Opinion ID: 777545
Heading Depth: 2
Heading Rank: 1

Heading: Wire Fraud, Travel Act, and Conspiracy Charges

Text: 20 Appellants Szur, Elaine Szur, and Kaplun argue that their wire fraud, Travel Act, and conspiracy convictions must be reversed because the brokers who sold U.S. Asset stock did not have a duty to their customers to disclose the amount of the commissions being charged. Appellants correctly point out that a general fiduciary duty, triggering a duty to disclose, arises when brokers have discretionary authority over their customers' accounts. Because the brokers here did not have discretionary authority, they argue that no fiduciary relationship between the brokers and the customers existed as a matter of law and thus, the brokers had no duty to disclose. Inasmuch as the government based its proof at trial on theories requiring proof of a fiduciary relationship and a corresponding duty to disclose commissions, they contend that their wire fraud, Travel Act, and, derivatively, conspiracy convictions must be reversed. 21 Although styled as an evidentiary sufficiency claim, we understand appellants to argue also that the jury was presented with invalid theories of conviction because no fiduciary duty could exist between the brokers and their customers as a matter of law in the absence of discretionary authority. Where a jury is presented with multiple theories of conviction, one of which is invalid, the jury's verdict must be overturned if it is impossible to tell which theory formed the basis for conviction. See United States v. Foley, 73 F.3d 484, 493 (2d Cir.1996) (When ... the jury has been presented with several bases for conviction, one of which is invalid as a matter of law, and it is impossible to tell which ground the jury selected, the conviction must be vacated.), abrogated on other grounds, Salinas v. United States, 522 U.S. 52, 118 S.Ct. 469, 139 L.Ed.2d 352 (1997); see also United States v. Zvi, 168 F.3d 49, 55 (2d Cir.1999) ([A] conspiracy conviction must be reversed where one or more objects is invalid and `it is impossible to tell which ground the jury selected.') (quoting Foley, 73 F.3d at 493). 22 Under this framework, we will first consider whether the government was required to prove the existence of a duty to disclose the excessive commissions as an essential element of the wire fraud and Travel Act counts as charged in the Indictment and, to the extent that those charges are objects of the conspiracy, the conspiracy charge as well. Answering that question in the affirmative, we then examine whether the government's proof was sufficient to support the convictions.
23 The essence of the government's case was that the brokers deprived the purchasers of U.S. Asset stock of their right to the brokers' honest services by concealing their exorbitant commissions and by affirmatively misrepresenting that the commissions were small, typically under five percent. 24 The wire fraud statutes under which defendants were charged, 18 U.S.C. §§ 1343 3 and 1346, 4 make it a crime to devise a scheme to deprive another of the right of honest services. United States v. Sancho, 157 F.3d 918, 920 (2d Cir.1998) (per curiam). 5 In Sancho, we made clear that [n]othing in either § 1343 or § 1346 indicates that the existence of an actual fiduciary duty is a necessary element of the crime. Id. In this case, however, the Indictment charged defendants with wire fraud under five different theories of liability, as follows: 25
26
27 (c) violat[ing] a broker's duty to disclose to the broker's customer all material facts concerning securities transactions in the customer's account; 28 (d) violat[ing] a fiduciary's duty to disclose to his principal all material facts concerning any self-interest the fiduciary might have concerning securities transactions in the principal's account; and 29 (e) mak[ing] false representations to a customer about the amount of remuneration to be received by a broker in connection with a securities transaction. 30 Indictment ¶ 63(a)-(e). 