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Strategies & Market Trends : US vs Amr Elgindy - Trial Transcripts

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Introduction
This Reply Brief on Appeal is submitted on behalf of Defendant-Appellant
Anthony Elgindy. The government’s 178-page Brief in opposition devotes 100
pages (not including the Statement of Facts) to points raised by Mr. Elgindy, but
much of the government’s Brief does not require rejoinder, as it was either
anticipated by and addressed in Mr. Elgindy’s Initial Brief, or mischaracterizes Mr.
Elgindy’s Brief in an effort to avoid confronting it.
The government’s Brief also attempts impossible leaps of logic that are
easily identified. For example, regarding POINT I, the government makes the
ludicrous claim that the District Court refused to permit airing of the possible
prejudice from a 9/11-related (ultimately unsubstantiated) investigation of Mr.
Elgindy during voir dire or opening statement because raising it in voir dire would
afford the District Court and the parties less control of the evidence’s impact on the
jury than the alternative the District Court adopted: allowing the first mention of it
during testimony as part of the government’s case.
Of course, the opposite is true: voir dire provides the maximum control for
the court and the parties, as previewing such inflammatory evidence can identify
jurors for whom its impact would overwhelm their need to remain impartial. As a
result, a jury heard the most prejudicial evidence conceivable without any
2
screening for bias on such a sensitive issue.
The government also pursues a “punish the victim” strategy in defending its
introduction of the 9/11-related evidence, as well as the District Court’s
progressively more ineffectual aspirations to limit and/or exclude it. As detailed
below, the government contends that the problem was not that the evidence was
admitted in the first place, but that Mr. Elgindy had the audacity to contest it,
thereby compelling the District Court to preclude Mr. Elgindy’s attempts to rebut
such evidence on the ground that it would entitle the government to introduce even
more of it. Thus, the government commends the fact that well after the horse had
departed, the District Court locked Mr. Elgindy inside the barn when he tried to
chase it down.
Moreover, while the government pays initial lip service to the indisputable
fact that the 9/11-related accusations against Mr. Elgindy were unfounded, it takes
pains to do precisely what it did at trial: pepper its presentation with the details of
those accusations as voluminously as possible, and without relevant purpose except
one – to prejudice Mr. Elgindy and the review of his trial and convictions.
Regarding the lack of venue in the Eastern District of New York, as
discussed below in POINT II, the government fails to identify the proof that would
establish such venue. Lacking the requisite evidence, the government proceeds to
3
posit bases for venue that do not conform with the case law. Indeed, the
government proposes a limitless concept of venue that this Court has previously
rejected in the context of both Racketeer Influenced and Corrupt Organizations
(hereinafter “RICO”) and securities fraud prosecutions.
As examined in POINT III below, the government’s defense to its theories
of liability for the securities fraud and wire fraud counts is unavailing. The
government cannot provide justification for imposing liability for manipulation as
a result of the dissemination of accurate information. Nor can it provide a rationale
for imposing “honest services” wire fraud liability absent a duty of loyalty owed by
the defendant.
The same is true for the insider trading counts, as POINT IV rebuts the
government’s incorrect thesis that trading on public information can constitute
insider trading. In fact, in an effort to avoid that legal principle, the government
also seeks to expand the meaning of “non-public” information beyond any logical
or legally sustainable scope.
Nor, as detailed in POINT VI, does the government provide a valid reason
for the unreasonable sentence imposed on Mr. Elgindy for the false statements
case. In addition, the government avoids confronting the District Court’s failure to
explain its reasons for its Sentencing Guidelines calculations (which applied to
4
forfeiture as well) with respect to Mr. Elgindy’s financial gain from his offense
conduct.
Accordingly, for the reasons set forth below, as well as in Mr. Elgindy’s
Initial Brief, it is respectfully submitted that the Court should reverse and/or vacate
his convictions, and/or remand for re-sentencing and a new determination of any
forfeiture amount.
POINT I
THE DISTRICT COURT ERRED IN (A)
PERMITTING THE GOVERNMENT TO
INUNDATE THE RECORD WITH UNCHARGED
AND UNSUBSTANTIATED – AND INCURABLY
PREJUDICIAL – INNUENDO AND ACCUSATION
LINKING MR. ELGINDY TO 9/11 AND
TERRORISM AND (B) NOT PERMITTING VOIR
DIRE ON THE SUBJECTS OF 9/11 AND TERRORISM
In attempting to justify the admission of extraordinarily prejudicial evidence
of a 9/11-related investigation of Mr. Elgindy – an investigation that proved the
underlying allegations unsubstantiated – and the District Court’s failure to address
this delicate matter in voir dire, the government resorts to assertions so lacking in
logic that the fallacy of the government’s position, and the materiality of the
prejudice to Mr. Elgindy, are demonstrated beyond possible dispute.
Even if the quantity and character of the evidence of the 9/11 investigation
was relevant to the obstruction charge against Mr. Elgindy – a dubious proposition
5
itself given the lengths to which the government went to introduce every possible
prejudicial morsel the District Court would tolerate (until even the District Court
could tolerate no more, see Mr. Elgindy’s Initial Brief, at 45), the failure to broach
the subject during voir dire was inexcusable and incurable.
A. The District Court Erred By Not Confronting
the 9/11-Related Evidence During Voir Dire
As detailed in Mr. Elgindy’s Initial Brief, at 48-55, evidence of any
conceivable involvement in the events of 9/11 was so obviously prejudicial that it
required discussion in voir dire in order to ensure that only impartial jurors who
could put such highly-charged evidence (in New York City in 2004) aside would
sit at trial. Failing to do so let the evidence run amok among the jurors, any of
whom could have had relatives, friends, co-workers who perished in the terrorist
attacks of 9/11, and all of whom, as New Yorkers, would likely have had strong
emotional reactions that would not have abated in three years’ time.
In response, the government stretches reason past the breaking point. For
example, in its Brief, at 59-60 n. 32, the government contends that
[h]ere, the district court, had it asked jurors about 9/11
and terrorism, would have injected information into the
process with little ability to control how it was received.
As the district court noted, asking such questions,
therefore, would have run the considerable risk of
creating, rather than exposing, prejudice.
6
That assertion simply defies logic. Voir dire is the stage during which the
District Court possesses maximum control of how an issue is presented to a jury,
not only to frame the issue in a manner designed to limit its prejudicial impact (if
possible), but also to gauge and correct any juror attitudes revealed during the
process.
Similarly, the government defends the District Court’s decision not to
confront the 9/11-related evidence until after opening statements, thereby missing
the most effective opportunity – voir dire – to blunt the prejudicial impact of such
evidence. In its Brief, at 39, the government maintains that the District Court
“determined that any 9/11-investigation evidence would be limited in nature and
that the court would reserve decision as to whether even that limited evidence
would be admitted until after the trial commenced.”
