Court Opinion

ID: 2672865
Source: CourtListenerOpinion
Date Created: 2014-05-07 18:41:19.901607+00
Date Added: 2024-06-11T13:06:24.470344
License: Public Domain

PUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT

                            No. 13-6814

THOMAS T. PROUSALIS, JR.,

                Petitioner - Appellant,

           v.

CHARLES E. MOORE, Senior U.S. Probation Officer,

                Respondent – Appellee.

Appeal from the United States District Court for the Eastern
District of Virginia, at Richmond.     John A. Gibney, Jr.,
District Judge. (3:12-cv-00134-JAG)

Argued:   March 19, 2014                    Decided:   May 7, 2014

Before TRAXLER, Chief Judge, and WILKINSON and KEENAN, Circuit
Judges.

Affirmed by published opinion. Judge Wilkinson wrote the
opinion, in which Judge Keenan joined. Chief Judge Traxler wrote
an opinion concurring in the result.

ARGUED: Scott Martin, GIBSON, DUNN & CRUTCHER, LLP, Washington,
D.C., for Appellant.   Jonathan Holland Hambrick, OFFICE OF THE
UNITED STATES ATTORNEY, Richmond, Virginia, for Appellee.       ON
BRIEF: Dana J. Boente, Acting United States Attorney, OFFICE OF
THE UNITED STATES ATTORNEY, Alexandria, Virginia, for Appellee.
WILKINSON, Circuit Judge:

     Appellant Thomas Prousalis Jr. pled guilty to three counts

arising     from    his    fraudulent     activity        in    connection          with    a

client’s initial public offering. He now seeks habeas relief,

contending that, in light of the Supreme Court’s intervening

decision     in    Janus    Capital     Group,       Inc.      v.    First       Derivative

Traders, 131 S. Ct. 2296 (2011), the conduct for which he was

convicted is no longer criminal. For the following reasons, we

reject     Prousalis’s      claims     and       affirm   the       dismissal       of    his

petition.

                                         I.

     Thomas Prousalis was a securities lawyer who marketed his

services to small firms seeking to raise capital. At issue here

is   his    representation        of    Busybox.com,           Inc.    (Busybox),          an

internet     company       that   he    guided       through         the        process    of

conducting an initial public offering (IPO). Despite Busybox’s

modest size and limited cash flow, Prousalis persuaded company

management to agree to an initial offering of over $10 million.

Prousalis’s        retainer   agreement          provided       that       he     would    be

compensated the greater of $375,000 or 7.5 percent of the gross

proceeds; notably, his fee was contingent upon the successful

closing of the IPO. To effectuate the transaction, Busybox also

hired Barron Chase Securities, Inc., an investment banking firm,

which agreed to provide a firm commitment underwriting. This

                                             2
agreement        obligated    Barron    Chase      to     purchase    all    of    the

available Busybox shares and then resell them to the public.

        Prousalis    prepared    the   IPO     registration       materials,      which

were subsequently signed by Busybox officers and filed with the

Securities and Exchange Commission (SEC). The materials stated

that Busybox intended to raise $12.8 million in gross proceeds

through the offering, with net receipts of $10.6 million. The

forms     also    reported     Prousalis’s       legal     fee,    but   failed     to

acknowledge       the   contingent     nature     of    his   compensation.       When

Busybox’s CEO attempted to correct the registration statement to

accurately       reflect     Prousalis’s       retainer    agreement,       Prousalis

insisted that the existing description was compliant and that

the SEC had confirmed its sufficiency. Prousalis later admitted

in his plea allocution that he knew at the time that Busybox

would not be listed on the NASDAQ exchange if his compensation

arrangement were accurately disclosed.

     Prousalis soon became aware that Barron Chase was unwilling

to complete a firm commitment underwriting of the IPO. Barron

Chase’s failure to uphold its end of the bargain generated a

shortfall of $2.5 million in the IPO as originally conceived. To

solve this problem, Prousalis orchestrated a scheme in which IPO

proceeds were recycled in order to purchase shares that were

then used both to compensate him (in a sum unrelated to his

retainer agreement) and to pay salaries and bonuses to Busybox

                                           3
officers. Prousalis failed to disclose these maneuvers to the

SEC. Only after the initial offering was made did he reveal to

Busybox officers the existence of the shortfall and his proposed

remedy. The judge presiding over Prousalis’s earlier collateral

proceeding noted that “Prousalis specifically admitted that at

the   time     he    did    each   of   these      acts     he   knew    he   was     doing

something wrong, knew he was acting in violation of the law, and

was acting with the intent to deceive and defraud investors in

Busybox securities.” Prousalis v. United States, Nos. 06 Civ.

