Opinion ID: 556608
Heading Depth: 2
Heading Rank: 2

Heading: alleged prosecutorial failures

Text: 42
43 Again, Bilzerian contends the securities fraud convictions cannot be sustained because any misstatements or omissions made, including the delays in disclosing his stockholdings, were not material. The securities fraud counts charged that in connection with the Cluett and Hammermill transactions defendant violated Sec. 10(b) of the Exchange Act, 15 U.S.C. Sec. 78j(b) (1988), 1 and Rule 10b-5 of the regulations promulgated thereunder, 17 C.F.R. Sec. 240.10b-5 (1990) 2 . Section 10(b) and Rule 10b-5 prohibit fraudulent practices in connection with the purchase or sale of a security, including the knowing misrepresentation or omission of material facts. 44 Section 10(b) was designed to protect investors engaged in the purchase and sale of securities by implementing a policy of full disclosure. Santa Fe Indus., Inc. v. Green, 430 U.S. 462, 477-78, 97 S.Ct. 1292, 1303-04, 51 L.Ed.2d 480 (1977). The Sec. 10(b) convictions were largely based on misrepresentations made on Schedules 13D and 14D-1 concerning the source of the funds used for the transactions and on the untimely filing of the forms. Some background on the filing requirements relating to Schedule 13D and Schedule 14D-1 is helpful to understanding this portion of the case. Both forms are reports filed with the SEC and made available to the public. They disclose the acquisition of a significant amount of stock in a publicly traded company. Schedule 14D-1, 17 C.F.R. 240.14d-100 (1990), discloses the commencement of a tender offer for the stock of a public company. See Finnegan v. Campeau Corp., 915 F.2d 824 (2d Cir.1990). Schedule 13D, 17 C.F.R. Sec. 240.13d-101 (1990), the focus of this prosecution, discloses that an investor has acquired beneficial ownership of five percent or more of the stock of a public company. 45 Pursuant to Sec. 13(d)(1) of the Exchange Act, 15 U.S.C. Sec. 78m(d)(1) (1988), 3 defendant was required to file a Schedule 13D within ten days after he became the beneficial owner of five percent of the stock of Cluett and Hammermill. Section 13(d)'s purpose is to alert investors to potential changes in corporate control so that they [can] properly evaluate the company in which they had invested or were investing. GAF Corp. v. Milstein, 453 F.2d 709, 720 (2d Cir.1971), cert. denied, 406 U.S. 910, 92 S.Ct. 1610, 31 L.Ed.2d 821 (1972); see also Mayer v. Chesapeake Ins. Co., 877 F.2d 1154, 1162 (2d Cir.1989), cert. denied, --- U.S. ----, 110 S.Ct. 722, 107 L.Ed.2d 741 (1990) (purpose of Sec. 13(d) is to alert marketplace and permit investors to assess potential for change in corporate control). In addition to background information about the persons purchasing the stock, Sec. 13(d) specifically requires disclosure of: 46 (B) the source and amount of the funds or other consideration used or to be used in making the purchases, and if any part of the purchase price is represented or is to be represented by funds or other consideration borrowed or otherwise obtained for the purpose of acquiring, holding, or trading such security, a description of the transaction and the names of the parties thereto ... 47 . . . . . 48 (E) information as to any contracts, arrangements, or understandings with any person with respect to any securities of the issuer, including but not limited to transfer of any of the securities, joint ventures, loan or option arrangements, puts or calls, guaranties of loans, guaranties against loss or guaranties of profits, division of losses or profits, or the giving or withholding of proxies, naming the persons with whom such contracts, arrangements, or understandings have been entered into, and giving the details thereof. 49 15 U.S.C. Sec. 78m(d)(1). 50 A duty to file under Sec. 13(d) creates the duty to file truthfully and completely. SEC v. Savoy Industries, 587 F.2d 1149, 1165 (D.C.Cir.1978), cert. denied, 440 U.S. 913, 99 S.Ct. 1227, 59 L.Ed.2d 462 (1979); GAF, 453 F.2d at 720. Although Sec. 13(d) is a reporting requirement rather than an antifraud provision, criminal penalties are available against one who knowingly makes a false and misleading statement of material fact on a document required to be filed by the securities laws. 15 U.S.C. Sec. 78ff. In addition, a false or misleading statement made on a Schedule 13D may be actionable under the antifraud provision of Sec. 10(b). GAF, 453 F.2d at 720; see also Kamerman v. Steinberg, 891 F.2d 424, 431 (2d Cir.1989). In either case, materiality of the misstatement or omission is a prerequisite to liability. 