That, however, was a recipe for disaster, and reflected not a calculated
judicial strategy, but rather the District Court’s explicit equivocation about letting
the evidence in at all, an equivocation that the government ultimately exploited to
the point at which the camel was entirely inside the tent. See Government’s Brief
at 39 n. 21 (noting that the District Court was initially leaning toward excluding the
9/11-related evidence). See also Mr. Elgindy’s Initial Brief, at 28.
According to the government, though, in its Brief at 39-40, “[t]he [District
7
Court] made clear that its decision was based on its desire to minimize the
prejudicial effect the 9/11-related evidence might have by prohibiting it from
becoming the focus of voir dire and jury addresses.” The government, however,
does not explain how that course minimized the prejudicial impact. Instead, it
ensured that the prejudice was maximized, since the jury was not screened for
prejudicial attitudes that could not be overcome by any limiting or curative
instructions.
Also, the government’s position not only fails to make sense, but it is
completely disingenuous, since its goal was not to minimize the prejudice, but
introduce as much 9/11-related evidence as it could convince the District Court to
permit, regardless its cumulative nature and lack of relevance to the particular
obstruction charge. The government’s claims are also in conflict with all of the
cases, discussed in Mr. Elgindy’s Initial Brief, at 50-55, that establish that
potentially prejudicial issues be aired during voir dire precisely so that they not be
sprung on a jury that is not adequately screened to eliminate those venire members
whose prejudices would overwhelm their duty to remain impartial.
Further departing from any semblance of logic, the government, in its Brief,
at 40, attempts to justify the District Court’s mishandling of the issue by
contending that “the court properly decided that the court should maximize its
8
control of how and when the evidence was provided to the jury by addressing the
issue itself when it first arose rather than ‘turning it over to the adversaries.’”
Again, that defies common sense because it would have been the Court itself that
would have addressed it in voir dire, and by letting it appear first as evidence, the
Court lost “control” over the jury’s consideration of such highly charged evidence.
Nor was the District Court’s mishandling of the issue during trial any more
likely to alleviate the prejudice. According to the government, in its Brief, at 40, in
attempting to defuse a situation that had already exploded, “[t]he district court also
wanted to give the jury instructions on the use of the 9/11 evidence in an
‘offhanded, casual’ fashion so as to ‘downplay’ it and decrease any possible
prejudice.” That decidedly passive and entirely inadequate response to evidence of
extremely prejudicial character calls to mind the famous quip about attempting to
downplay that which cannot be downplayed: “Other than that, Mrs. Lincoln, how
did you enjoy the play?”
Similarly, in its Brief, at 41, the government maintains that “[t]he court
reiterated that it was handling the 9/11-related material as it was ‘because I didn’t
want to give it any prominence . . .’” Yet that very evidence was the 800-pound
gorilla that could not be ignored. There was not any way evidence about possible
involvement in the events of 9/11 could not be considered “prominent” in New
9
York City in 2004 (or even now). To think otherwise is simply illusory.
The government’s feeble attempts to proffer a basis for the District Court’s
refusal to screen the jury via voir dire demonstrates the obvious: there was, and
remains, no viable rationale for allowing a jury in New York City in 2004 to hear
evidence of an investigation of the defendant’s possible foreknowledge of and
profit from the events of 9/11 without first determining whether those jurors were
unalterably prejudiced by that tragedy. See also Mr. Elgindy’s Initial Brief, at 49-
50.
B. The Government’s Theory On the Obstruction Charge,
and the Impact of the Overwhelming Evidence That
Mr. Elgindy Was Unaware of the 9/11-Related Investigation
The government’s theory with respect to the obstruction of justice count
charged against Mr. Elgindy was that he did not know about the securities-related
investigation (since not even Jeffrey Royer nor Derrick Cleveland knew of that
inquiry). GAT 6829. Thus, his obstructive conduct, according to the government,
could have been in response only to the 9/11-related investigation. That not only
permitted the government to claim the underlying facts of the 9/11-related
investigation were relevant, but also to benefit from its admission even though Mr.
Elgindy was acquitted of the obstruction charge.
That result obtained because the evidence clearly established that Mr.
10
Elgindy was unaware of the 9/11-related investigation. Thus, the acquittal
reflected the jury’s belief only that Mr. Elgindy was blithely ignorant of the 9/11-
related investigation – not a belief that the investigation was unfounded, or that Mr.
Elgindy was not connected in some nefarious way to the events of 9/11.
For instance, Mr. Cleveland, the government’s witness, testified that, long
after Mr. Elgindy had traveled to Lebanon and invested in an ocean-front
apartment and then returned to the U.S., and well after Mr. Royer had left the FBI,
he and Royer discussed the discomfort Mr. Cleveland experienced in Mr.
Elgindy’s office because Mr. Cleveland knew of the 9/11-related investigation of
Mr. Elgindy although Mr. Elgindy did not:
Q: After Mr. Royer left the FBI, did you and he continue to discuss this
new investigation of Mr. Elgindy?
A: Yes.
Q: How often?
A: Probably once a week or so.
Q: Did you ever discuss it in Mr. Elgindy’s presence?
A: No.
Q: Did you ever hear Mr. Royer tell Mr. Elgindy about this
investigation?
A: No.
1 “T.” refers to the trial transcript.
11
* * * *
Q: Did there come a time when you discussed with Mr. Royer the fact
that you were working in Mr. Elgindy's office while knowing that he
was being investigated for this new thing?
A: Yes.
Q: What did you say to Mr. Royer?
A: I told Mr. Royer that it was weird being in the office, that I actually
felt a little guilty because you know, I’m sitting five feet away from
Mr. Elgindy, we are having a good time in the office at this time and
knowing that he is being investigated for this and he has absolutely no
idea as far as I knew so I felt really weird about it.
Q: Did Mr. Royer respond to what you said?
A: Yes.
Q: What did he say?
A: He agreed with me that it was a weird situation.
T. 946-47.1
In addition, just three days before his arrest (in May 2002), Mr. Elgindy
completed construction of a new family home in San Diego, and threw a
housewarming party for the occasion. August 22, 2002, Transcript at 93-94. Also,
just three weeks prior to his arrest, Mr. Elgindy made a $305,000 quarterly federal
tax payment, and opened a pension account. Id. at 119.
12
Regarding his trip to and investment in real estate in Lebanon, Mr. Elgindy
discussed that travel extensively on the various sites. For example, investigators
first learned of Mr. Elgindy’s trip from his own posts on the “Dear Anthony”
thread on the free, public and popular internet site SiliconInvestor.com while he
was still in Lebanon. T. 5061. See also DX 10564-66. Also, Mr. Elgindy had first
obtained permission from his probation officer to travel in July 2001, and
discussed that on the site as well. August 22, 2002, Transcript at 25-33.
