.

      

Consolidated appeals from an order and judgments of the United

States District Court for the Eastern District of New York (Irizarry, C.J.) entered

after defendants were convicted at trial of conspiracy and securities fraud.  The

Government appeals from the district courtʹs order vacating the conviction of

defendant Kristofor J. Lange on Count Three, the substantive securities fraud

count, on the grounds that the evidence was sufficient to establish venue.  Both

defendants appeal their convictions on several grounds, including the sufficiency

of the evidence as to venue and the propriety of the jury instructions.   

AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.                         

      

WINSTON M. PAES, Assistant United States

Attorney (David C. James, Alixandra E.

Smith, Assistant United States Attorneys,

on the brief), for Robert L. Capers, United

States Attorney for the Eastern District of

New York, Brooklyn, NY, for Appellant‐

Cross‐Appellee.

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RICHARD D. WILLSTATTER, Green & Willstatter,

White Plains, NY, for Defendant‐Appellee‐

Cross‐Appellant.

JAMES M. BRANDEN, Law Office of James M.

Branden, New York, NY, for Defendant‐

Appellant.

      

                          

CHIN, Circuit Judge:

In 2014, following a six‐week trial, a jury found defendants Brad A.

Russell and Kristofor J. Lange (ʺKristoforʺ) guilty of conspiracy to commit wire

fraud and securities fraud (Count Two) in violation of 18 U.S.C. § 371 and

substantive securities fraud (Count Three) in violation of 15 U.S.C. §§ 78j(b) and

78ff.  The jury also found Russell guilty of conspiracy to commit wire fraud in

connection with a separate but related scheme (Count One) in violation of 18

U.S.C. § 1349.  Both defendants moved for a judgment of acquittal.  The district

court (Irizarry, C.J.) granted Kristoforʹs motion with respect to Count Three,

finding insufficient evidence to establish venue in the Eastern District of New

York, and otherwise denied the motions.  

The Government appeals from the June 5, 2014 order vacating

Kristoforʹs conviction on Count Three.  Kristofor and Russell challenge their

convictions on several grounds, including sufficiency of the evidence as to venue

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on Counts Two and Three and the propriety of the jury instructions.  For the

reasons set forth below, we affirm Kristoforʹs and Russellʹs convictions, reverse

the district courtʹs order acquitting Kristofor on Count Three, and remand to the

district court with instructions to reinstate Kristoforʹs conviction on Count Three

and resentence Kristofor accordingly.   

BACKGROUND

I. The Facts

Because Kristofor and Russell challenge their convictions based on

the sufficiency of the evidence to support venue in the EDNY, we view the

evidence ʺin the light most favorable to the government, crediting ʹevery

inference that could have been drawn in its favor.ʹʺ  United States v. Tzolov, 642

F.3d 314, 318 (2d Cir. 2011) (quoting United States v. Rosa, 17 F.3d 1531, 1542 (2d

Cir. 1994)).   

The charges in this case arise out of defendantsʹ involvement with

William Lange (ʺBillʺ), Kristoforʹs father and Russellʹs brother‐in‐law.  Bill

concocted schemes to defraud investors in two of his companies:  (1) Harbor

Funding Group, Inc. (ʺHFGIʺ) and (2) Black Sand Mine, Inc. (ʺBSMIʺ).   Through

these schemes, Bill and his co‐conspirators defrauded HFGI investors of over $9

million and BSMI investors of some $780,000.      

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A. HFGI  

In 2006, Bill formed HFGI as a mortgage company to process

investor loans.  When that business failed to prosper, he transferred its assets to

another company in 2007 and announced a new strategy.  HFGI would target

individuals, land developers, and construction companies in need of capital for

redevelopment projects in the Gulf‐Opportunity Zone, which covered the region

devastated by Hurricane Katrina, including Alabama, Louisiana, and

Mississippi.  Bill created a Board of Directors for HFGI, composed of himself,

Stacey Lange (his wife), Russell, and Joseph Pascua, his long‐time business

partner.  

In February 2008, HFGI began offering financing to investors.  It

issued letters of intent (ʺLOIsʺ) representing that it had secured lender approval

and commitments to fund projects within thirty days.  These representations

were false:  HFGI had neither lender approval nor lender commitments to fund

projects and was not capable of providing meaningful funding.     

From February 2008 through early 2009, HFGI made loan

commitments, requiring borrowers to pay a ten‐percent deposit.  The deposits

were supposed to be held in escrow, to be refunded if the loan was not issued.  

Instead, HFGI diverted the deposits for other purposes:  investing in leveraged

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funds, paying salaries, and covering personal expenses.  Over the course of the

scheme, HFGI financed only one house to completion, and it failed to provide

funding for hundreds of projects it had committed to finance.  In total, HFGI

diverted over $9 million from its clientsʹ escrow accounts before shutting down

and changing its phone number.  

1. Kristoforʹs Involvement in HFGI

    In 2006, Kristofor began working as an administrative assistant for

his father at HFGI.2  Kristofor was not centrally involved in the HFGI scheme,

but did attend a number of staff meetings where the lack of funding and

messaging to clients was discussed.  Kristofor testified in the grand jury that he

knew HFGI ʺwasnʹt workingʺ and that as a result ʺwe closed it down . . . and

started another company.ʺ  Govʹt App. at 71.  His grand jury testimony was

admitted into evidence at trial.  

2. Russellʹs Involvement in HFGI

    Russell joined HFGI in 2006, working primarily as a loan processor.  

As a member of the Board, Russell attended a number of Board meetings and

                                              

2 Kristofor was not charged in Count One for his participation in the HFGI

scheme, but his involvement serves as background for his knowledge and participation

in the BSMI scheme.   

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general staff meetings where HFGIʹs strategy to secure funding for Gulf‐

Opportunity Zone development projects was discussed.   

    As a loan processor, Russell was responsible for preparing and

keeping custody of the loan documents for HFGIʹs clients.  In this role, he was

copied on emails with attachments from HFGIʹs escrow attorney reflecting the

transfer of escrow funds to HFGI.  Two land developers, whose clients were

defrauded in the HFGI scheme, testified to Russellʹs participation in the scheme.  

One testified that when she met with the Board to discuss potential loans, Russell

was present and spoke about the logistics of processing loans.  She testified

further that Russell was her primary contact, sending her accountings of her

clientsʹ escrow deposits, wiring instructions, and LOIs promising financing.  

Another testified to similar communications with and receipt of loan documents

from Russell.  Both testified that they repeatedly asked Russell about the delays

in funding, and that he responded by claiming ignorance and directing them to

Bill.  Russell never told them that HFGI did not have the funds or a lender to

finance projects, and did not reveal that their clientsʹ deposits had been

withdrawn from escrow.  By late 2009, when HFGI could no longer maintain the

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scheme and was over $9 million in debt, Russell, at Billʹs direction, changed the

office phone number.  