51 Contending there were no material misstatements or omissions to support his Sec. 10(b) convictions, defendant argues first that the absence of any market fluctuation in Cluett stock immediately after his 13D was filed demonstrates that the information was not important to investors. Second, he asserts, the source of the funds he used was not material because he could have lawfully avoided disclosing his investors' identities by channeling the money through limited partnerships rather than trusts. From this premise he reasons that because the investors' identities could have been concealed, the fact that an unnamed other person was investing with him was not a material fact. 52 The standard of materiality under the securities laws was set forth by the Supreme Court in TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 96 S.Ct. 2126, 48 L.Ed.2d 757 (1976). An omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in making an investment decision. Id. at 449, 96 S.Ct. at 2132; Basic Inc. v. Levinson, 485 U.S. 224, 231-32, 108 S.Ct. 978, 983, 99 L.Ed.2d 194 (1988). Determination of materiality is a mixed question of law and fact that the Supreme Court has stated is especially well suited for jury determination. TSC, 426 U.S. at 450, 96 S.Ct. at 2133 (The determination requires delicate assessments of the inferences a 'reasonable shareholder' would draw from a given set of facts ... and these assessments are peculiarly ones for the trier of fact.) 53 Turning to defendant's first point, whether a public company's stock price moves up or down or stays the same after the filing of a Schedule 13D does not establish the materiality of the statements made, though stock movement is a factor the jury may consider relevant. See Akerman v. Oryx Communications, Inc., 609 F.Supp. 363, 368 (S.D.N.Y.1984), aff'd, 810 F.2d 336 (2d Cir.1987); SEC v. Bausch & Lomb, Inc., 565 F.2d 8, 15-16 (2d Cir.1977). With respect to the second point, we decline to hold that the information required to be disclosed in 13D is material per se for purposes of Sec. 10(b) simply because such disclosure is required under the securities laws. But the fact that the information is required to be revealed under Sec. 13(d) is evidence of its materiality. SEC v. Levy, 706 F.Supp. 61, 72 (D.D.C.1989). 54 After hearing the evidence in this case the jury concluded that the misstatements and omissions were material. Defendant faces a heavy burden when challenging the sufficiency of the evidence leading to his conviction. See United States v. Zabare, 871 F.2d 282, 286 (2d Cir.), cert. denied, --- U.S. ----, 110 S.Ct. 161, 107 L.Ed.2d 119 (1989). If any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt, the conviction must be affirmed. Jackson v. Virginia, 443 U.S. 307, 319, 99 S.Ct. 2781, 2789, 61 L.Ed.2d 560 (1979). 55 It was not unreasonable for the jury to conclude that erroneously describing the source of funds as personal was material, for it indicated the honesty and feasibility of Bilzerian's plans for the investment. See Savoy, 587 F.2d at 1166-67 (failure to disclose participation of a certain investor violated Sec. 13(d) and was material under Sec. 10(b)); Levy, 706 F.Supp. at 73 (failure to reveal on 13D that stock purchase was funded with borrowed money was material under Sec. 10(b)). It was also reasonable for the jury to find that defendant engaged in a fraudulent scheme to avoid the disclosure requirements of Sec. 13(d). See SEC v. First City Financial Corp., Ltd., 688 F.Supp. 705, 724 (D.D.C.1988), aff'd, 890 F.2d 1215, 1228 (D.C.Cir.1989) (stock parking arrangement used to delay filing Schedule 13D violated Sec. 13(d)). Since the question of materiality is especially well suited for jury determination, and defendant has not demonstrated a lack of sufficient evidence to support that body's conclusion, there is no basis to set aside the securities fraud convictions.