31 At trial, the district court instructed the jury that, in order to convict the defendants, it was required to find the existence of a scheme to defraud JSS customers by either (1) making fraudulent and misleading representations about the total compensation paid ... to the brokers, or (2) by failing to disclose facts that such brokers were under a duty to disclose — in this case, the alleged extraordinary compensation that such brokers were receiving to sell U.S. Asset Corp.[] stock to their customers. 32 The court then explained the circumstances under which the brokers would be under a legal duty to disclose the commissions to their clients. The district court's explanation tracked the language of our opinion in United States v. Chestman, 947 F.2d 551, 568-69 (2d Cir.1991) (en banc), in which we explained that a duty to disclose arises from a `fiduciary or other similar relation of trust and confidence between [the parties to the transaction].' Id. at 565 (quoting Chiarella v. United States, 445 U.S. 222, 228, 100 S.Ct. 1108, 63 L.Ed.2d 348 (1980)) (alterations in original). The district court instructed the jury, in pertinent part, as follows: 33 Whether a fiduciary relationship exists is a matter of fact for you, the jury, to determine. At the heart of the fiduciary relationship lies reliance and de facto control and dominance.... One acts in a fiduciary capacity when the business with which he or she transacts, or the money or property which he or she handles, is not his or her own or for his or her own benefit, but for the benefit of another person, as to whom he or she stands in a relation implying and necessitating great confidence and trust on the one part and a high degree of good faith on the other part.... I instruct you that a fiduciary owes a duty of honest services to his customer, including a duty to disclose all material facts concerning the transaction entrusted to it. The concealment by a fiduciary of material information which he or she is under a duty to disclose to another, under circumstances where the non-disclosure can or does result in harm to the other, can be a violation of the wire fraud statute, if the Government has proven beyond a reasonable doubt the other elements of th[e] offense. 34 Based on these instructions, the jury could not convict the appellants of wire fraud on any of the first four theories charged in the Indictment unless it found that the relationship between the JSS brokers and their customers was such as to give rise to a duty to disclose the commissions. 6 35 The Travel Act counts charged appellants and another co-defendant with using interstate facilities to promote commercial bribery and commercial bribe receiving in violation of New York law. 7 Under New York law, a person is guilty of commercial bribery in the second degree if he or she confers, or offers or agrees to confer, any benefit upon any employee, agent or fiduciary without the consent of the latter's employer or principal, with intent to influence his conduct in relation to his employer's or principal's affairs. N.Y. Penal Law § 180.00 (1999). New York law prohibits the receipt of commercial bribes as follows: 36 An employee, agent or fiduciary is guilty of commercial bribe receiving in the second degree when, without the consent of his employer or principal, he solicits, accepts or agrees to accept any benefit from another person upon an arrangement or understanding that such benefit will influence his conduct in relation to his employer's or principal's affairs. 37 N.Y. Penal Law § 180.05 (1999). Viewed in light of the prohibitions of the New York statute, the Travel Act counts required the existence of a fiduciary, agency, or employment relationship between JSS brokers and their customers. 38 Given that four of the five wire fraud theories presented to the jury required the existence of a duty owed by the brokers to their customers, and the Travel Act counts required the existence of a fiduciary, agency, or employment relationship, in order for appellants' convictions to stand, we must analyze the nature of the relationship between the brokers and their customers and determine whether the relationship between them gave rise to a duty to disclose the commissions as a matter of law and in fact.