B. BSMI  

    After HFGI ceased operations, Billʹs companies were strapped for

cash.  Bill announced to his employees that they would start a new company,

BSMI, to mine precious metals in Alaska.  BSMI made multiple material

misrepresentations to induce investors to purchase BSMI stock, including that:  

(1) HFGI had loaned BSMI $900,000; (2) BSMI had $850,000 available in total

assets; and (3) investorsʹ money would be used for expenses such as fuel, food,

transportation, labor, and insurance.  In fact, investor funds were used primarily

to pay BSMI salaries and for personal expenses of BSMI co‐conspirators.  BSMI

also concealed (1) Billʹs involvement in BSMI by not disclosing his involvement

in marketing materials and having him impersonate his son Kristofor, the BSMI

Vice President, when speaking with investors3 and (2) BSMIʹs connection to

HFGI.  These misrepresentations were made to investors both orally (via in‐

person presentations, over the phone, or via internet webinars) and in written

                                              

3 According to Joseph Pascua, such concealment was necessary to prevent

potential investors from ʺlooking into who Bill Lange wasʺ because ʺif they did a

Google search, they would find out that Bill Lange had various companies that owed

people a lot of money.ʺ  Trial Tr. at 1626.

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materials (business plans, PowerPoint presentations, private placement

memoranda, and an email newsletter).  Victims invested $780,000 in BSMI.   

1. Kristoforʹs Involvement in BSMI

    Kristofor was Vice President of BSMI and a member of the BSMI

Board of Directors.  He attended key internal BSMI meetings, participated in

meetings where BSMI solicited investors, and made sales calls to potential

investors off a call list circulated by Russell.  Kristofor allowed his father to pose

as him when addressing investors.  At times, Kristofor was present when his

father impersonated him on the phone.  

    The BSMI business plan also contained material misstatements

regarding Kristoforʹs past business, marketing, and mining experience.  For

example, the business plan stated that he (1) was an officer at First Choice

Financial, another company owned by Bill, (2) had extensive mining experience,

(3) was familiar with environmental issues and high‐tech mining equipment, (4)

worked for a finance company in marketing and was an officer of the company,

and (5) worked for a consulting company using his marketing expertise to

develop nationwide offices.  Kristofor reviewed and approved his biography

before it was included in the business plan.  Many of the statements about his

background were false or inaccurate.  For example, Kristoforʹs mining experience

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was limited to the time he spent helping his father as a child at Alaska mines,

where he ʺhelped with clean up,ʺ ʺhelped move the rocks,ʺ and ʺplay[ed] with

[his] BB gun.ʺ  Trial Tr. at 3315‐16.  Moreover, he was not an officer of First

Choice Financial and functioned at HFGI largely as an administrative assistant.   

2. Russellʹs Involvement in BSMI

    Russell was a salaried employee of BSMI and, unlike Kristofor, was

not an officer of the company.  Russellʹs duties at BSMI included setting up and

managing the company website and office email addresses, preparing, editing,

and formatting the BSMI marketing materials ‐‐ including the business plan,

placement memoranda, the PowerPoint presentation, and electronic newsletters  

‐‐ and culling and distributing the call solicitation lists of potential investors.  

Russell reviewed, edited, and provided comments on the BSMI business plan,

which contained misrepresentations about the background and work experience

of the BSMI officers, omitted all references to HFGI, and contained false

information about BSMIʹs assets.  Russell also ʺscrubbedʺ a sales lead call list

twice, to remove potential investors who were on the Federal Trade

Commissionʹs National Do Not Call Registry, and circulated it to the BSMI

employees tasked with making cold calls, as discussed below.  

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C. Acts Occurring in the Eastern District

    BSMI operated out of Billʹs home state in Washington, but solicited

investors nationwide.4  The Government asserts on appeal that two categories of

acts establish venue in the EDNY with respect to the BSMI scheme:  (1) cold calls

to potential investors and (2) email correspondence with an apparent potential

investor.   

1. Cold Calls

    In May of 2010, Bill purchased a sales lead list to solicit capital for

BSMI from investors nationwide.  Several individuals, including Kristofor, were

tasked with cold‐calling potential investors.  Three versions of the call list were

circulated to employees to be used for those calls.   

    The first list (the ʺunscrubbed listʺ) was circulated by Frank Perkins

to Joseph Pascua and to an email address shared by Kristofor and Bill on May 25,

2010.  The unscrubbed list, derived from and identical to the sales lead list,

contained contact information for approximately 2,000 individuals, about 40 of

whom had addresses within the EDNY.  The Government established that this

                                               4 HFGI was also operated out of Washington, but one of the HFGI investors

was located in Brooklyn, as was the escrow attorney.  Russell does not challenge the

juryʹs finding that this evidence was sufficient to establish venue in the EDNY on his

conviction for Count One, conspiracy to commit wire fraud.  Accordingly, we focus

solely on acts occurring in the EDNY in furtherance of the BSMI scheme.    

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list was used by BSMI employees to make cold calls; one non‐EDNY investor on

that list who was initially solicited via cold call testified at trial.     

    Nine days later, Russell scrubbed the list to remove investors on the

Do Not Call Registry and circulated a ʺscrubbedʺ list (the ʺfirst scrubbed listʺ).  

Russell sent the first scrubbed list by email to Julie Day, a BSMI employee, with a

carbon copy sent to the email address that Kristofor shared with Bill.  In that

email, Russell stated that the list was ʺto replace the one I sent you last week to

start researchingʺ and that ʺ[o]nly the ones with the area code in GREEN

need[ed] to be researched.ʺ  Govʹt App. at 343.  The first scrubbed list contained

approximately 70 potential investors.  Of these, 15 individuals had addresses in

the EDNY, 14 of which were highlighted green.  In that email, Russell stated

ʺ[l]et me know when you are running low [on contact numbers] and I will send a

new list.ʺ  Id.  

    Later that day, Russell circulated another list (the ʺsecond scrubbed

listʺ) to the email shared by Kris and Bill, copying Joseph Pascua and Frank

Perkins.  The second scrubbed list contained approximately 50 names, two of

which had 718 area codes.  The 718 numbers did not include corresponding

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addresses and the Government did not establish that these individuals resided

within the EDNY.5  

    Two BSMI employees, Judith Shulmire and Joseph Pascua, testified

that cold calling was a key solicitation strategy for BSMI.  Shulmire testified that

the entire staff was tasked with making sales calls to potential investors from the

circulated lists.  Pascua also testified that three to five BSMI employees made

cold calls to solicit investment.  Pascua further noted that on a call with Bill and

Frank Perkins, Bill stated that ʺhe needed to get aggressive in calling investorsʺ 

from the list and that he would identify himself as Kristofor in these calls.  Trial

Tr. at 1626.  Shulmire also testified that Kristofor ʺmade some sales callsʺ and

participated in sales calls with his father where his father would pretend to be

him, with Kristoforʹs consent.  Govʹt App. at 234.  Kristofor also participated in

pre‐ and post‐call strategy sessions with his father and other BSMI staff.  