Moreover, if Mr. Elgindy had been aware of a terrorism-related
investigation, it is inconceivable that he would have continued comments and
activities on the AP and InsideTruth sites that the government claims he knew were
illegal. Instead, all of the conduct the government claims violated the securities
laws occurred during that period in which Mr. Elgindy supposedly knew he was
the subject of a 9/11-related investigation. Again, that defies logic, and the jury
agreed.
However, as noted above, that did not end the jury’s consideration of the
underlying investigation, and/or Mr. Elgindy’s possible inclination to flee the
United States – not because he was aware was under investigation, but because he
was connected to heinous terrorist activity.
The government was thus able to exploit the wholly unprovable charge of
13
some connection to 9/11 and terrorism even without prevailing on the obstruction
charge. It was entirely consistent for the jury to conclude that Mr. Elgindy,
unaware of the 9/11-related investigation, therefore did not obstruct it, while at the
same time harboring genuine suspicion that he was in some way tied to terrorism
and 9/11.
For instance, Mr. Cleveland’s testimony about an exchange he had with Mr.
Royer added nothing to Mr. Elgindy’s knowledge of the 9/11-related investigation,
but provided an ominous metaphor that communicated effectively to the jury the
increasing seriousness and progress of that investigation:
Q: Did Mr. Royer say anything about the imminence of the investigation
. . . Let me ask that a different way. . . Did Mr. Royer express
whether he thought anything was going to happen soon?
A: Yes, his exact words was that the noose was tightening around Mr.
Elgindy’s neck.
T. 955.
Of course, as noted ante, since neither Mr. Royer nor Mr. Cleveland knew
of the securities investigation underway at that time, that “noose” could only have
been tightening with respect to the 9/11-related investigation. That left the jury
free to entertain the belief that while Mr. Elgindy may not have obstructed an
investigation (of which he was not aware), he was certainly a legitimate subject of
such an inquiry.
2 While the investigation may have constituted one among thousands, Mr.
Elgindy remains the only U.S. citizen ever to be accused publicly by an official of
the U.S. government of foreknowledge of the 9/11 attacks. Certainly the jury had
not heard allegations of that character previously leveled against anyone else.
14
Nor did the District Court’s instructions dissuade such speculation. While
the District Court informed the jury that there were no “formal” charges against
Mr. Elgindy related to 9/11 or terrorims, and that the investigation was similar to
thousands of others that were launched after 9/11, and for them not to “pay
attention” or let that “distract” them, at the same time the government was alleging
that Mr. Elgindy was actively preparing to flee from these “harmless and meritless”
allegations.2
The District Court’s attempts to have the 9/11-related evidence introduced in
only an “off-handed,” “white bread,” and “casual” manner, presented in “harmless
fashion” in order to deny it any “prominence” cannot be reconciled with the fact
that the government’s theory on the obstruction counts was grounded in the
allegation that Mr. Elgindy’s “preparations” for flight were grounded in those very
allegations. See Government’s Brief, at 43. See also T. 2896.
Thus, the only thing the acquittal on the obstruction counts proved is that
Mr. Elgindy did not know he was being investigated in relation to terrorism and
9/11. It did nothing, however, to dispel the jury’s very real and very likely
15
suspicion, sowed by the government, that he might possibly be connected to
terrorism.
C. The District Court, At the Government’s Urging,
Improperly Prevented Mr. Elgindy from Challenging the
Underlying Allegations of the 9/11-Related Investigation
The District Court’s failure to apply the brakes to the government’s
introduction of the 9/11-related evidence compelled Mr. Elgindy to rebut the
insinuations that he was connected to terrorism and/or 9/11. Yet the District Court
used the prospect of even more scurrilous 9/11-related allegations to prevent Mr.
Elgindy from refuting the groundless accusations.
As the government recounts in its Brief, at 46, “as the court had warned the
defendants throughout the trial, even as the court severely restricted the
government's ability to elicit details concerning the 9/11-related information, any
attempt by the defense to suggest that the 9/11 investigation had no basis would
open the door to additional evidence regarding that investigation.” See also T.
2153-54.
Thus, the District Court compounded the problem by hamstringing the
defense’s ability to counter the 9/11 allegations, creating a genuine Hobson’s
choice that threatened to punish the Mr. Elgindy for attempting to reduce the
3 Hobson’s choice: “A choice without an alternative; the thing offered or
nothing.” See Dictionary.com.
16
impact of the 9/11 evidence.3 Thus, the District Court’s treatment was in no way
symmetrical. While the government may have been constrained with respect to
certain facts, those it did get to introduce could not be rebutted for fear that the
District Court would allow the government to introduce even more 9/11-related
allegations. Mr. Elgindy should have been able to demonstrate that the accusations
were baseless, but without opening the floodgates to more of the same.
Moreover, while, as the government notes in its Brief, at 41, at a sidebar “the
court stated that the government was on a ‘very short leash[,]’” T. 782, the District
Court never enforced that admonition. Initially, the District Court stated that it
believed the 9/11-related material was harmless. Early in the trial, the District
Court expressed its opinion that the evidence was being introduced in a “white
bread” and “harmless” fashion that did not produce “any reaction” from the jury.
However, as detailed in Mr. Elgindy’s Initial Brief, at 43-45, the District
Court’s observations changed dramatically over time. Thus, five weeks later, the
relentless parade of the 9/11-related evidence caused the District Court to protest to
the government, “Stop it, I didn’t get to sleep last night, now it's going to my
stomach. Please enough with this.” T. 7838; J.A. 405 (District Court rules that
4 The District Court rejected at trial the same claim the government makes in
its Brief (at 44): that somehow Mr. Elgindy was responsible for the volume of
9/11-related evidence that was admitted at trial:
17
“[n]evertheless, other than allowing the government to elicit from Mr. Cleveland,
Mr. Royer shared specific details about it without identifying it, I’m not going to
allow any more at this point”).
Moreover, the government’s claim to the contrary notwithstanding, it is clear
from the colloquy that it was efforts by the government, and not Mr. Elgindy, to
widen the scope of the 9/11-related evidence that evoked the District Court’s
strong reaction:
AUSA BREEN: They are statements that we would say are hearsay
statements. We would say that they are unreliable, that
they are being offered for their truth to show what Mr.
Elgindy’s feelings were, which we think are not
trustworthy under the circumstances. It would be
misleading to the jury, and should be excluded under
both hearsay and 403 grounds.
AUSA LEVINE: Your Honor, if they really want to offer those statements,
and the Court would permit it, then I think there is no
longer even a door, because it’s just – everything comes
in. Everything.
THE COURT: Stop it. I didn’t get any sleep last night. Now it’s going
to my stomach. Please, enough with this. I only saw
portions of the September 10 chat, because the
government was pushing me to introduce it.