56 For making false statements on the Forms 13D and 14D-1 filed with the SEC, Bilzerian was charged with violating the general false statements statute, 18 U.S.C. Sec. 1001, rather than the more specific securities law provisions. He contends that the government's prosecution under Sec. 1001 was an unprecedented attempt to impose criminal penalties without complying with the specific requirements for criminal prosecution under the 1934 Act. Section 1001 provides: 57 Whoever, in any matter within the jurisdiction of any department or agency of the United States knowingly and willfully falsifies, conceals or covers up by any trick, scheme, or device a material fact, or makes any false, fictitious or fraudulent statements or representations, or makes or uses any false writing or document knowing the same to contain any false, fictitious or fraudulent statement or entry, shall be fined not more than $10,000 or imprisoned not more than five years, or both. 58 18 U.S.C. Sec. 1001 (1988). The statute was designed to protect the authorized functions of governmental departments and agencies from the perversion which might result from the deceptive practices described. United States v. Gilliland, 312 U.S. 86, 93, 61 S.Ct. 518, 522, 85 L.Ed. 598 (1941); see also United States v. Fitzgibbon, 619 F.2d 874, 877-78 (10th Cir.1980) (describing legislative history). To support a conviction under Sec. 1001, the government must establish that the defendant (1) knowingly and willfully (2) made a statement (3) in relation to a matter within the jurisdiction of a department or agency of the United States, (4) with knowledge that it was false or fictitious and fraudulent. See United States v. Silva, 715 F.2d 43, 49 (2d Cir.1983). Under our decisions, materiality of the statement is not an element of the offense. See United States v. Elkin, 731 F.2d 1005, 1009 (2d Cir.), cert. denied, 469 U.S. 822, 105 S.Ct. 97, 83 L.Ed.2d 43 (1984); United States v. Silver, 235 F.2d 375, 377 (2d Cir.), cert. denied, 352 U.S. 880, 77 S.Ct. 102, 1 L.Ed.2d 80 (1956). 59 Defendant asserts that it was Congress' purpose to have criminal prosecutions, for misstatements in informational reports filed with the SEC, brought under Sec. 32(a) of the Exchange Act, 15 U.S.C. Sec. 78ff, a specific enforcement provision setting forth criminal penalties for willful violations of the securities laws and the applicable rules and regulations. Unlike the false statements statute, Sec. 32(a) requires proof of materiality and contains a provision that imprisonment will not be imposed on a defendant who was ignorant of the substance of the rule. In pertinent part it provides:Any person who willfully violates any provision of this chapter ... or any rule or regulation thereunder the violation of which is made unlawful or the observance of which is required ... or any person who willfully and knowingly makes, or causes to be made, any statement in any application, report, or document required to be filed ... which statement was false or misleading with respect to any material fact, shall upon conviction be fined not more than $1,000,000, or imprisoned not more than 10 years, or both ...; but no person shall be subject to imprisonment under this section for the violation of any rule or regulation if he proves that he had no knowledge of such rule or regulation. 60 15 U.S.C. Sec. 78ff (1988). 61 It is settled law that when an act violates more than one criminal statute, the Government may prosecute under either so long as it does not discriminate against any class of defendants. United States v. Batchelder, 442 U.S. 114, 123-24, 99 S.Ct. 2198, 2204, 60 L.Ed.2d 755 (1979). Prosecution has additionally been permitted under Sec. 1001 despite the existence of other overlapping and more specific false statement statutes. United States v. Gordon, 548 F.2d 743, 744 (8th Cir.1977); see also, e.g., United States v. Grotke, 702 F.2d 49, 54 (2d Cir.1983) (Sec. 1001 applicable despite more specific currency reporting statute.). 