2. Email Correspondence

    In July 2010, Postal Inspector Lucente, who worked and resided in

the EDNY, viewed a webinar broadcast from the BSMI office in Washington that

described potential investment opportunities in BSMI.  On November 29, 2010,

Inspector Lucente emailed the company under a pseudonym to express interest

                                               5 The 718 area code covers areas within and outside the EDNY.    

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in investing in BSMI.  Inspector Lucente was located in his office in the EDNY

when he communicated with BSMI.  On November 30, 2010, Inspector Lucente

received an email response from the address info@black‐sand‐inc.com thanking

him for his interest in BSMI.  Three days later, JoEll Pascua, Joseph Pascuaʹs wife

and a BSMI employee, sent Inspector Lucente a second email including a BSMI

newsletter containing material misrepresentations about BSMI.  On December 5,

2010, Joseph Pascua sent another email to Inspector Lucente, stating that ʺthe

opportunity may be limited with BSMI,ʺ citing BSMIʹs need to work with

accredited investors with whom BSMI had a pre‐existing relationship, but

leaving open the possibility of working with Inspector Lucente.  Trial Tr. at 2008.   

II. The Proceedings Below

In December 2010, a grand jury in the EDNY indicted Bill and

Joseph Pascua for wire and securities fraud in connection with both the HFGI

and BSMI schemes.  Over the course of the investigation, the Government

interviewed Kristofor and Russell regarding their involvement in HFGI and

BSMI, and both testified before the grand jury.     

On November 21, 2011, Kristofor and Russell were indicted on two

counts in connection with the BSMI scheme: (i) conspiracy to commit securities

and wire fraud, in violation of 18 U.S.C. § 371 (Count Two) and (ii) substantive

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securities fraud, in violation of 15 U.S.C. §§ 78j(b) and 78ff (Count Three).  

Russell was also charged with conspiracy to commit wire fraud in violation of 18

U.S.C. § 1349 (Count One) in connection with the HFGI scheme.  

At trial, at the close of the Governmentʹs case, Kristofor and Russell

moved for a judgment of acquittal on Counts Two and Three, pursuant to Rule

29(a) of the Federal Rules of Criminal Procedure, claiming primarily that the

evidence was insufficient to establish venue in the EDNY.  The district court

ruled that the Government had presented sufficient evidence of venue on the

conspiracy count (Count Two) but reserved decision as to venue for the

substantive securities count (Count Three).  

On March 6, 2014, the jury found Russell guilty on Count One and

both Russell and Kristofor guilty on Counts Two and Three.  Following the

verdict, the defendants renewed their Rule 29(a) motion with respect to venue on

Counts Two and Three and moved for acquittal on all counts on the basis that

there was insufficient evidence of their knowledge and intent.  Russell also

sought a new trial on the basis that the district court erred in submitting

ʺconscious avoidanceʺ and ʺno ultimate harmʺ charges to the jury.   

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On June 5, 2014, the district court issued an opinion and order

denying the motions, except that it granted Kristoforʹs motion with respect to

Count Three.   

The district court sentenced both defendants on November 13, 2014.  

Kristofor was sentenced to five yearsʹ probation and ordered to pay $780,000 in

restitution to the victims of the BSMI fraud.  Russell was sentenced to 120

monthsʹ imprisonment, and ordered to pay $10,707,894.59 in restitution to the

victims of the HFGI and BSMI schemes.  

These appeals followed.

DISCUSSION

    Two principal issues are presented on appeal:  (1) the sufficiency of

the evidence as to venue with respect to Counts Two and Three, and (2) the

propriety of certain jury instructions.  We address these two issues in turn, as

well as certain additional arguments raised by defendants.

I. Venue

A. Applicable Law

    A defendant in a criminal case has the right to be tried in the district

where the crime was ʺcommitted.ʺ  U.S. Const. amend. VI; see also Fed. R. Crim.

P. 18 (ʺUnless a statute or these rules permit otherwise, the government must

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prosecute an offense in a district where the offense was committed.ʺ).  ʺWhen a

federal statute defining an offense does not specify how to determine where the

crime was committed, ʹ[t]he locus delicti must be determined from the nature of

the crime alleged and the location of the act or acts constituting it.ʹʺ  Tzolov, 642

F.3d at 318 (quoting United States v. Cabrales, 524 U.S. 1, 6‐7 (1998)).  Venue may

lie in more than one place if ʺthe acts constituting the crime and the nature of the

crime charged implicate more than one location.ʺ  United States v. Reed, 773 F.2d

477, 480 (2d Cir. 1985).  Venue is proper ʺin any district in which an offense was

ʹbegun, continued or completed.ʹʺ  Id. at 483 n.4 (quoting 18 U.S.C. § 3237(a)).   

    We review a challenge to the district courtʹs ruling regarding venue

de novo.  Tzolov, 642 F.3d at 318.  The Government bears the burden of proving

venue by a preponderance of the evidence.  Id.  Where the Government has

prevailed at trial, we review the sufficiency of the evidence as to venue in the

light most favorable to the Government, crediting ʺevery inference that could

have been drawn in its favor.ʺ  Id. (quoting Rosa, 17 F.3d at 1542).  Venue may be

proved by circumstantial evidence.  United States v. Potamitis, 739 F.2d 784, 791

(2d Cir. 1984).       

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1. Securities Fraud

    The Securities Exchange Act of 1934 provides for venue for criminal

securities fraud ʺin the district wherein any act or transaction constituting the

violation occurred.ʺ  15 U.S.C. § 78aa(a).  We have found that ʺvenue is proper in

a district where . . . the defendant intentionally or knowingly causes an act in

furtherance of the charged offense to occur in the district of venue.ʺ  United States

v. Royer, 549 F.3d 886, 894 (2d Cir. 2008) (quoting United States v. Svoboda, 347

F.3d 471, 483 (2d Cir. 2003)).  To be ʺin furtherance of the charged offense,ʺ acts or

transactions must constitute the securities fraud violation ‐‐ mere preparatory acts

are insufficient.  Tzolov, 642 F.3d at 319 (finding venue on a securities fraud count

insufficient because defendantsʹ flights in and out of airports in the EDNY were

not acts constituting the violation).  A securities fraud violation occurs where

defendants ʺuse or employ, in connection with the purchase or sale of any

security . . . any manipulative or deceptive device,ʺ including the making of

material false statements.  15 U.S.C. § 78j(b).  

    Even without knowledge or intent to cause an act in furtherance of

the crime to occur in the district of venue, venue may still be proper.  In Svoboda,

we held that a defendant need not intentionally or knowingly cause an act in

furtherance of a charged offense to occur in the district to establish venue.  

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347 F.3d at 483.  Instead, it is enough that ʺit is foreseeable [to the defendant] that

such an act would occur in the districtʺ and that act does in fact occur.  Id.

    Venue may also be established if the defendant aids and abets

anotherʹs crime of securities fraud in the district.  The aiding and abetting statute

provides that a defendant who ʺaids, abets, counsels, commands, induces or

procures [the] commissionʺ of an offense against the United States is ʺpunishable

as a principal.ʺ  18 U.S.C. § 2(a).  To prove that a defendant aided and abetted a

substantive crime, the Government must establish that ʺthe underlying crime

was committed by someone other than the defendant and that the defendant

himself either acted or failed to act with the specific intent of advancing the

commission of the underlying crime.ʺ  United States v. Smith, 198 F.3d 377, 383 (2d

Cir. 1999) (quoting United States v. Pipola, 83 F.3d 556, 562 (2d Cir. 1996)).    