12946(DLC), 03 CR. 1509, slip op. at 5 (S.D.N.Y. Aug. 24, 2007).

      As a result of these activities, Prousalis was indicted in

the Southern District of New York on three counts. Count One

charged conspiracy to commit securities fraud, wire fraud, and

mail fraud (in violation of 15 U.S.C. §§ 78j(b), 78ff; 17 C.F.R.

§ 240.10b-5; 18 U.S.C. §§ 371, 1343, 1346, 1341). Count Two

charged securities fraud (in violation of 15 U.S.C. §§ 78j(b),

78ff; 17 C.F.R. § 240.10b-5; 18 U.S.C. § 2). Finally, Count

Three charged “failure to disclose interest of counsel” in the

registration materials Prousalis prepared in connection with the

IPO (in violation of 15 U.S.C. § 77x; 17 C.F.R. § 228.509; 18

U.S.C.    §    2).   J.A.    225-49.    As       relevant    for   purposes      of      this

appeal,       Prousalis’s     convictions         hinged    in   large    part      on   his

violation of SEC Rule 10b-5, which implements Section 10(b) of

the Securities Exchange Act of 1934. The Rule provides:

                                             4
       It shall be unlawful for any person, directly or
       indirectly, by the use of any means or instrumentality
       of interstate commerce, or of the mails or of any
       facility of any national securities exchange . . . [t]o
       make any untrue statement of a material fact or to omit
       to state a material fact necessary in order to make the
       statements made, in the light of the circumstances
       under which they were made, not misleading . . . in
       connection with the purchase or sale of any security.

17   C.F.R.   §    240.10b-5.     15      U.S.C.       §   78ff    subjects     certain

violators     of   Rule   10b-5      to     criminal       penalties.      15    U.S.C.

§ 78ff(a) (“Any person who willfully violates any provision of

this    chapter . . . or    any      rule       or    regulation     thereunder        the

violation of which is made unlawful . . . shall upon conviction

be fined not more than $5,000,000, or imprisoned not more than

20 years, or both . . . .”).

       Trial commenced but was aborted when Prousalis agreed to

plead guilty to each count pursuant to a plea agreement. The

district court subsequently sentenced Prousalis to 57 months of

imprisonment, followed by three years of supervised release. He

was also ordered to pay $12.8 million in restitution. Prousalis

appealed to the Second Circuit but lost on the basis of the

appeal    waiver   contained    in     his     plea     agreement.    J.A.      460.   In

2006, he filed a petition for collateral review under 28 U.S.C.

§ 2255, alleging ineffective assistance of counsel and Fifth and

Sixth     Amendment   violations.         The        district     court   denied       his

petition and the Second Circuit affirmed the dismissal.

                                           5
        Pursuant    to    the   savings     clause      of    28    U.S.C.    §     2255,

Prousalis later filed a habeas petition in the Eastern District

of Virginia -- the site of his supervised release -- under 28

U.S.C. § 2241, naming his probation officer as respondent. As

explained below, Prousalis is only eligible for relief under

§ 2241 if the conduct for which he was originally convicted is

no longer deemed criminal. The district court denied his motion,

citing two alternative rationales. First, it concluded that the

decision upon which Prousalis relies, Janus, has no application

in the criminal context. Second, it determined that Prousalis

pled guilty to charges -- such as aiding and abetting -- that

fall outside the substantive scope of the Janus decision, which

only addresses primary liability under the securities laws. The

court thus concluded that Prousalis’s petition constituted an

“unauthorized, successive § 2255” motion and dismissed for lack

of jurisdiction. J.A. 557. This appeal followed.

                                          II.