39 Since appellants do not challenge the government's theory of wire fraud involving affirmative misrepresentations, we are concerned only with the alleged omissions of material fact, namely, the failure of JSS brokers to disclose the substantial commission payments. As the district court instructed the jury, when dealing with a claim of fraud based on material omissions, it is settled that a duty to disclose arises [only] when one party has information that the other [party] is entitled to know because of a fiduciary or other similar relation of trust and confidence between them. Chiarella v. United States, 445 U.S. 222, 228, 100 S.Ct. 1108, 63 L.Ed.2d 348 (1980) (internal quotation marks omitted) (second alteration in original); see also Chestman, 947 F.2d at 568-69. 40 Although it is true that there is no general fiduciary duty inherent in an ordinary broker/customer relationship, Independent Order of Foresters v. Donald, Lufkin & Jenrette, Inc., 157 F.3d 933, 940 (2d Cir.1998), a relationship of trust and confidence does exist between a broker and a customer with respect to those matters that have been entrusted to the broker. This relationship places an affirmative duty on brokers to use reasonable efforts to give [the customer] information relevant to the affairs that [have] been entrusted to them. Press v. Chem. Inv. Servs. Corp., 166 F.3d 529, 536 (2d Cir.1999) (internal quotation marks omitted); see also Indep. Order of Foresters, 157 F.3d at 941 (recognizing certain limited duties that a broker has in the absence of discretionary authority); Conway v. Icahn & Co., 16 F.3d 504, 510 (2d Cir.1994) (A broker, as agent, has a duty to use reasonable efforts to give its principal information relevant to the affairs that have been entrusted to it.); 37 Am.Jur.2d § 207 (2001) (discussing when a party has a duty to disclose because of a fiduciary duty or other relation of trust or confidence). 41 It is not always easy to determine what information is relevant to the affairs that [have] been entrusted to [the broker] and thus must be disclosed. Id. We have identified three basic types of information available to a broker: 42 Some information borders on insignificant minutia, the omission of which could never be actionable for fraud. Some information is clearly significant and must be disclosed accurately. Some information, however, falls into a grey area of possible insignificance and possible significance. 43 Press, 166 F.3d at 536. In Press, we concluded that a $158 mark-up on a T-bill valued at $102,000 at maturity was information that fell within the gray area. See id. at 532-33, 534-36. In the absence of a per se rule requiring all mark-ups to be disclosed, we rejected the claim that the broker had a duty to disclose the mark-up. See id. at 537. 44 In this case, we easily conclude that the payment of forty-five- or fifty-percent commissions on all JSS sales of U.S. Asset stock qualifies as information that is clearly significant and must be disclosed accurately. Id. at 536. As we recognized in SEC v. First Jersey Securities, Inc., 101 F.3d 1450, 1469 (2d Cir.1996), [s]ales of securities by broker-dealers to their customers carry with them an implied representation that the prices charged in those transactions are reasonably related to the prices charged in an open and competitive market. In the instant case, the commissions actually charged plainly had no relationship to the commissions that would be charged in a competitive market; the broker was receiving up to half of the proceeds from the sale of the stock. Thus, even in the absence of any general fiduciary duty resulting from discretionary authority, we hold that JSS was under a duty to disclose these exorbitant commissions because the information would have been relevant to a customer's decision to purchase the stock. Accordingly, wire fraud charges (a) through (d), which were premised on the existence of a duty to disclose the commissions, were proper theories of conviction for the jury's consideration. 45 We also conclude that the government presented sufficient evidence to support the wire fraud convictions. The government's trial evidence established that the brokers formed relationships of trust and confidence with their customers through the sale of U.S. Asset stock and failed to disclose to their customers the excessive commissions they were charging. In addition, although appellants have not challenged the fifth theory of wire fraud, we note that the government presented evidence that the brokers and JSS confirmation slips affirmatively misrepresented the amount of the commissions.
46 With respect to the Travel Act convictions, as we have discussed, New York law prohibits commercial bribery of, or the receipt of bribes by, a fiduciary, agent, or employee. See N.Y. Penal Law §§ 180.00, 180.05. In executing the stock sales, the JSS brokers acted as agents to their customers and, therefore, the Travel Act theories were properly before the jury. At trial, the government adduced evidence that the branch office managers paid bribes in the form of enormous commissions to various salespeople to induce them to act in a manner contrary to their customers' best interests — namely, to sell U.S. Asset stock at a significant mark-up. Accordingly, we conclude that the government presented sufficient evidence to support the Travel Act convictions. 47 All in all, we reject appellants' challenges to their wire fraud, Travel Act, and conspiracy convictions. We have no doubt that  any rational trier of fact could have found the essential elements of the[se] crime[s] beyond a reasonable doubt. Jackson v. Virginia, 443 U.S. 307, 319, 99 S.Ct. 2781, 61 L.Ed.2d 560 (1979). We also conclude that none of the theories presented to the jury on these counts was legally invalid, thus there is no basis to disturb appellants' convictions under Foley. Accordingly, we affirm appellants' convictions for wire fraud, Travel Act violations, and conspiracy.