T. 7837-38 (emphasis added). See also Mr. Elgindy’s Initial Brief, at 45.4
AUSA LEVINE: I have argued several times at side-bar, they have injected
9/11 issues into this case. They put the email in, they put
up these emails from Lebanon trying to spin benignly
that whole issue. So I think they are in this as much as
Mr. Royer.
THE COURT: They are trying to answer the evidence that I let you get
in from the get-go, evidence of the preparations of flight
and so forth.
T. 6843-44.
18
If the accumulation of the 9/11-related evidence ultimately had this kind of
an impact on the District Court, one can only wonder how it affected the jury.
Also, later during the same sidebar, in response to additional pressure by the
government for even greater latitude, the District Court again importuned the
government to “stop it”:
AUSA LEVINE: If – you know, Your Honor, obviously we will argue that
that’s – Mr. Elgindy, he likes to play things pretty close
to the vest. He is a pretty clever guy. If we are going to
have this argument, fine.
THE COURT: Is he clever enough, Mr. Levine?
AUSA LEVINE: We will find out.
THE COURT: Stay tuned.
AUSA LEVINE: Exactly. If that’s going to be done I think we should have
even more latitude to put in the whole 302 of Mr. Ross.
THE COURT: Stop it, will you?
5 “A.” refers to the Appendix filed with Mr. Elgindy’s Initial Brief.
19
AUSA LEVINE: Every time we do one thing they want to do more.
THE COURT: You are not going to push me closer to the edge. You get
my metaphor? You are not going to put me and this case
closer to the edge.
T. 7844-45. See also Mr. Elgindy’s Initial Brief, at 45.
At that point, of course, it was already too late. The court had already hurled
itself over what it would later describe as a “26,000 foot precipice.” A. 405.5 See
Mr. Elgindy’s Initial Brief, at 45. Thus, despite the government’s assertion in its
Brief, at 44, that “the court consistently limited the government to a circumscribed
set of facts that were vetted with the court prior to being elicited from witnesses[,]”
the District Court’s own subsequent remarks demonstrate the opposite: that they
were not “circumscribed,” but instead spiraled out of the District Court’s control in
a manner it did not intend, but which was easily anticipated from the informal and
equivocal manner in which the District Court addressed the matter from the start of
trial. See T. 2153; Mr. Elgindy’s Initial Brief, at 30-45.
In addition, the government cannot provide arguments for relevance for
much of the 9/11-related evidence it introduced that outweighs the prejudicial
impact under a Rule 403, Fed.R.Evid., analysis. For example, in its Brief at 38, the
government attempts to justify introduction of 9/11 evidence on the ground that
6 Even on appeal, the government is still trying to prejudice Mr. Elgindy
with 9/11 innuendo, and to justify the inclusion of that evidence by concentrating
on its character. The government’s extended exegesis on the elements of the
investigation, in its Brief, at 33, et seq., repeats the same old canards that proved
unfounded. There is no purpose to including such information in its Brief, other
than the transparent objective of continuing to prejudice Mr. Elgindy with the
shadow of that 9/11-related investigation: to suggest to the Court that there was
something behind that investigation and the accusations. See also, e.g.,
Government’s Brief, at 35 n. 17, 37 (the “Lozeman interview”), 41. A prime
example is the repetition that a charity to which Mr. Elgindy contributed, Mercy
International, was linked to al Qaeda terrorism, see Government’s Brief, at 36, 42,
while the government knows full well (and even mentions, id., at 37) that a
subsequent report “debunked the alleged connection between Mercy USA and
Mercy International”. That begs the question of the point of mentioning it at all.
Again, at 41, the government lists evidence the District Court did not let the
government introduce. Yet the issue is not what the District Court kept out, but
rather what it let in. The government continues in this forum to do what it did
below: use as many irrelevant but highly prejudicial allegations as possible to
overwhelm any attempt at impartial analysis of the facts and issues. In so doing, it
in effect asks this Court to do the same that it asked of the jury below: judge Mr.
Elgindy on the basis of uncharged, unproven (and in many cases refuted)
20
“the evidence demonstrated the significance of the investigation itself, thus giving
context to Elgindy’s behavior and preparation for flight around the period in which
he learned of the investigation.”
However, the “significance” of the investigation was not critical to the
offense – Mr. Elgindy would have been as guilty if he had obstructed a minor,
parochial investigation. Also, the “significance” of any 9/11-related investigation,
if indeed relevant, was self-evident without plunging into lurid but unfounded
allegations regarding Mr. Elgindy’s possible relationship to 9/11 and terrorism.6
allegations of an unmatched prejudicial nature.
7 The government’s citation to United States v. Salameh, 152 F.3d 88 (2d
Cir. 1998), as support for the introduction of terrorism-related evidence even
though it was prejudicial proves the point that the government wants to present this
case as a terrorism case, its protestations to the contrary notwithstanding, because
Salameh was itself a terrorism case (involving the 1993 bombing of the World
Trade Center). The propriety of admitting the evidence in Salameh is not
instructive in a case like this, in which the allegations are of securities fraud and
related offenses.
21
Also, regarding law enforcement agents’ references to their involvement in
the 9/11 investigation, the government, in its Brief, at 43 n. 25, contends that
“these passing references that indicated in very general terms how these agents
were associated with the investigation.”
As a threshold matter, the government does not even assert any relevance –
i.e., what was probative about the agents’ “association with the investigation.”
Furthermore, the “general terms” were plainly part of the problem, since it left to
the jury’s imagination the connection between the 9/11-related investigation and
Mr. Elgindy’s supposed conduct.7
The same applies with even greater force with respect to the claim that
“reference to the rebuttal witness’ work on the Zacharias Moussouai investigation
was appropriate to establish his knowledge of the 9/11 investigation.”
Government’s Brief at 45 n. 26, citing T. 7883. Again, though, that fails to
22
establish any relevance, particularly when the substance of the investigation was
not the issue – but rather whether Mr. Elgindy’s knowledge of it led to obstruction.
The government simply and repeatedly cannot articulate the relevance of its
constant barrage of prejudicial testimony about 9/11 in this securities fraud case,
but is instead left to circular and conclusory assertions.
Nor, contrary to the government’s suggestion, did Mr. Elgindy fail to object
to the continued introduction of such evidence. As his counsel made clear during
colloquy:
MR. BERKE: We are very much objecting to the government going
into any of the specific 9/11 issues beyond that which is
already in the case.
THE COURT: Why don’t I give you a standing objection along those
lines.
MR. BERKE: Judge I would prefer, I mean, but it’s a real objection
because to the extent that Mr. Royer may have said
certain things, certainly there is nothing Mr. Elgindy did
that opened the door to what is evidence and information
that remained as extraordinarily prejudicial right now as
it was at the beginning of the case when we briefed this
for months and argued it forever, particularly at this
stage, Judge where the securities fraud issues and other
related issues are teed up for the jury to consider.