        Prousalis may file a habeas petition under § 2241 only if

the   collateral      relief    typically       available       under    § 2255      “is

inadequate     or        ineffective   to       test    the        legality    of    his

detention.”    28    U.S.C.     §   2255(e).     This    standard       is    satisfied

when:

      (1) [A]t the time of conviction, settled law of this
      circuit or the Supreme Court established the legality
      of the conviction; (2) subsequent to the prisoner’s

                                           6
     direct appeal and first § 2255 motion, the substantive
     law changed such that the conduct of which the
     prisoner was convicted is deemed not to be criminal;
     and (3) the prisoner cannot satisfy the gatekeeping
     provisions of § 2255 because the new rule is not one
     of constitutional law.

In re Jones, 226 F.3d 328, 333-34 (4th Cir. 2000). The parties

here agree that conditions (1) and (3) are satisfied.

     Prousalis bases his argument under prong (2) on the Supreme

Court’s decision in Janus, which was handed down subsequent to

his direct appeal and § 2255 motion. In that case, the Court

defined   what       it   means   to   “make”    an   untrue    statement   in   the

context of a private action alleging a Rule 10b-5 violation.

According to the Court, “the maker of a statement is the person

or entity with ultimate authority over the statement, including

its content and whether and how to communicate it.” Janus, 131
S. Ct. at 2302. It added that “[w]ithout control, a person or

entity can merely suggest what to say, not ‘make’ a statement in

its own right. One who prepares or publishes a statement on

behalf of another is not its maker.” Id. The Court analogized

its rule to the relationship between a speaker and speechwriter:

“Even   when     a    speechwriter      drafts    a   speech,    the   content   is

entirely within the control of the person who delivers it. And

it is the speaker who takes credit -- or blame -- for what is

ultimately said.” Id.

                                          7
     Prousalis contends that, under Janus, he does not qualify

as the “maker” of any false statements contained in Busybox’s

registration materials. Instead, Busybox itself -- the entity

with the ultimate legal authority over the SEC filings -- is the

maker for purposes of 10b-5. If this interpretation of Janus is

correct, then Prousalis arguably stands condemned (at least in

part) of conduct which is no longer deemed criminal. On the

other hand, Prousalis’s convictions unquestionably remain valid

if his reading of Janus is mistaken. He does not contest that

his guilty pleas were legitimate at the time they were entered

and remain so in the absence of Janus. For the reasons that

follow, we find Janus inapplicable outside the context of the

10b-5 implied private right of action. That case thus does not

affect Prousalis’s criminal convictions. Because his convictions

are proper under current law, his § 2241 petition necessarily

fails. *

                               A.

     Neither Section 10(b) of the Securities Exchange Act nor

SEC Rule 10b-5 explicitly provides for a private right of action

to enforce the prohibitions established therein. Nevertheless,

     *
       Because we find that Janus does not apply to Prousalis’s
criminal convictions, we need not reach the government’s
alternative argument that his convictions are sustainable on a
theory of secondary liability, the requirements for which were
not affected by Janus.

                               8
in Superintendent of Insurance v. Bankers Life & Casualty Co.,

the Supreme Court stated that the existence of such a right was

“established.” 404 U.S. 6, 13 n.9 (1971). The precise scope of

this judicially created cause of action has been the source of

continuing     disagreement.       See,    e.g.,        Stoneridge          Inv.   Partners,

LLC v. Scientific-Atlanta, Inc., 552 U.S. 148 (2008); Cent. Bank

of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511
U.S. 164 (1994). The Supreme Court’s general inclination over

the   past    several     decades      has       been       to   restrict        the    right;

Congress,     similarly,     has      declined         to    expand        it.   See,    e.g.,

Janus, 131 S. Ct. at 2302; Alexander C. Krueger-Wyman, Note,

Making   a    Statement    About      Private          Securities          Litigation:       The

Merits and Implications of the Supreme Court’s Janus Capital

Case, 98 Va. L. Rev. 1621, 1621 (2012).