    Where guilt of a substantive offense is premised on aiding and

abetting, ʺ[v]enue is proper where the defendantʹs accessorial acts were

committed or where the underlying crime occurredʺ because ʺ18 U.S.C. § 2 alters

the common law rule to provide an additional venue where . . . the principal[]

acted.ʺ  Smith, 198 F.3d at 383.

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    Accordingly, to establish venue in the district for a conviction of

securities fraud, either directly or through aiding and abetting, the Government

must prove that a criminal act occurred in the district of venue.  ʺWe must

therefore ʹdiscern the location of the commission of the criminal acts.ʹʺ  United

States v. Rowe, 414 F.3d 271, 278 (2d Cir. 2005) (quoting United States v. Rodriguez‐

Moreno, 526 U.S. 275, 279 (1999)).  ʺ[W]here a crime consists of distinct parts

which have different localities the whole may be tried where any part can be

proved to have been done.ʺ  Id. (quoting Rodriguez‐Moreno, 526 U.S. at 281).   

    In considering challenges to venue for other criminal acts, we have

held that venue lies both in the district where a telephonic communication in

furtherance of a crime was made and where it was received.  See United States v.

Rommy, 506 F.3d 108, 120 (2d Cir. 2007) (finding venue for drug conspiracy

proper where conspirators made calls into the district and noting that ʺ[i]n cases

involving telephone calls between co‐conspirators in different districts, we have

ruled that venue lies ʹin either district as long as the calls further the conspiracyʹʺ 

(quoting Smith, 198 F.3d at 382)) (collecting cases); United States v. Bushwick Mills,

Inc., 165 F.2d 198, 202 (2d Cir. 1947) (explaining that an offer made by telephone

in Brooklyn to an offeree in New York in violation of the Emergency Price

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Control Act ʺmay be prosecuted in either districtʺ); see also United States v.

Stewart, 878 F.2d 256, 257‐58 (8th Cir. 1989) (upholding venue for a substantive

drug offense and related conspiracy in North Dakota where phone calls were

placed to a North Dakota landline but automatically forwarded and received in

Minnesota because defendant ʺbelieved that he was calling [North Dakota], and

indeed he wasʺ).   

    Venue is also proper in the district where an electronic

communication was received.  Royer, 549 F.3d at 895 (finding venue proper on a

securities fraud charge, noting ʺ[r]eceipt of electronic transmissions in a district is

sufficient to establish venue activity thereʺ); Rowe, 414 F.3d at 279‐80 (venue

proper for a conviction of advertising to receive, exchange, or distribute

pornography where defendant posted an internet advertisement, it was

foreseeable that the advertisement would be viewed within the district, and a

law enforcement official viewed it in the district).   

    We hold that the same rules apply to securities fraud violations:  

Venue is proper not only in the district where telephonic or electronic materially

fraudulent communications were initiated, but also in the district where such

communications were received.            

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2. Conspiracy to Commit Securities and Wire Fraud

    Venue is proper for conspiracy charges ʺin any district in which an

overt act in furtherance of the conspiracy was committed.ʺ  Tzolov, 642 F.3d at

319‐20 (quoting Royer, 549 F.3d at 896) (defendantsʹ act of boarding a plane at JFK

airport, located in the EDNY, was an overt act sufficient to establish venue in the

EDNY on conspiracy charge).  ʺAn overt act is any act performed by any

conspirator for the purpose of accomplishing the objectives of the conspiracy.  

The act need not be unlawful; it can be any act, innocent or illegal, as long as it is

done in furtherance of the object or purpose of the conspiracy.ʺ  Id. at 320.  ʺThis

includes not just acts by co‐conspirators but also acts that the conspirators caused

others to take that materially furthered the ends of the conspiracy.ʺ  Royer, 549

F.3d at 896.  The Government is ʺnot restricted to the overt acts charged in the

indictment in justifying its choiceʺ of venue.  United States v. Schwartz, 535 F.2d

160, 165 (2d Cir. 1976).

3. Substantial Contacts

  ʺ[O]n occasion we have supplemented our venue inquiry with a

ʹsubstantial contactsʹ test that takes into account a number of factors . . . .ʺ  United

States v. Rutigliano, 790 F.3d 389, 399 (2d Cir. 2015) (quoting United States v.

Coplan, 703 F.3d 46, 80 (2d Cir. 2012)).  Those factors include ʺthe site of the

Case 14-4443, Document 116, 08/15/2016, 1840493, Page22 of 46
‐23‐ 

defendantʹs acts, the elements and nature of the crime, the locus of the effect of

the criminal conduct, and the suitability of the [venue] for accurate factfinding.ʺ  

Royer, 549 F.3d at 895 (quoting Reed, 773 F.2d at 481).  The substantial contacts

inquiry is not a ʺformal constitutional test,ʺ but instead is a useful guide to

consider ʺwhether a chosen venue is unfair or prejudicial to a defendant.ʺ  United

States v. Saavedra, 223 F.3d 85, 93 (2d Cir. 2000).   

B. Application

    The district court granted Kristoforʹs motion for acquittal as to

Count Three, finding insufficient evidence of venue to support his substantive

securities fraud conviction.  The district court denied his motion as to Count

Two, the conspiracy count, and denied Russellʹs motion on both Counts Two and

Three.   

    Because ʺvenue must be proper with respect to each count,ʺ United

States v. Beech‐Nut Nutrition Corp., 871 F.2d 1181, 1188 (2d Cir. 1989), and each

defendant, we review each count in turn, beginning with Count Three.     

1. Securities Fraud

    The Government does not contend that either defendant

intentionally committed acts constituting the violation within the EDNY.  

Accordingly, to support a finding of venue in the EDNY, the evidence must have

Case 14-4443, Document 116, 08/15/2016, 1840493, Page23 of 46
been su

includin

at 319, a

at 483, o

are ther

the dist

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Governme

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‐24‐ 

cts occurre

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DNY Cons

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tituting Se

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zolov, 642 F

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ud scheme

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t (i) acts

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F.3d

F.3d

and

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m

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hat

Case 14-4443, Document 116, 08/15/2016, 1840493, Page24 of 46
‐25‐ 

investments, see Potamitis, 739 F.2d at 791 (circumstantial evidence may establish

venue), including the following:   

 BSMI personnel engaged in cold calling to solicit investments;

 they did so aggressively, on a national basis;

 they did so using call lists that included dozens of individuals

residing in the EDNY6; and    

 BSMI personnel communicated with Inspector Lucente in the

EDNY, and sent him an electronic newsletter used to solicit investments.   

