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United States v. Shapiro

United States District Court, D. Connecticut

June 5, 2018

UNITED STATES
v.
ROSS SHAPIRO and MICHAEL GRAMINS

          RULING AND ORDER

          Robert N. Chatigny United States District Judge

         The following counts remain pending after the jury trial: the conspiracy count against Mr. Gramins, as to which he was convicted; the conspiracy count against Mr. Shapiro, as to which the jury was unable to reach a verdict; and the wire and securities fraud counts against Mr. Gramins, as to which the jury was unable to reach a verdict.

         Both defendants have moved for judgment of acquittal on the ground that the evidence at trial was insufficient to prove any of the charged offenses. In addition, Mr. Gramins has moved for a new trial on the conspiracy count. Finally, both defendants have moved to dismiss the indictment on the ground that they lacked fair notice that their conduct was unlawful.

         For reasons summarized below, the motions for judgment of acquittal and to dismiss the indictment are denied; the motion for a new trial is granted.

         I. Motions for Acquittal

         Both defendants contend that they should be acquitted of conspiracy, and Gramins contends he should be acquitted of wire and securities fraud, because the Government failed to prove materiality, intent to harm or willfulness.

         A. Materiality

         In Litvak I, testimony by counterparty representatives that the defendant's misrepresentations about price were important to them “preclude[d] a finding that no reasonable mind could find [the] statements material.” 808 F.3d at 166. In Litvak II, the Court of Appeals clarified that such testimony may be sufficient to sustain a finding of materiality only if the witness's “‘own point of view' is shown to be within the parameters of the thinking of reasonable investors in the particular market at issue.” 889 F.3d 56, 65 (2d Cir. 2018).

         In this case, the Government presented testimony by counterparty representatives that misrepresentations about price were important to them. Viewing this evidence in a light most favorable to the Government, a rational trier of fact could find that the “point of view” of these witnesses was “within the parameters of the thinking of reasonable investors” in the RMBS market at the time. Thus, in light of Litvak II, this evidence was sufficient to sustain the Government's burden on materiality.

         Defendants argue that the misrepresentations at issue were not material as a matter of law because statements about price were not relevant to the intrinsic value of the bonds. The Court of Appeals rejected this argument in Litvak I and adhered to that ruling in Litvak II. See 889 F.3d at 67. The Court stated:

When the broker-dealer seeks a profit for its role in procuring and selling a security desired by a buyer, the profit becomes part of the price paid by the buyer. The value of the security may be the most important factor governing the decision to buy, but the price must be considered in determining whether the purchase is deemed profitable. The broker-dealer's profit is part of the price and lies about it can be found by a jury to “significantly alter[] the total mix of information . . . available.”

         Materiality may be decided as a matter of law only if the misstatements are “so obviously unimportant to a reasonable investor that reasonable minds could not differ on the question of their importance.” Wilson v. Merril Lynch & Co., Inc., 671 F.3d 120, 131 (2d Cir. 2011) (quotations omitted). Viewing the trial record in this case in a manner most favorable to the Government, I cannot conclude that the misrepresentations at issue were so obviously unimportant to a reasonable investor as to compel a judgment of acquittal.[1]

         B. Intent to Harm

         To support a conviction for wire fraud, the Government must prove that the defendant contemplated some actual harm or injury to the victim. United States v. Starr, 816 F.2d 94, 98 (2d Cir. 1987). It is not enough to show that the defendant used deception to induce victims to enter into transactions they would otherwise avoid. See United States v. Shellef, 507 F.3d 82, 108 (2d Cir. 2007). Rather, the Government must show a “discrepancy between benefits reasonably anticipated because of the misleading misrepresentations and the actual benefits which the defendant delivered, or intended to deliver.” Starr, 816 F.2d at 98. Intent to harm cannot be found when alleged victims “received all they bargained for, and [defendant]'s conduct did not affect an essential element of those bargains.” United States v. Novak, 443 F.3d 150, 159 (2d Cir. 2006).

         The defendants argue that they are entitled to a judgment of acquittal because, like the alleged victims in United States v. Regents Office Supply Co., 421 F.2d 1174 (2d Cir. 1970), Starr, and other cases, the counterparties got what they bargained for in that they negotiated with Nomura in principal-to-principal transactions to buy or sell bonds at prices they considered advantageous based on their own extensive internal analysis. However, the Government presented evidence that counterparties agreed to pay Nomura a commission to facilitate trades with third parties and that the amount of the commission was tied to the price at which the bond was bought or sold by the third party. On this view of the nature of the bargain between Nomura and the counterparties, which the jury was entitled to accept, the jury could find that the defendants intended to harm the counterparties with regard to an essential element of the bargain by secretly taking more money from the counterparties than Nomura was entitled to as a commission. Defendants' argument that no fraud occurred because the counterparties got what they bargained for is therefore unavailing. See United States v. Weaver, No. 13-CR-120(JMA), 2016 WL 3906494, at *9-10 (E.D.N.Y. June 10, 2016) (rejecting defendants' theory that no fraud occurred in connection with sale of business opportunity because disclaimers in contract limited nature of bargain to purchase of machines at particular price), aff'd, 860 F.3d 90 (2d Cir. 2017).

         C. Willfulness

         The defendants contend that the Government failed to prove a willful violation of the securities laws, as required to support a criminal conviction under 15 U.S.C. § 78ff(a). See United States v. Cassese, 428 F.3d 2, 98 (2d Cir. 2005) (prosecution must prove defendant acted willfully in order to establish criminal violation of securities laws). The Government contends that willfulness in this context requires only ...


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