At this late date, for evidence of damning and prejudicial
information about something as emotional and
inflammatory as 9/11 to come out at this stage against
Mr. Elgindy, in whatever form, would be extraordinarily
prejudicial. I would say at this joint trial under Rule 403
23
and I think probably other grounds we cited in all our
briefs, your Honor should keep that out.
T. 6838-43.
D. As An Alternative, the District Court Should
Have Granted Mr. Elgindy a Severance
As the colloquy above also demonstrates, Mr. Royer’s testimony amplified
the prejudice Mr. Elgindy suffered from the 9/11-related evidence. See also Mr.
Elgindy’s Initial Brief, at 39-40. In its Brief, at 46, the government recites how
Mr. Royer’s testimony opened the door to a wealth of prejudicial material about
Mr. Elgindy and 9/11 – thereby reinforcing the need for a severance. For example,
in its Brief, at 47, despite claiming a “very short tether,” from the District Court, T.
6938, government concedes that on cross-examination of Royer it “elicited from
Royer that he was aware of an investigation involving terrorism in which Elgindy
was mentioned.”
As a consequence of this aggravation of the prejudice to Mr. Elgindy, the
District Court should have granted him a severance. Mr. Elgindy’s counsel,
anticipating the government’s cross-examination of Mr. Royer, strenuously
objected to the introduction of even more 9/11-related evidence, especially as the
trial reached its concluding stages:
MR. BERKE: I’m not making any concession about what Mr. Royer
has done or hasn’t done. My view is it doesn’t matter as
24
to Mr. Elgindy. Yes the allegations in these reports are
not benign, they are also argued not to be true, and we
have not been in a position where we spent the months to
contest them and prove them not to be true. There are a
number of facts we have in evidence. We have to
disprove each of these allegations. We started briefing
on this. If you let the plain allegation Mr. Elgindy is a
terrorist or that he had foreknowledge of the first terrorist
act ever occurring in the U.S., we submit he cannot get a
fair trial in this case.
There is a cost to the government of having a joint trial.
We moved for severance from the beginning and we
raised – It couldn’t be any clearer or made any plainer
that we do not believe Mr. Elgindy can get a fair trial if
these allegations come out. If Mr Royer did or said what
he said, I don’t address because I don’t think it’s relevant
to protect Mr. Elgindy’s rights. . . .
T. 6839.
Mr. Elgindy’s counsel also recognized that the damage was beyond repair by
a jury instruction, and the District Court’s response evidenced its ambivalence as
well:
MR. BERKE: As to the 9/11 stuff, whatever relevance it has to Mr
Royer’s credibility, the extraordinary prejudice it would
have to the subjects of those reports, Mr. Royer – Mr.
Elgindy, who is involved in this joint trial, can’t be
minimized, can’t be dealt with with an instruction.
We’re at the 11th hour where the case is framed for the
jury.
THE COURT: Enough. I can’t say that I entirely agree with your
comments, but I certainly share your concerns, and your
point is well taken, this is not Mr. Elgindy’s doing, at
25
least not within the four corners of the trial.
T. 6838-43.
Accordingly, it is respectfully submitted that Mr. Elgindy should have been
granted a severance as an alternate remedy for the prejudice flowing from the 9/11-
related evidence.
E. The Jury Verdicts Do Not Establish That Mr. Elgindy
Was Not Prejudiced By the 9/11-Related Evidence
In its Brief, at 54, the government argues that “[p]erhaps the strongest proof
that neither Elgindy nor Royer was unfairly prejudiced by the 9/11-related
evidence was the jury’s verdict.” In fact, the opposite is true: instead of a
complete acquittal, the jury picked isolated counts (for which the evidence was the
same as on the acquitted counts) to convict Mr. Elgindy of something rather than
let him walk completely free (in light of the shadow cast by the 9/11 evidence).
Thus, while the government contends, in its Brief at 57, that “the jury
acquitted both defendants on certain counts and differentiated between the
defendants and other counts, including the obstruction and extortion counts[,]” the
government fails to provide any rhyme or reason to distinguish between acquitted
and convicted counts. That certain counts resulted in acquittals while others, based
on nearly identical evidence, resulted in convictions strongly suggests that Mr.
Elgindy was prejudiced by the 9/11-related evidence. Indeed, a more likely
26
scenario than that offered by the government is that a compromise was reached,
through which the jury arbitrarily chose certain varied counts (from each group of
charges) on which to convict Mr. Elgindy in order that someone arguably affiliated
with terrorism and tainted by possible involvement in the events of 9/11 not be set
free entirely.
Nor do the cases cited by the government in its Brief at 54-55 & 57 suggest
differently. Those cases involved either prejudice of a far less serious and/or
pervasive character, see, e.g., United States v. Diaz, 922 F.2d 998, 1007-08 (2d Cir.
1990) (co-defendant’s threatening gesture during trial); United States v. Garcia,
848 F.2d 1324, 1334 (2d Cir. 1988) (relative culpability among co-defendants);
United States v. Stewart, 433 F.3d 273, 315 (2d Cir. 2006) (evidence admissible
only against co-defendant); or none at all, United States v. Myerson, 18 F.3d 153,
163 (2d Cir. 1994) (no prosecutorial misconduct found); or dramatically different
circumstances, e.g., United States v. Greer, 223 F.3d 41, 54 (2d Cir. 2000) (alleged
juror misconduct); United States v. Aiello, 771 F.2d 621, 631 (2d Cir. 1985)
(same); United States v. Barnes, 604 F.2d 121, 144-45 (2d Cir. 1979) (same).
Accordingly, it is respectfully submitted that as a result of the overwhelming
and incurable prejudice emanating from the admission of 9/11-related evidence,
Mr. Elgindy’s convictions should be vacated, and a new trial ordered.
27
POINT II
MR. ELGINDY’S CONVICTIONS MUST BE
REVERSED AND THE CHARGES DISMISSED
BECAUSE VENUE WAS NOT PROPER
IN THE EASTERN DISTRICT OF NEW YORK
The government is at a severe disadvantage in seeking to establish that
venue existed in the Eastern District of New York (hereinafter “EDNY”) – because
nothing conferring venue occurred in EDNY. Undaunted, the government has
cobbled together conclusory statements, suppositions, stray but immaterial facts,
and carefully chosen passages from certain cases in an attempt to satisfy venue in
EDNY. However, as detailed below, and in Mr. Elgindy’s Initial Brief, at 56-88,
the effort fails both individually and collectively, and legally and factually.
A. The Appropriate Burden of Proof for Venue
In the recently decided United States v. Rommy, ___ F.3d ___, 2007 WL
3243813 (2d Cir. November 5, 2007), this Court reiterated its prior holdings that
venue need be proven only by a preponderance of the evidence, and not beyond a
reasonable doubt. Id., at *8. However, the opinion in Rommy, like its
predecessors, does not perform any analysis that would reconcile that conclusion
with the string of Supreme Court cases beginning with Jones v. United States, 526
U.S. 227 (1999), and culminating most recently with United States v. Booker, 543
U.S. 220 (2005).