    These communications within the district constituted securities

fraud violations.  The calls made by BSMI employees and email distribution of

the BSMI newsletter ʺwere crucial to the success of the schemeʺ of securities

fraud and contained a number of material misstatements regarding the BSMI

                                               6 The unscrubbed list included approximately 40 individuals with EDNY

addresses, representing two percent of the total names on the list.   The first scrubbed

list contained 15 individuals with EDNY addresses, representing 21 percent of the total

names on the list.  We have previously found that a jury could reasonably conclude

venue was established based on circumstantial evidence where only 2.3 percent of

paying subscribers to an insider tip website resided in the EDNY.  See Royer, 549 F.3d at

894.  There, the defendant sent private messages to his subscriber base advising them to

short stock or publish information to affect the value of certain stock.  See id.  We

concluded that ʺthe jury could reasonably infer that it was more likely than not that one

or more of these [EDNY] subscribers traded in the applicable securities.ʺ  Id.  Here,

approximately two percent of EDNY residents were included on the unscrubbed list

and approximately 18 percent of EDNY residents were included on the first scrubbed

list.  Accordingly, like in Royer, a reasonable juror could conclude that an EDNY

resident was solicited.

Case 14-4443, Document 116, 08/15/2016, 1840493, Page25 of 46
‐26‐ 

scheme.  Royer, 549 F.3d at 895.  For example, the talking points and newsletter

falsely provided that BSMI had a valuable gold mind in Alaska and that testing

established that the mine contained great quantities of gold.  Accordingly, these

acts constituted securities fraud violations, and were not just preparatory.  See 15

U.S.C. § 78j(b) (making it a violation to ʺuse or employ, in connection with the

purchase or sale of any security . . . any manipulative or deceptive deviceʺ); cf.

Tzolov, 642 F.3d at 319 (concluding that boarding flights in the EDNY to travel to

investor meetings where material false statements were made was insufficient to

establish venue on substantive securities fraud count).   

    Russell and Kristofor argue that the email correspondence was

merely preparatory because Inspector Lucente did not ultimately invest in BSMI.  

But whether Inspector Lucente, or any EDNY recipient of a cold call, actually

invested is irrelevant.  The making of an investment is not an element of the

crime of securities fraud.  Instead, the mere use of material misrepresentations to

solicit investment is the ʺessential element of the crimeʺ in furtherance of

securities fraud.  Tzolov, 642 F.3d at 318‐9.     

    Considering the evidence ʺin the light most favorable to the

government, [and] crediting every inference that could have been drawn in its

Case 14-4443, Document 116, 08/15/2016, 1840493, Page26 of 46
favor,ʺ

could h

employ

investm

   

could h

within t

the crim

   

foreseea

Kristofo

that cap

in the co

and talk

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Kristofo

id. at 318 (

have reason

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ments throu

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the EDNY

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employee

Foresee

urt erred b

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e BSMI ina

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to solicit i

culated to

d calls lists

and actuall

‐27‐ 

marks omit

eponderan

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Involvemen

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defendan

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the email

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Trial Tr. a

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at 1482, 297

hared by K

with EDNY

participate

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hat BSMI

se of solici

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all

Case 14-4443, Document 116, 08/15/2016, 1840493, Page27 of 46
‐28‐ 

and post‐call strategy meetings, and sat in on calls made by Bill.  He also

attended meetings where BSMI employees discussed strategies for soliciting

investment over the phone, and specifically discussed the need to conceal Billʹs

involvement by having him pose as ʺKris Langeʺ on calls.  A reasonable jury

could conclude that it was foreseeable to Kristofor that calls would be made to

investors in the EDNY to solicit investment.   

    The district court also erred by concluding that the Government was

required ʺto present evidence at trial of [Kristoforʹs] involvement in creating the

newsletter or otherwise disseminating materially false information in this

districtʺ to establish venue through the EDNY email correspondence.  Sp. App. at

17.  It was foreseeable to Kristofor that investor solicitations would be followed

up with electronic correspondence containing newsletters, private placement

memoranda, or other solicitation materials to convince a potential target to invest

with BSMI.  Joseph Pascua sent a sample follow‐up email to be used to solicit

investments to Kristofor and other BSMI employees.  Kristofor received multiple

versions of these solicitation materials at his work email account, which he

shared with his father.     

Case 14-4443, Document 116, 08/15/2016, 1840493, Page28 of 46
‐29‐ 

    Similarly, both the cold calls to potential investors within the EDNY

and the email correspondence to Inspector Lucente were foreseeable to Russell.  

Testimony at trial established that Russell was responsible for scrubbing the call

lists and distributing the culled lists to employees with instructions to solicit

potential investors.  He was therefore aware that investors within the EDNY

were on the list, and were likely to be called as part of BSMIʹs strategy to solicit

investment.  At BSMI, Russell assisted with the preparation of materially false

promotional materials, such as drafts of the business plan, business plan

summary, and placement memoranda to be emailed to potential investors.  He

reduced the electronic file size of the business plan and business plan summary

to ʺhelp when sending the file via email.ʺ  Govʹt App. at 935.  Similarly, Russell

reviewed a draft of the quarterly newsletter drafted by Pascua.  In light of

Russellʹs involvement in both the cold calls and the preparation of promotional

materials to be sent to potential investors, it was clearly foreseeable to Russell

that cold calls would be made to investors within the EDNY and that

promotional materials, such as the newsletter, would be emailed into the district.   

Case 14-4443, Document 116, 08/15/2016, 1840493, Page29 of 46
‐30‐ 

b. Aiding and Abetting

    Kristofor and Russell were charged in Count Three both as

principals and as aiders and abettors pursuant to 18 U.S.C. § 2(a).  A reasonable

trier of fact could have concluded that both defendants aided and abetted the

BSMI securities fraud by participating in the solicitation strategy, and could

therefore be tried not only where they committed accessorial acts, but also

ʺwhere the principal acted.ʺ  Smith, 198 F.3d at 385.   

    Kristofor made cold calls to solicit investments, joined Bill on cold

calls and in investor meetings, and allowed Bill to impersonate him to prevent

potential investors from learning of Billʹs tarnished reputation and involvement

with HFGI.  Russell scrubbed and circulated the call lists, and edited

promotional materials for distribution to potential investors.  Accordingly, both

defendants aided and abetted the scheme of securities fraud and could be tried in

any district where the other BSMI employees committed crimes in connection

with the scheme, including the EDNY.   

    The district court erred by concluding that the Government was

required to present evidence that Kristofor aided and abetted the specific acts

carried out by other BSMI employees in the district of venue.  Our precedent

Case 14-4443, Document 116, 08/15/2016, 1840493, Page30 of 46
‐31‐ 

does not require that a defendant aid and abet the specific criminal activity

occurring within the district of venue.   

    In Smith, the defendant participated in a loan sharking and extortion

conspiracy led by a co‐defendant.  198 F.3d at 380.  There, the defendant was

charged with aiding and abetting substantive crimes of extortion.  Id. at 383‐85.  