      The    Janus    opinion    itself      makes       clear       the    limits      of   its

reach.   Janus       concerned     the    ability           of   a   private       plaintiff

invoking the 10b-5 implied right to sue a mutual fund investment

adviser. Janus, 131 S. Ct. at 2299. The scope of the Court’s

opinion was established at the outset: “We granted certiorari to

address whether [the adviser] can be held liable in a private

action under Rule 10b–5 for false statements included in [its

client’s] prospectuses.” Id. at 2301 (emphasis added). Moreover,

the   Court’s    reasoning       --   like       its    framing       of     the   issue      --

indicates that its holding was confined to cases invoking the

                                             9
implied    private       right   of    action   and     does    not   extend    to    the

criminal       convictions       at    issue    here.     Several      points    merit

particular attention.

     First, the Court stated that its rule “follows from Central

Bank of Denver, . . . in which we held that Rule 10b–5’s private

right    of    action     does   not    include    suits       against   aiders       and

abettors.” Id. at 2302. The Janus Court reasoned that a more

expansive interpretation of primary liability under the implied

right would functionally render aiders and abettors a null set,

thus draining the Central Bank decision of any concrete impact.

Id. In this respect, Janus works in tandem with Central Bank to

impart    a    coherent     structure     to    the     10b-5    implied      cause   of

action. The reasoning in both decisions is born out of concerns

specific to the implied civil right since, as the parties agree,

aiding and abetting is plainly available under the criminal law.

Central Bank in fact makes the distinction explicit: “while it

is true that an aider and abettor of a criminal violation of any

provision of the 1934 Act, including § 10(b), violates 18 U.S.C.

§ 2, it does not follow that a private civil aiding and abetting

cause of action must also exist.” Central Bank, 511 U.S. at 190.

     Second, the Janus Court also relied heavily on Stoneridge,

another       decision    involving      the    scope    of     the   10b-5     private

action. In that case, plaintiffs sued “entities who, acting both

as customers and suppliers, agreed to arrangements that allowed

                                          10
the    investors’     company      to    mislead     its     auditor    and    issue    a

misleading       financial     statement          affecting    the     stock     price.”

Stoneridge, 552 U.S. at 152-53. Relevantly, the Stoneridge Court

observed that “nothing [defendants] did made it necessary or

inevitable for [the company] to record the transactions as it

did.” Id. at 161. The Janus Court found this logic compelling,

noting that, unless a bad actor possesses ultimate authority, it

is     not   “necessary       or   inevitable”        that     the     falsehoods      he

propagates will appear in any final statement filed with the

SEC.    Janus,    131    S.    Ct.      at   2303    (internal       quotation    marks

omitted).

       Janus   thus     meshes     seamlessly       with   the   reasoning       of   the

Supreme Court’s recent 10b-5 private right of action cases. In

all three decisions (Central Bank, Stoneridge, and Janus), the

context is everything. Apart from its specific dependence on

Central Bank and Stoneridge, however, the Janus opinion evinces

a general desire to circumscribe implied causes of action. At

the outset, the Court observes that:

       “Concerns with the judicial creation of a private
       cause of action caution against its expansion.” Thus,
       in analyzing whether [defendant] “made” the statements
       for purposes of Rule 10b–5, we are mindful that we
       must give “narrow dimensions . . . to a right of
       action Congress did not authorize when it first
       enacted the statute and did not expand when it
       revisited the law.”

                                             11
Id. at 2302 (quoting Stoneridge, 552 U.S. at 165, 167) (internal

alteration       and    citations          omitted).      The    Court       summarizes       its

analysis by noting, “Our holding also accords with the narrow

scope that we must give the implied private right of action.”

Id.   at    2303.      These    concerns         are    specific       to    the    dangers    of

judicially       implied       causes       of    action.       Nowhere       is    there     the

suggestion that criminal sanctions for security fraud violations

would be similarly imperiled.

      Prousalis argues in rebuttal that Janus rested primarily on

a straightforward reading of Rule 10b-5’s text, and that the

Court’s desire to limit the implied right merely confirmed its

textual conclusion. In support of this argument he highlights

Janus’s      statement         that    the       word    “make”        in    Rule     10b-5     is

“not . . . ambiguous.” Id. at 2304 n.8.

      But this and similar language only reinforce our analysis.