28
As a result, it is respectfully submitted that the issue should be referred for
en banc consideration. This case is also one of those rare cases in which the
burden of proof for venue matters, and in which an objection to the preponderance
standard was preserved in the district court. See Mr. Elgindy’s Initial Brief, at
56-88.
8 The District Court never decided Mr. Elgindy’s motion for judgment of
acquittal pursuant to Rule 29, Fed.R.Crim.P., as it pertained to venue.
29
B. The Government Failed to Establish a Factual Predicate
for Any of the Counts on Which Mr. Elgindy Was Convicted
The government makes several novel but insufficient claims with respect to
the evidentiary basis for venue. Some are legally deficient; some lack any factual
foundation. Others fail on both counts. Ultimately, the government is unable to
substantiate venue on any counts of conviction with respect to Mr. Elgindy.8
1. The Securities Fraud Counts
For example, in its Brief, at 72, the government, citing this Court’s decision
in United States v. Rowe, 414 F.3d 271, 279 (2d Cir. 2005), claims that
“[t]elephone calls, faxes and internet postings into a district that further the
criminal activity, even where the recipient of those communications is not a coconspirator,
are sufficient to establish venue in the recipient district.”
Yet even if that were legally sufficient – a dubious proposition indeed upon
examination of Rowe and other cases (see post, at 38; see also Mr. Elgindy’s
Initial Brief, at 78-88) – the government never introduced any such evidence.
Absent from the record is any evidence that any site member viewed, heard,
received, or traded anything while “located” in EDNY. Absent from the record are
any telephone calls, e-mails, facsimiles, “chat viewing,” “trading directions,”
9 In its Brief, at 36, the government notes that subpoenas had been issued by
a grand jury in San Diego, California – demonstrating that government knew that
proper venue lay in the Southern District of California, where Mr. Elgindy moved
pretrial to have the case transferred.
10 Furthermore, as explained in Mr. Elgindy’s Initial Brief, at 61-65, the
government’s argument that the “transmission of messages to AP site-members,
was the ‘engine’ of the securities fraud conspiracy,” was rejected by the District
Court at sentencing. EA 1187-1189 (“I for one, do not include the site fees in the
calculation, I’ve always seen that as something different. . . . I just don’t see it as
part of the securities fraud. I myself have not included those amounts”).
30
trades themselves, or testimony placing any of that activity in EDNY.9
Indeed, in its Brief, at 74 & n. 35, the government admits that it cannot (and
did not at trial) establish that persons (in the EDNY) who traded shares in the
subject securities engaged in transactions with Mr. Elgindy. Nor was the
government able to introduce a single trade by a single subscriber, alleged to be an
EDNY resident, in any of the 32 stocks identified.10
Retreating progressively, the government next seeks to ground venue in the
allegation, in its Brief at 73, that “[s]ome of the subscribers to Elgindy’s AP site
were located in” EDNY. While acknowledging that Mr. Royer gained access to
information elsewhere, the government nevertheless contends, without further or
sufficient elucidation, that “n each case, Elgindy disseminated the
misappropriated information on the AP site on multiple occasions to the site
11 “Mr. Rahman” provided contact information, a credit card number, and an
email address (Moharahman@aol.com). As a result, he was granted 24-hour
unfettered access to Mr. Elgindy’s site. EA 250-251.
31
subscribers, including subscribers who were located in” EDNY. Government’s
Brief, at 77. However, there was no evidence that anyone was “located in” EDNY,
beyond the government’s conclusory assertion. The government cannot point to
where in the record such communications between Mr. Elgindy and any of these
alleged subscribers can be found.
Perhaps the most telling demonstration of the lack of any connection to
EDNY sufficient to establish venue is the fact that despite placing an EDNY
undercover officer – who subscribed as Mohamed Rahman, of Brooklyn, New
York11 – as an AP site member from December 7, 2001, until May 21, 2002 (the
day Mr. Elgindy was arrested), the government failed to call “Mr. Rahman” as a
witness at trial, or introduce a single internet posting made or received by “Mr.
Rahman,” or even preserve the activity on the site – not a single email, audio
broadcast, chat log, or “trading command” – during that time period. T. 6682-
6693 (FBI case agent David Sutherland).
The government fares no better with its assertion that venue could be based
on the fact that there were “market-makers” who made markets in many of the
stocks that were the subject of the case. Government’s Brief, at 74-75 & n. 36.
32
Not one share was traded between any of these “market-makers” and any of Mr.
Elgindy’s site members or himself. Indeed, every single trade Mr. Elgindy made
was executed through Global Securities, located in Vancouver, B.C., and the
“contra party” (other side) of his trades were all U.S. market makers, none of which
were located in EDNY. See DX 11058, DX 12130, DX 07363.
Nor can the government cite a single case or principle to support its
unsubstantiated theory of venue tied to manipulation solely via market makers who
do not trade with the defendant or co-conspirators. See also Government’s Brief,
at 77. Similarly, the government's claims about Research Frontiers, Inc. (REFR)
being located in EDNY see Government’s Brief at 75 & n. 37, are irrelevant
because no one on the AP site ever traded or made trading calls in REFR. See also
Mr. Elgindy’s Initial Brief, at 74.
The government also attempts to rely on a site member, “WhoLovesYa,”
arguing that WhoLovesYa, “an Eastern District subscriber, . . . communicated with
Elgindy via that AP site in furtherance of the fraud as to SEVU.” See
Government’s Brief, at 78. In that context, the government alleges that
WhoLovesYa “participated” in the preparation of a report regarding SEVU.
Government’s Brief, at 75.
However, the reliance on WhoLovesYa only reinforces the conclusion that
33
venue in EDNY is absent, as there was no evidence that WhoLovesYa ever viewed
any site activity or participated in any activity – and the government does not claim
he acted as a co-conspirator – related to this case while located in EDNY. The
government chose not to call WhoLovesYa as a witness; nor was WhoLovesYa’s
identity, or whereabouts at any particular point in time, ever disclosed.
The government also strains this Court’s venue jurisprudence beyond the
breaking point in an effort to sustain venue in EDNY here with respect to Mr.
Elgindy. For example, the government cites United States v. Geibel, 369 F.3d 682,
697 (2d Cir. 2004), as support for its claim that
in this case the conspirators had direct contact with
persons – the AP site subscribers – in the Eastern District
in furtherance of the fraud. While the site subscribers
were not charged as co-conspirators, they were not
simply passive recipients of the information. The site
subscribers’ trading, based on misappropriated
information disseminated by Elgindy, was an integral
part of the securities fraud and was neither “anterior” to,
nor remote’ from, it. []
Government’s Brief, at 78 (footnote omitted).