We held that venue was proper for the defendant both where his accessorial acts

were committed and where the principal committed a crime.  Id. at 383.  The

government presented evidence that his co‐defendant committed acts in the

district to further his extortion scheme by calling his victims from the district of

venue.  We found that ʺ[e]ven if [the defendant] committed all of his accessorial

actsʺ outside of the district of venue, he could be tried in any district where the

principal acted.  Id.  It was enough that the defendant aided the scheme

generally; the jury was not required to find that he aided the specific acts of

extortion committed within the district.   

    Here, just as in Smith, it was enough that other BSMI personnel

committed acts in the district and that Kristofor and Russell aided and abetted

the fraudulent scheme.  See Smith, 198 F.3d at 383‐85.  Accordingly, venue was

proper in the EDNY with respect to the substantive securities fraud count.   

Case 14-4443, Document 116, 08/15/2016, 1840493, Page31 of 46
‐32‐ 

2. Conspiracy

    The Government established by a preponderance of the evidence

that conspirators committed, or caused to be committed, overt acts in furtherance

of the BSMI conspiracy in the EDNY.   

    As set forth above, a reasonable juror could find that the following

acts occurred in the EDNY in furtherance of the conspiracy:  (1) cold calls by

BSMI employees to the EDNY, (2) JoEll Pascuaʹs electronic mailing of the BSMI

newsletter to Inspector Lucente, and (3) Joseph Pascuaʹs email communication

with Inspector Lucente.  These acts constituted overt acts in furtherance of the

objectives of the conspiracy to commit securities fraud.  See Tzolov, 642 F.3d at

320 (holding overt act need not be unlawful, provided it furthers conspiracy);

Rommy, 506 F.3d at 119.    

    While a non‐conspiring BSMI employee may have placed the cold

calls, and JoEll Pascua (who was not charged in the conspiracy) sent some of the

email correspondence to Inspector Lucente, this does not alter our conclusion

that these acts were overt acts materially furthering the conspiracy, because a

reasonable juror could surely conclude that the BSMI employees were instructed

to take these acts by a conspirator.  See Royer, 549 F.3d at 896 (overt acts include

ʺacts that the conspirators caused others to take that materially furthered the

Case 14-4443, Document 116, 08/15/2016, 1840493, Page32 of 46
‐33‐ 

ends of the conspiracyʺ).  The Government presented testimony establishing that

Bill instructed the BSMI employees to make the cold calls.  Similarly, it was

reasonable to conclude that Bill or Joseph Pascua instructed JoEll Pascua to send

the newsletter to potential investors as part of her administrative duties.  These

acts materially furthered the objectives of the conspiracy.  Accordingly, the

district court did not err in concluding that venue was properly established for

both defendants with respect to the conspiracy count.

3. Substantial Contacts

    Defendants argue that even if the acts occurring in the EDNY would

otherwise establish venue for Counts Two and Three, venue is nevertheless

improper because they did not have ʺsubstantial contactsʺ with the EDNY.   

      The substantial contacts ʺinquiry is made only ʹif the defendant

argues that his prosecution in the contested district will result in a hardship to

him, prejudice him, or undermine the fairness of the trial.ʹʺ  Rutigliano, 790 F.3d

at 399 (quoting Coplan, 703 F.3d at 80).  Kristofor and Russell did not seek a pre‐

trial change of venue on grounds of prejudice or hardship; because they did not

raise the issue of venue until after the close of the Governmentʹs case, it is

questionable whether the substantial contacts test should be applied.  See

Rutigliano, 790 F.3d at 398.  

Case 14-4443, Document 116, 08/15/2016, 1840493, Page33 of 46
‐34‐ 

    In any event, we conclude that venue is proper even under the

substantial contacts test.  The Governmentʹs evidence was sufficient to establish

that defendants and their co‐conspirators attempted to solicit investment in BSMI

from the EDNY, as well as across the country.  BSMI maintained a website

designed to attract investors across the United States, the BSMI investment

recruitment scheme included solicitation of investment using nationwide call

lists, and BSMI employees, including a co‐conspirator, emailed with a potential

investor in the EDNY.  These ʺalleged criminal acts provide substantial contact

with the district.ʺ  Reed, 773 F.2d at 481.  The factors to be considered in applying

the substantial contacts test support this conclusion.   

    First, some of the co‐conspiratorsʹ acts occurred in the EDNY, and

the Government introduced evidence that both defendants aided and abetted

those acts, as discussed above.  Second, the criminal conduct had impact in the

EDNY (on Inspector Lucente and likely others) and nationally (on various

potential investors).  Third, the elements and national reach of the crime of

securities fraud carried out by defendants support venue in the EDNY.  See

Royer, 549 F.3d at 895 (ʺIndeed, the defendants, having concocted a scheme that   

. . . defrauded investors throughout the country, can hardly complain that their

Case 14-4443, Document 116, 08/15/2016, 1840493, Page34 of 46
‐35‐ 

very modus operandi subjected them to prosecution in numerous districts,

including the Eastern District of New York.ʺ).  Finally, the district court did not

err in concluding that the Eastern District was no less suitable for accurate fact‐

finding than any other district involved in the schemeʹs implementation.  While

another venue may have been more convenient for defendants, ʺwhere the acts

constituting the crime and the nature of the crime charged implicate more than

one location, the [C]onstitution does not command a single exclusive venue.ʺ 

Reed, 773 F.2d at 480.  Accordingly, defendants had substantial contacts with the

EDNY and conducting the trial in the EDNY was not unduly prejudicial.

II. Jury Instructions

    We review a challenge to jury instructions de novo.  United States v.

Coppola, 671 F.3d 220, 247 (2d Cir. 2012).  ʺA jury instruction is erroneous if it

misleads the jury as to the correct legal standard or does not adequately inform

the jury of the law.ʺ  United States v. Nektalov, 461 F.3d 309, 313 (2d Cir. 2006)

(quoting United States v. Wilkerson, 361 F.3d 717, 732 (2d Cir. 2004)).  We will

reverse only if ʺthe charge, viewed as a whole, demonstrates prejudicial error.ʺ  

Coppola, 671 F.3d at 247.  Where a ʺdefendant requested a different jury

instruction from the one actually given, the defendant ʹbears the burden of

showing that the requested instruction accurately represented the law in every

Case 14-4443, Document 116, 08/15/2016, 1840493, Page35 of 46
‐36‐ 

respect and that, viewing as a whole the charge actually given, he was

prejudiced.ʹʺ  Nektalov, 461 F.3d at 313‐14 (quoting Wilkerson, 361 F.3d at 732).   

    On appeal, the defendants argue that the district court erred in its

ʺconscious avoidanceʺ and ʺno ultimate harmʺ charges to the jury.  Each

instruction is discussed below.   

A. The Conscious Avoidance Instruction  

  ʺThe conscious avoidance doctrine provides that a defendantʹs

knowledge of a fact required to prove the defendantʹs guilt may be found when

the jury is persuaded that the defendant consciously avoided learning that fact

while aware of a high probability of its existence.ʺ  Svoboda, 347 F.3d at 477

(internal quotation marks omitted).  ʺThus, a conscious avoidance instruction is

warranted (i) when a defendant asserts the lack of some specific aspect of

knowledge required for conviction and (ii) the appropriate factual predicate for

the charge exists, i.e., the evidence is such that a rational juror may reach the

conclusion beyond a reasonable doubt that the defendant was aware of a high

probability of the fact in dispute and consciously avoided confirming that fact.ʺ  

Nektalov, 461 F.3d at 314 (citations and internal quotation marks omitted).   