Any textual conclusion announced in this particular area of law

would      not   be    casually       generalizable        to    the        criminal    context

which, as discussed below, presents a wholly different set of

issues.      “[T]he     meaning       of    statutory      language,          plain    or     not,

depends on context.” King v. St. Vincent’s Hosp., 502 U.S. 215,

221 (1991). A facially ambiguous or vague word can be rendered

determinate by the setting in which it appears. See FDA v. Brown

&   Williamson        Tobacco     Corp.,         529 U.S. 120,    132    (2000)       (“The

meaning -- or ambiguity -- of certain words or phrases may only

                                                 12
become evident when placed in context.”). Petitioner’s position

would render the Supreme Court’s discussion of private rights of

action largely superfluous. We decline to disfigure the Court’s

analysis of civil actions by wrenching its conclusion from the

distinctive contextual considerations that gave it birth.

                                                B.

       Our     interpretation            of    Janus      is      further         supported        by

considerations        of    judicial          restraint      and     legislative          primacy.

The    Janus    Court’s         discomfort       with     implied          rights       of    action

reflected      the    fact       that    “[t]he      regulation            of    access       to   the

courts is largely a legislative task, and one that courts should

hesitate to undertake.” Smith v. Reagan, 844 F.2d 195, 201 (4th

Cir.    1988).       As    Stoneridge          emphasized,           “In        the    absence     of

congressional intent the Judiciary’s recognition of an implied

private right of action . . . . runs contrary to the established

principle      that       the     jurisdiction          of     the      federal         courts     is

carefully guarded against expansion by judicial interpretation.”
552 U.S.    at     164       (internal       quotation          marks         and    alteration

omitted).      “For       this     reason,       implied          rights        of     action      are

disfavored,      and      will     not    be     found       in   the      absence       of     clear

evidence of legislative intent.” Smith, 844 F.2d at 201.

       It is not just that judicially created causes of action are

disfavored. It is that congressional control of federal court

jurisdiction and, more specifically, of the elements of federal

                                                13
criminal offenses have long been respected. As a result, the

Court’s willingness to constrict an implied civil right tells us

very     little      about         its    views       regarding       the      scope        of    a

congressionally         authorized         action       lying     squarely          within       the

legislature’s        traditional         prerogative       to     prescribe         crimes       and

ranges of punishment. See United States v. Lanier, 520 U.S. 259,

265 n.5 (1997) (noting “the deference due to the legislature,

which       possesses        the     power       to      define       crimes        and      their

punishment”). A part of the Janus Court’s unease stemmed, as

noted earlier, from the fact that the case involved “a right of

action      Congress       did    not    authorize       when   it    first      enacted         the

statute and did not expand when it revisited the law.” Janus,

131    S.    Ct.   at      2302     (quoting      Stoneridge, 552 U.S.    at    167)

(internal quotation marks omitted). This concern is absent when

Congress has in fact acted. The gulf between these two domains

of law makes it difficult to extrapolate from one to the other.

The Janus Court gave no indication that it intended to curtail

the    government’s          criminal      enforcement,         nor      did    the       opinion

suggest       that      it       even     contemplated          the      issue.        Explicit

congressional         prohibitions             simply     operate        in     a     different

universe than the one inhabited by Janus.

       Indeed,       the     Court       has     noted     on     many      occasions        that

“Congress      intended           securities         legislation       enacted        for        the

purpose of avoiding frauds to be construed ‘not technically and

                                                14
restrictively,          but    flexibly     to      effectuate         its     remedial

purposes.’” Affiliated Ute Citizens of Utah v. United States,

406 U.S. 128, 151 (1972) (quoting SEC v. Capital Gains Research

Bureau, Inc., 375 U.S. 180, 195 (1963)). Prousalis himself has

offered no reason to believe that the concerns attendant upon

implied    rights         of     action     --     concerns       of     legitimacy,

institutional      competence,       and    judicial      policymaking          --     are

implicated by prosecutions such as the one at issue here. All of

the   statutes     to    which   Prousalis       pled   guilty   fall        within   the

acknowledged       powers      of   Congress.       Petitioner         has     made     no

contention that the prohibitions to which he pled guilty are in

any way unconstitutional or otherwise illegitimate. Furthermore,

Prousalis’s conduct falls within the heartland of congressional

concern: he orchestrated a sophisticated scheme to defraud both

his own client and Busybox investors in the securities markets

out of hundreds of thousands (if not millions) of dollars for

his personal gain. It is hard to imagine a scenario more germane

to    Congress’s    intentions       in     enacting     the     securities          laws.