Further distorting Geibel, the government, in its Brief at 76, seeks to
analogize this case on the ground that in Geibel
this Court found that just two contacts by one of three coconspirators
with the Southern District of New York – a
letter sent to the American Stock Exchange and a call
with an undercover FBI agent posing as a source of
34
inside information – that furthered the securities fraud
conspiracy were sufficient to establish venue there. In
each of these two contacts, the co-conspirators who
engaged in the conduct was outside the Southern District
and in neither case was the recipient a co-conspirator.
Yet examination of Geibel, which is analyzed in detail in Mr. Elgindy’s
Initial Brief, at 62-63, reveals that the differences between what was sufficient for
venue in that case and the circumstances here are so patent as to demonstrate
conclusively that the government is grasping at straws to establish venue for Mr.
Elgindy.
In Geibel, the telephone call to the undercover agent was part of the offense
conduct and necessary to it: the communication of inside information. 369 F.3d at
696-97; see also Mr. Elgindy’s Initial Brief, at 62-63. The letter to the American
Stock Exchange – which provided false explanations for certain insider trading –
was only sufficient to establish venue for a trade the government could prove was
executed on that exchange, but not for other trades that involved insider trading.
369 F.3d at 698.
Here, neither circumstance obtains, and venue is absent. Also, as noted in
Mr. Elgindy’s Initial Brief, in Geibel this Court carefully circumscribed venue in
securities fraud cases, and did so in a manner that the government cannot overcome
in this case. For instance, in Geibel this Court required that venue, as stated in the
35
Securities Act of 1934, be limited to where any “act or transaction constituting the
violation” occurred. 369 F.3d at 696. In addition, in Geibel the activity of the
person who was not a co-conspirator was deemed too “anterior” or “remote” to
satisfy the venue requirement. Id., at 697.
Moreover, in Geibel, this Court ruled that venue did not lie in the Southern
District of New York regarding those trades for which “the government
submit[ted] no evidence showing that defendants directly contacted New York
when they engaged in insider trading.” Id., at 697. As this Court elaborated, “[t]he
government failed to establish that defendants’ trades, involving primarily the
purchase of options, utilized the facilities of any New York-based securities
exchange or brokerage firm.” Id.
Also, in its Brief at at 79 n. 39, the government offers more weak
contentions that the conduct it describes here (even if there were proof in the
record) was more than merely “preparatory”: “[h]ere the defendants’ contacts with
[EDNY] formed a part of the charged securities frauds and were not preparatory to
it. Those contacts, including ‘dispatching missives’ to AP site subscribers in the
Eastern District, were not distinct from the charged crimes, nor completed at the
time the charged crimes occurred.”
Again, the government advances this argument without any explanation why
12 In conjunction with that claim, the government cites Rowe and United
States v. Naranjo, 14 F.3d 145 (2d Cir. 1994). As discussed post, at 37-39, those
cases do not support the government’s position. See also Mr. Elgindy’s Initial
Brief, at 64-65.
36
the conduct is distinct, and/or not merely “preparatory.” Also, government here
attempts to construe venue in the same expansive manner that this Court rejected in
Geibel (as set forth ante, at 33-34, and in Mr. Elgindy’s Initial Brief, at 62-63).
The government further maintains that “[t]he ‘nature’ of the crime here
required that Elgindy disseminate misappropriated information to his subscribers
so that he could benefit himself and his co-conspirators in their trading. As such, it
constituted conduct essential to the fraud [citing United States v. Ramirez, 420 F.3d
134, 144 (2d Cir. 2005)], and was not merely ‘preparatory’ to it.” Government’s
Brief, at 78-79, citing Geibel, 369 F.3d at 697. See also Government’s Brief, at 73
(“[w]hile there were also subscribers located in various other places in the United
States, the nature of the crime here demonstrates that venue in the Eastern District
of New York was appropriate”).12
Yet the government fails again to explain why that is so. Indeed, there exists
no basis for any such finding. Nothing that occurred in EDNY was essential to the
offenses. The government fails to provide any viable basis how the “nature of the
offense” demonstrates venue in this case, and what limits, if any, apply. Is venue
13 Indicating further desperation, the government also to establish venue by
reference to a count – obstruction – of which Mr. Elgindy was acquitted.
Government’s Brief, at 73, citing Naranjo, 14 F.3d at 147. See also Government’s
Brief at 86 (noting that Mr. Royer was convicted of “furthering the RICO and
securities fraud conspiracies” via obstruction in EDNY – but that is not required or
subsumed within the conviction, and does not establish venue, as required, for each
separate offense. See Saavedra, 223 F.3d at 89. See also Mr. Elgindy’s Initial
Brief, at 82. That is convoluted boostrapping of a character that reveals the
insufficiency of the government’s venue arguments with respect to Mr. Elgindy).
Yet the government does not even make an effort to explain how that applies here,
to a defendant who was acquitted of the obstruction charge(s).
In another footnote, at 78 n. 38, the government makes additional totally
unsupported claims regarding the basis for securities fraud liability: “unlike with
mail fraud, the entire operation of the scheme itself constitutes conduct essential to
the charged crime.” That, too, states a “universal venue” theory with respect to
securities fraud, yet the government denies it is seeking to “open the floodgates.”
See Government’s Brief, at 86.
37
proper in any district in which a subscriber was located? Is that true regardless
whether co-conspirator acts were committed? Is that regardless of foreseeability?
The government’s theory describes the very limitless jurisdiction of which
the dissent in United States v. Saavedra, 223 F.3d 85 (2d Cir. 2000), warned and
the majority insisted would not be tolerable in RICO prosecutions. See Mr.
Elgindy’s Initial Brief at 71-73 (noting Saavedra’s adoption of the “substantial
contacts” test for RICO enterprises to limit potential venue based on acts by
members of the enterprise other than the defendant).13
The government’s conclusory and circular claims are advanced without any
38
supporting case law (other than resort to general principles inapplicable to the
particular circumstances herein – indeed, those cases, when examined in detail,
stand for the contrary rule, as detailed in Mr. Elgindy’s Initial Brief, at 64-65).
For example, in Rowe, the undercover detective testified that he viewed the
advertising for child pornography posted by Rowe while the detective was
“located” in Rockland County. 414 F.3d at 273. In contrast, here no one testified
that anything occurred while anyone was “located” in EDNY. See also Mr.
Elgindy’s Initial Brief, at 64-65.
Likewise, in United States v. Thomas, 74 F.3d 701 (6th Cir. 1996), the Court
affirmed a couple’s conviction for operating an electronic bulletin board from
which paying subscribers could download obscene images. The couple lived in
California, but were prosecuted in the Western District of Tennessee after a federal
postal inspector there, acting on the complaint of a private individual, subscribed to
the site and viewed, downloaded and then saved these images.