62 Defendant argues that in the case of alleged misstatements or omissions in informational reports filed under the Exchange Act, Congress planned that Sec. 32(a) and not Sec. 1001 control. At the time Sec. 1001 was enacted--only 12 days after the Exchange Act was passed--it provided harsher penalties than Sec. 32(a), though the requirements for conviction under Sec. 1001 were less stringent. Nonetheless, proximity of the enactments without more does not suggest that the application of the false statements statute was to be limited by the just-enacted securities laws. Absent more explicit indicia of Congressional purpose to foreclose the use of Sec. 1001, the general rule that criminal statutes may overlap controls. The fact that less proof is required for conviction under Sec. 1001 does not amount--as defendant alleges--to overriding the requirements of Sec. 32(a). 63 Defendant also asserts that statements made on Schedules 13D and 14D-1 are not matters within the jurisdiction of the SEC because with respect to these statements the SEC is merely a repository of information and does not act upon the statements. It is his view that Sec. 1001 is appropriate only for misstatements or omissions (1) made during an active governmental inquiry or (2) that formed the basis for some sort of governmental action. 64 The Supreme Court has stressed that the term jurisdiction in Sec. 1001 should be broadly construed. An agency has jurisdiction within the meaning of the statute when it has authority to act upon the information. See United States v. Rodgers, 466 U.S. 475, 479-80, 104 S.Ct. 1942, 1946, 80 L.Ed.2d 492 (1984); United States v. Adler, 380 F.2d 917, 922 (2d Cir.), cert. denied, 389 U.S. 1006, 88 S.Ct. 561, 19 L.Ed.2d 602 (1967). A statutory basis for an agency's request for information provides jurisdiction enough to punish fraudulent statements under Sec. 1001. Bryson v. United States, 396 U.S. 64, 71, 90 S.Ct. 355, 359, 24 L.Ed.2d 264 (1969). 65 A statutory basis for the SEC's request for information exists because the Exchange Act requires the documents at issue to be filed with it. 15 U.S.C. Secs. 78m(d), 78n(d) (1988). This executive agency is authorized to regulate the content of the documents and to investigate and prosecute violations of law based on the filings. 15 U.S.C. Secs. 78m(d), 78u (1988); see United States v. Fields, 592 F.2d 638, 649 (2d Cir.1978) (filing prospectus which concealed material facts with SEC stated a claim under Sec. 1001), cert. denied, 442 U.S. 917, 99 S.Ct. 2838, 61 L.Ed.2d 284 (1979); United States v. Kuna, 760 F.2d 813, 820 (7th Cir.1985) (sustaining conviction under Sec. 1001 for false statement on broker-dealer registration); United States v. Di Fonzo, 603 F.2d 1260, 1263-64 (7th Cir.1979) (documents submitted to SEC in course of investigation within its jurisdiction), cert. denied, 444 U.S. 1018, 100 S.Ct. 672, 62 L.Ed.2d 648 (1980); see also United States v. Hansen, 772 F.2d 940, 943-44 (D.C.Cir.1985) (the term jurisdiction in Sec. 1001 embraces the authority to conduct an official inquiry), cert. denied, 475 U.S. 1045, 106 S.Ct. 1262, 89 L.Ed.2d 571 (1986); United States v. Diaz, 690 F.2d 1352, 1357 (11th Cir.1982) (grant of authority rather than its exercise determines jurisdiction). 66 Although the SEC may not act on every Schedule 13D, the filing of a false statement may interfere with its investigatory and enforcement function, including its determination whether or not to investigate a transaction. The securities laws are designed to make accurate information available to the investing public; the SEC's authority to regulate disclosure required under those laws brings the securities filings at issue within its jurisdiction for purposes of Sec. 1001. 67 Further, defendant makes a venue objection, stating the alleged violation occurred in Washington D.C., where the document was filed, and that the drafting of the document was mere preparation for the offense, not part of it. See United States v. Beech-Nut Nutrition Corp., 871 F.2d 1181, 1190 (2d Cir.), cert. denied, --- U.S. ----, 110 S.Ct. 324, 107 L.Ed.2d 314 (1989). We disagree. The documents were prepared and signed--i.e. made--within the Southern District of New York, and thus venue was properly laid there. See United States v. Mendel, 746 F.2d 155, 165 (2d Cir.1984) (venue under Sec. 1001 lies either where documents were prepared or filed), cert. denied, 469 U.S. 1213, 105 S.Ct. 1184, 84 L.Ed.2d 331 (1985).