Case 14-4443, Document 116, 08/15/2016, 1840493, Page36 of 46
‐37‐ 

1. The Conscious Avoidance Doctrine in the Conspiracy Context

    Kristofor contends that the district court erred by failing to instruct

the jury that conscious avoidance may not be used as a substitute for knowing

participation in a conspiracy.  

    On a charge of conspiracy, the Government must prove ʺ(1)

knowing participation or membership in the scheme charged and (2) some

knowledge of the unlawful aims and objectives of the scheme.ʺ  United States v.

Ferrarini, 219 F.3d 145, 154‐55 (2d Cir. 2000) (internal quotation marks omitted).  

ʺConscious avoidance may not be used to support a finding as to the former, i.e.,

intent to participate in a conspiracy, but it may be used to support a finding with

respect to the latter, i.e., knowledge of the conspiracyʹs unlawful goals.ʺ  Id.; see

also Svoboda, 347 F.3d at 478‐79 (ʺ[T]he conscious avoidance doctrine may be

invoked to satisfy the requirement that a defendant [knew] of the unlawful aims

of the conspiracy,ʺ but ʺ[t]here must be further proof that the defendant joined in

the illegal agreement with the intent of helping it succeed in its criminal

purpose.ʺ).  Where the conspiracy jury instruction requires a finding that the

defendant possessed the requisite intent, the instructions ʺcannot be taken to

permit the jury to infer the necessary intent to join the conspiracy from mere

conscious avoidance.ʺ  Ferrarini, 219 F.3d at 156.   

Case 14-4443, Document 116, 08/15/2016, 1840493, Page37 of 46
‐38‐ 

    The district court did not include Kristoforʹs requested instruction

that conscious avoidance may never be used as a substitute for knowing

participation.7  The conspiracy jury instructions advised jurors that the

Government had to prove beyond a reasonable doubt that the defendants

participated with knowledge and intent.  The district court noted that it had just

explained in its general instructions ʺwhat it means to act knowingly and

intentionally.ʺ Trial Tr. at 3820.   The general definition of ʺknowinglyʺ had

included language on conscious avoidance.8   

                                               7

 Specifically, Kristoforʹs counsel requested that the district court ʺinstruct

the jury that conscious avoidance may never be used as a substitute for knowing

participation or membership in the conspiracies and schemes to defraud charged in the

Indictment.  In other words, the government must prove that the defendant being

considered knowingly participated in and became a member of the conspiracy or

scheme to defraud alleged in a particular count of the Indictment being considered.ʺ  

Def. Kristofor J. Langeʹs Proposed Jury Instructions at 1, Dkt. No. 1:10‐cr‐00968, ECF

No. 254.  Counsel relied on United States v. Lewis, 545 F. Appʹx 9 (2d Cir. 2013)

(summary order), to bolster his challenge to the instruction that was actually given.  

That non‐precedential summary order notes that a conscious avoidance jury instruction

is erroneous if it ʺconvey[s] to the jury that one could innocently join an undertaking

without knowing of its illegal character, and that conscious avoidance of later

indications of wrongful behavior was sufficient to make that person a member of a

criminal conspiracy.ʺ  Lewis, 545 F. Appʹx at 11.

8 The district courtʹs conscious avoidance instruction provided:  

In determining whether the defendant acted knowingly, you

may consider whether the defendant deliberately closed his

eyes to what otherwise would have been obvious to him.

You may only infer knowledge of the existence of a

Case 14-4443, Document 116, 08/15/2016, 1840493, Page38 of 46
‐39‐ 

    The district courtʹs conspiracy charge instructions, however, would

not have permitted the jury to substitute conscious avoidance for intent.  The

instructions clearly provided that the Government had to prove that the

defendants intentionally engaged in the conspiracy.  For example, the charge

instructed that ʺthe government must prove beyond a reasonable doubt . . .  that

the defendants knowingly and intentionally became a member of the

conspiracy,ʺ id. at 3819, the defendant ʺmust have participated with knowledge

of at least some of the purposes or objectives of the conspiracy, and with the

intention of aiding in the accomplishment of the unlawful end, id. at 3823, and

ʺ[i]n sum, a defendant . . . must have intentionally engaged, advised or assisted

                                                                                                                                                  

particular fact if the defendant was aware of a high

probability of its existence unless the defendant actually

believed that it did not exist.  If you find beyond a

reasonable doubt that the defendant acted with a conscious

purpose to avoid learning a highly probable truth, then this

element may be satisfied.  However, guilty knowledge may

not be established by demonstrating that the defendant was

merely negligent, foolish, careless or mistaken. It is entirely

up to you to determine whether the defendant deliberately

closed his eyes and what inferences, if any, fairly may be

drawn from the evidence on this issue. Whether the

defendant acted knowingly may be proven by a defendantʹs

conduct and by all of the facts and circumstance

surrounding the case.

Trial Tr. at 3816‐17; see also Leonard Sand et al., Modern Federal Jury Instructions—

Criminal, ¶ 3A.01, at 3A‐2 (2011 ed.) (model conscious avoidance instruction identical in

substance to the district courtʹs instruction).  

Case 14-4443, Document 116, 08/15/2016, 1840493, Page39 of 46
‐40‐ 

in [the conspiracy] for the purpose of furthering the illegal undertaking,ʺ id.  The

instructions required the jury to find that the defendants intentionally joined the

conspiracy to convict, and accordingly, the instructions did not allow the jury to

infer intent from mere conscious avoidance.  See Svoboda, 347 F.3d at 478‐79

(upholding a similar instruction defining knowledge to include conscious

avoidance, where the instructions required ʺfurther proof that the defendant

joined in the illegal agreement with the intent of helping it succeed in its criminal

purposeʺ).   

2. Factual Predicate for the Instruction  

    Russell contends on appeal that it was improper to instruct the jury

on conscious avoidance for both the HFGI and BSMI conspiracies, because there

was no factual predicate for the instruction.  Specifically, Russell argues that

because the ʺrecord evidence indicates that [the defendant] had actual

knowledge [of the object of the conspiracy], there was no factual predicate for a

conscious avoidance charge.ʺ  United States v. Kaplan, 490 F.3d 110, 128 (2d Cir.

2007) (emphasis omitted).     