Prousalis has simply failed to proffer any compelling reason for

placing his conduct outside the reach of the criminal law.

      In sum, to broaden Janus’s holding beyond the domain of

implied rights would represent a stark assertion of judicial

will, the very thing against which Janus itself inveighed. The

majority in Janus gave not the slightest indication that its

                                           15
holding    applied       beyond      the   implied          civil    context:       the    four

dissenters resisted taking the law even that far. As counsel for

petitioner candidly noted at oral argument, no other appellate

court    has     adopted    Prousalis’s        argument;           indeed,    counsel      was

unable    to   identify     a   single       district        court    that    had    applied

Janus in the criminal context. There is a good reason for this

dearth of cases. It is not the role of courts to blaze new

trails    into    uncharted       territory       in    the    absence       of    any    clear

textual or precedential mandate for doing so. Considerations of

judicial       restraint     and      modesty          militate      against        such    an

untethered       venture.       In     the    absence          of     more        affirmative

indications       from     either     Congress         or    the    Supreme       Court,    we

decline to work such an avulsive change in law on our own.

                                           III.

     For the foregoing reasons, we reject Prousalis’s arguments

and affirm the dismissal of his petition.

                                                                                     AFFIRMED

                                             16
TRAXLER, Chief Judge, concurring in the result:

       “Under Rule 10b-5, it is unlawful for ‘any person, directly

or    indirectly,       .    .     .    [t]o    make       any    untrue          statement       of   a

material       fact’    in       connection       with      the        purchase       or       sale    of

securities.”           Janus       Capital      Group,       Inc.          v.    First    Derivative

Traders,       131     S.    Ct.       2296,    2301       (2011)          (quoting       17    C.F.R.

§ 240.10b-5(b)) (alterations in original).                                 The Supreme Court in

Janus held that “[f]or purposes of Rule 10b-5, the maker of a

statement is the person or entity with ultimate authority over

the    statement,       including        its    content          and       whether       and    how    to

communicate it.”             Id. at 2302.             Although I believe “make” has

the same meaning in the criminal context as it does in the

context    of    a     private         right    of    action,          I    nevertheless         would

affirm.

       Prousalis        argues          that         the     conduct              underlying          his

convictions is no longer illegal because Janus demonstrates that

it was Busybox, and not he, who made the statements that were

the basis for his convictions.                         However, that it was Busybox

that    made    the     statements         does      not    negate          the     illegality         of

Prousalis’s causing Busybox to make them.                                   Subsection 2(b) of

Title 18 states that “[w]hoever willfully causes an act to be

done which if directly performed by him or another would be an

offense    against           the       United        States,       is           punishable       as     a

principal.”          That     provision         “is    intended             to    impose       criminal

                                                17
liability on one who causes an intermediary to commit a criminal

act, even though the intermediary who performed the act has no

criminal intent and hence is innocent of the substantive crime

charged.”     United States v. Richeson, 825 F.2d 17, 20 (4th Cir.

1987) (internal quotation marks omitted).                 Subsection 2(b) “does

not set forth an essential element of the offense with which the

defendant     is   charged     or    itself    create     a   separate    offense.”

United States v. Ashley, 606 F.3d 135, 143 (4th Cir. 2010).

Thus,    a   defendant   can    be    liable   under      §   2(b)   regardless     of

whether the indictment even charges that provision. 1                   See id.

     Prousalis’s       willful       intent    to   defraud,         combined     with

Busybox’s       duty     not        to   make       the       charged      material

misrepresentations and omissions, made it a crime for Prousalis

to cause Busybox to make the statements at issue.                        Thus, his

contention that the conduct underlying his convictions is no

longer illegal after Janus is simply incorrect, and the district

court properly dismissed his petition. 2

     1
          The indictment did expressly charge 18 U.S.C. § 2 with
regard to Counts Two and Three.
     2
          Count One alleged a conspiracy, the objective of which
was to commit securities fraud, wire fraud, and mail fraud.
Even if under Janus the alleged conduct did not amount to
conspiracy to commit securities fraud, it still amounted to
conspiracy to commit wire fraud and mail fraud, and this
provides an additional basis for affirmance concerning Count
One.

                                         18