68 Bilzerian was convicted on two conspiracy counts alleging that he participated in two multi-object conspiracies intended to defraud the United States and to commit specific offenses. The first conspiracy involved an agreement to park Robertson & Armco stock to generate tax losses without complying with disclosure required by Sec. 13(d); the second was a scheme to accumulate Cluett and Hammermill shares, also without providing disclosure under Sec. 13(d). These agreements were found to violate the federal conspiracy statute, 18 U.S.C. Sec. 371 (1988), which provides in pertinent part: 69 If two or more persons conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy, each shall be fined not more than $10,000 or imprisoned not more than five years, or both. 70 Section 371 prohibits two distinct types of conspiracies; conspiracies to defraud the United States and conspiracies to commit an offense against the United States. While the offense clause governs a conspiracy to commit a specific offense, defined elsewhere in the federal criminal code, the defraud clause is broader and covers agreements to interfere with or to obstruct government's lawful functions. See United States v. Nersesian, 824 F.2d 1294, 1313 (2d Cir.), cert. denied, 484 U.S. 958, 108 S.Ct. 357, 98 L.Ed.2d 382 (1987). 71 Bilzerian would have us rule that when conduct is chargeable under the specific offense clause, the government is precluded from prosecuting under the defraud clause. See United States v. Minarik, 875 F.2d 1186, 1193-94 (6th Cir.1989). Thus, he posits that the charges of conspiracy to defraud failed to state an offense because the conduct complained of is covered by specific statutes, that is, 15 U.S.C. Secs. 78m(d), 78ff. This proposition is not persuasive. In Minarik, prosecution solely under the defraud clause--despite the existence of a specific statutory offense governing the conduct--led to substantial confusion and prejudiced the defendant's ability to prepare for trial. Id. at 1189-90. In any case, defendant's reading of Minarik is contrary to established law. 72 Although it is recognized that the government may not obtain two convictions or punish the defendant twice for the same conduct by alleging violations of both the defraud and offense clauses of the conspiracy statute, see, e.g., May v. United States, 175 F.2d 994, 1002 (D.C.Cir.), cert. denied, 338 U.S. 830, 70 S.Ct. 58, 94 L.Ed. 505 (1949), it may simultaneously prosecute the same conduct under both clauses. See Nersesian, 824 F.2d at 1313; United States v. Williams, 705 F.2d 603, 623-24 (2d Cir.), cert. denied, 464 U.S. 1007, 104 S.Ct. 524, 78 L.Ed.2d 708 (1983). 73 The schemes alleged in the instant case involved violations of numerous statutes, including Sec. 13(d) and Sec. 1001, and the requirements that broker-dealers make and keep accurate records, 17 C.F.R. Secs. 240.17a-3, 240.17a-4. Additionally, the indictment charged broader conspiracies involving stock accumulation and stock parking, which are activities not specifically prohibited by statute. Consequently, there is no prosecutorial impropriety in charging defendant under both prongs of Sec. 371. 74 Defendant further argues that the conspiracy to defraud charges fail to state an offense because the mere failure to comply with a regulatory requirement to provide information did not amount to active interference with a governmental function. See Tanner v. United States, 483 U.S. 107, 130, 107 S.Ct. 2739, 2752, 97 L.Ed.2d 90 (1987) (United States or an agency thereof must be the target of the conspiracy). As noted, the SEC is charged with administering and enforcing securities laws, and in order to perform its function must receive accurate and truthful disclosure. The function of the IRS in determining the legitimacy of a return similarly may be impaired by schemes generating tax losses and by false claims for deductions. Hence, the defraud conspiracy charges state an offense. 75 Finally, Bilzerian urges there was insufficient proof of an agreement to commit specific offenses. A conspiracy conviction based on a multi-object conspiracy may be upheld so long as evidence is sufficient with respect to at least one of the criminal objectives. United States v. Papadakis, 510 F.2d 287, 297 (2d Cir.), cert. denied, 421 U.S. 950, 95 S.Ct. 1682, 44 L.Ed.2d 104 (1975). Viewing the evidence in the light most favorable to the government, see Glasser v. United States, 315 U.S. 60, 80, 62 S.Ct. 457, 469, 86 L.Ed. 680 (1942), we believe a rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt. Jackson, 443 U.S. at 319, 99 S.Ct. at 2789. 76 The evidence at trial suggested that defendant planned to acquire large blocks of stock while delaying the reporting requirements in contravention of the securities laws, and that numerous records were generated to make it appear that Jeffries and Company had acquired stock at its own risk. False records also were generated to substantiate tax deductions that Bilzerian claimed on his 1985 tax return. As to each of the conspiracies charged there is adequate evidence from which a rational juror could have concluded that a conspiracy existed to achieve at least one criminal objective, that is to say, either to violate Sec. 13(d) or to defraud the SEC and the IRS.