  ʺ[A] conscious avoidance instruction is warranted (i) when a

defendant asserts the lack of some specific aspect of knowledge required for

conviction and (ii) the appropriate factual predicate for the charge exists . . . .ʺ  

Case 14-4443, Document 116, 08/15/2016, 1840493, Page40 of 46
‐41‐ 

Nektalov, 461 F.3d at 314 (citations and internal quotation marks omitted).  To

establish a factual predicate, there must be evidence that ʺthe defendant was

aware of a high probability of the fact in dispute and consciously avoided

confirming that fact.ʺ  Id. (internal quotation marks omitted).  Contrary to

Russellʹs assertion, where the defendant asserts a lack of actual knowledge, the

Government need not choose between an actual knowledge and a conscious

avoidance theory because ordinarily ʺ[t]he same evidentiary facts that support[]

the governmentʹs theory of actual knowledge also raise[] the inference that he

was subjectively aware of a high probability of the existence of illegal conduct

and thus properly serve[] as the factual predicate for the conscious avoidance

charge.ʺ  United States v. Cuti, 720 F.3d 453, 464 (2d Cir. 2013); see also Svoboda, 347

F.3d at 480.  A factual predicate ʺmay be established where[] a defendantʹs

involvement in the criminal offense may have been so overwhelmingly

suspicious that the defendantʹs failure to question the suspicious circumstances

establishes the defendantʹs purposeful contrivance to avoid guilty knowledge.ʺ  

Svoboda, 347 F.3d at 480 (alterations and internal quotation marks omitted).

    Here, there was a factual predicate for the district courtʹs conscious

avoidance charge.  The Government presented ample evidence of both Russellʹs

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involvement in the schemes and Russellʹs attempts to avoid specific knowledge.

See Cuti, 720 F.3d at 463 (ʺThe Government need not choose between an actual

knowledge and a conscious avoidance theory.ʺ (internal quotation marks

omitted)).  This included evidence that Russell knew (1) of the lack of funding for

the HFGI scheme, of the transfer of funds out of the client escrow accounts, and

that BSMIʹs business plan and PPM contained material misrepresentations, and

(2) avoided learning of the HFGI fraudulent scheme, by refusing to respond to

the questions of dissatisfied investors and instead referring them to Bill.  Based

on this evidence, the jury could reasonably infer that if Russell lacked actual

knowledge, he was ʺsubjectively aware of a high probability of the existence of

illegal conduct,ʺ Cuti, 720 F.3d at 464, and ʺpurposeful[ly] contriv[ed] to avoid

guilty knowledge,ʺ Svoboda, 347 F.3d at 480.   

    Moreover, the charge was warranted because Russell argued at trial

that he lacked knowledge of the nature of the fraudulent schemes.  During

summation, Russellʹs counsel asserted a lack of specific knowledge required for

conviction, noting that Russell ʺdidnʹt knowʺ that HFGI was defrauding clients,

Trial Tr. at 3683‐84, ʺdid not know when the funding would be available,ʺ id. at

3693, claimed that ʺthereʹs no way . . . he would know if the metallurgical reports

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in the [BSMI] business plan were accurate,ʺ id. at 3702, and had ʺno reason . . . to

knowʺ about the money and assets of BSMI, id. The charge was more than

appropriate in light of this defense.  Cuti, 720 F.3d at 464 (ʺ[Defendantʹs]

purported lack of knowledge defense, despite [his] deep involvement in the

transactions that effectuated the fraud, all but invited the conscious avoidance

charge.ʺ).  Accordingly, the district court did not err by instructing the jury on a

theory of conscious avoidance.   

B. The No Ultimate Harm Instruction

    Russell argues that the district court erred in giving a ʺno ultimate

harmʺ charge to the jury for both the HFGI and BSMI schemes.9  He contends

that the charge was inapplicable because he made no false or misleading

statements to investors or potential investors.  This argument is without merit.   

                                              

9 The district courtʹs no ultimate harm instruction provided:   

You are instructed that if the defendant participated in the

scheme to defraud, then a belief by the defendant, if such

belief existed[,] that ultimately everything would work out

so that no one would lose any money, does not require you

to find that the defendant acted in good faith.  No amount of

honest belief on the part of the defendant that the scheme

would, for example, ultimately make a profit for investors[,]

would [excuse] fraudulent actions or false representations

caused by him.  

Trial Tr. at 3829.   

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    A ʺno ultimate harmʺ instruction given by the district court is proper

where (1) there was sufficient factual predicate to necessitate the instruction,

(2) the instruction required the jury to find intent to defraud to convict, and (3)

there was no evidence that the instruction caused confusion.  United States v.

Berkovich, 168 F.3d 64, 67 (2d Cir. 1999).   

    The instruction here was proper.  First, there was a factual predicate

for the instruction, because there was evidence that Russellʹs co‐conspirators

intended to immediately deprive investors of their capital through fraud, even if

they truly believed that in the long‐term HFGI and BSMI would ultimately

succeed, deriving profits for the defrauded investors.  See, e.g., United States v.

Rossomando, 144 F.3d 197, 2001 (2d Cir. 1998) (noting that ʺwhere some

immediate loss to the victim is contemplated by a defendant, the fact that the

defendant believes (rightly or wrongly) that he will ʹultimatelyʹ be able to work

things out so that the victim suffers no loss is no excuseʺ).  Second, the

instructions clearly required that the jury find that the defendants intended to

defraud investors.  Third, there is nothing in the record to suggest that the

instruction caused any confusion.  See Berkovich, 168 F.3d at 67.   

   

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III. Defendantsʹ Additional Arguments

    The defendants raise a number of additional arguments on appeal,

which we consider and reject.   

    First, Kristofor argues that the district court violated the rule of

completeness by admitting redacted portions of his grand jury testimony while

excluding other portions.  The omitted portions, however, were not necessary to

place the admitted portions in context.  See United States v. Johnson, 507 F.3d 793,

796‐97 (2d Cir. 2007) (holding rule of completeness requires admission if

necessary to explain or put admitted portion in context or avoid misleading

jury).  The omitted statements were generally post‐hoc explanations for prior

conduct, which did not alter the meaning of the admitted redacted portion.

    Next, Kristofor argues that the district court abused its discretion

with respect to a number of evidentiary rulings.  This argument is without merit.  

We reverse a district courtʹs evidentiary rulings ʺonly if we find manifest error,ʺ 

that is not ʺharmless,ʺ United States v. Miller, 626 F.3d 682, 688 (2d Cir. 2010)

(internal quotation marks omitted), and upon review of the record before us, we

conclude that there was no such manifest error here.   

    Finally, Russell argues that his indictment was obtained in violation

of his Fifth Amendment privilege against self‐incrimination.  Russell, however,

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knowingly waived his Fifth Amendment right at the time of his testimony.  

Moreover, even if Russellʹs grand jury evidence had been obtained in violation of

his Fifth Amendment right against self‐incrimination, the suppression of such

testimony at trial, not the dismissal of the indictment, would have been the

appropriate remedy.  United States v. Rivieccio, 919 F.2d 812, 816 (2d Cir. 1990).  

Russellʹs grand jury testimony was not introduced at trial.  Accordingly, there

was no need to suppress the testimony or dismiss the indictment.   

CONCLUSION

For the foregoing reasons, the judgment of the district court is

AFFIRMED in part and REVERSED in part and we REMAND to the district

court with instructions to reinstate Kristoforʹs conviction on Count Three and

resentence Kristofor accordingly.     

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