The Court in Thomas held that “because defendant Robert Thomas knew of,
approved and had conversed with [a bulletin board] member in that judicial
district, who had his [Thomas’s] permission to access and copy the [the images]
that ultimately ended up there[,]” venue in Tennessee was proper. Here, again in
dramatic contrast, there was no such evidence that anything was ever downloaded
14 Similarly, in United States v. Naranjo, 14 F.3d 145, 147 (2d Cir. 1994),
cited by the government, a co-conspirator made telephone calls to Manhattan
knowing that the person he was calling (an undercover agent) was in Manhattan
when those calls were made. See also United States v. Smith, 198 F.3d 377, 382
(2d Cir. 1999) (co-conspirator beeped confederate in Southern District to collect
money owed as part of Hobbs Act violation). Likewise, in United States v. Kim,
246 F.3d 186, 188 (2d Cir. 2001), the defendants knew that the invoices that
effectuated the fraud were being paid by wire transfer from Chase Manhattan bank
in the Southern District. None of that type of contact was present here with respect
to EDNY.
39
or saved in EDNY. See also Mr. Elgindy’s Initial Brief, at 65.
This Court’s recent opinion in Rommy further reinforces the distinction
between those cases in which venue was held sufficient, and this case, as well as
the conclusion that venue in EDNY was absent here. For example, in Rommy, this
Court, in holding that a telephone call from an undercover agent in the Southern
District of New York to the defendant in the Netherlands established venue in the
Southern District, the Court declined to address whether the jury should have been
instructed that the defendant had to foresee venue lying in the Southern District
because “the evidence supporting that conclusion is so compelling that, if there
was error in that omission, it was plainly harmless.” 2007 WL 3243813, at *12
(citations omitted).14
In Rommy, the evidence “establishe[d the defendant’s] knowledge that he
was being called from the Southern District of New York.” Id. In addition, “it was
40
[the defendant’s] specific conspiratorial purpose to smuggle ecstasy into New
York.” Id., at *13. Thus, this Court recognized that “this is not a case in which
venue in the Southern District of New York is the product of some ‘chance use of a
telephone’ by a government agent.” Id., citing United States v. Cordero, 668 F.2d
32, 44 (1st Cir. 1981).
Instead, as this Court explained in Rommy, “the calls here at issue were
placed from or to the Southern District of New York because [the defendant]
himself had identified New York as the desired destination point of his smuggling
scheme and was aware that individuals who could further the scheme were located
in New York.” Id. Here, any such desire, knowledge, or direction on Mr.
Elgindy’s part is glaringly absent with respect to EDNY.
The record in this case stands in stark contrast with that in Rowe, Thomas,
and Rommy, in all of which the undercover operatives testified as to their location
within the venue of prosecution, and/or in which the defendant’s intention to
conduct the offense within that venue was manifest and explicit from the record.
Here, the FBI chose not to preserve what its undercover agent monitored on
the subject sites, as former special agent David Sutherland testified during crossexamination:
Q: Did the FBI make any efforts – the FBI would have had access to this
room when it was monitoring the site at this time correct?
41
A: Yeah we could have clicked on that and probably gone into the room.
I understand that’s how it worked.
Q: Did the FBI make any efforts to in fact copy and save whatever was
going on in this room regarding NSOL on Dec 27, 2001?
A: No.
T. 6690.
Accordingly, venue did not exist in EDNY for the securities fraud counts
charged against Mr. Elgindy.
2. The Extortion Counts
The government makes similarly unavailing arguments in support of venue
in EDNY on the extortion counts for which Mr. Elgindy was convicted. Thus,
without any substantiation in case law or the record, the government asserts, in its
Brief at 80, that “Elgindy’s extortion conspiracy involved as a necessary part of the
scheme the transmission of information over his AP site to his subscribers.”
The government further contends – again without support – that “[t]he
extortion conspiracy required that Elgindy post negative information and that he
tell his subscribers to short NSOL and FLOR in order to induce the extortionate
economic fear that is a necessary element of the substantive crime of extortion.”
Government’s Brief, at 81. Yet that describes precisely conduct that is at
most merely “preparatory” in nature, and not the extortion itself. See also Mr.
42
Elgindy’s Initial Brief, at 69.
The government also relies again on WhoLovesYa, whom it claims
participated in the extortion of NSOL. Even assuming arguendo there was
sufficient evidence that WhoLovesYa’s conduct occurred in EDNY – again,
WhoLovesYa did not testify, and there was no evidence where he or she was
located when the conduct alleged occurred – the conduct allegedly performed by
WhoLovesYa does not establish venue in EDNY.
For example, in its Brief at 81, the government maintains that WhoLovesYa
“offered to investigate whether Brown possessed a license to carry concealed
weapons so as to independently verify information misappropriated by Royer.”
That conduct, though, is entirely preparatory, particularly since there was not any
evidence WhoLovesYa in fact performed any such research or communicated any
findings to Mr. Elgindy.
The same is true of the claim that WhoLovesYa “actively participated in the
AP site chatroom during an audio broadcast of a telephone conversation between
Elgindy and Brown in furtherance of the extortion.” Id. Again, that identifies
preparatory conduct and not the offense conduct itself, particularly since
WhoLovesYa was not even a co-conspirator.
The government’s claim, in its Brief at 81 n. 40, that “WhoLovesYa
15 The government’s citation to United States v. Candella, 487 F.2d 1223,
1227-28 (2d Cir. 1973) (see Government’s Brief at 82-83 n. 41), is unavailing. In
Candella, the documents including the charged false statements weresubmitted to
New York City in Brooklyn, but were later transferred to a Manhattan office,
thereby “propelling” the offense into the Southern District. No such “propulsion”
occurred here with respect to EDNY. Id.
43
participated in creating the ‘economic fear’ that induced Paul Brown to part with
NSOL shares[,]” fares no better, the government’s arguments that it was more than
merely preparatory conduct notwithstanding. It simply was not an “act or
transaction constituting the violation,” Geibel, 369 F.3d at 696, and, in light of the
case law reviewed extensively in Mr. Elgindy’s Initial Brief, at 66-69, cannot serve
as a basis for venue.
In addition, the government’s contention at 82 of its Brief, that “the site
members generally acted as co-conspirators” is unavailing and unsupported by any
testimony or case law. In fact, the opposite is true: site members testified without
any concession that they acted as conspirators. T4194-4200. See also Mr.
Elgindy’s Initial Brief, at 62, 66-67. Moreover, in its Brief at 82, the government
makes the bald claim that Mr. Elgindy’s “knowing and intentional communications
with the Eastern District, together with other contacts detailed herein, was
sufficient to establish venue.” Missing, however, are any record cites for Mr.
Elgindy’s “knowing and intentional communications with” EDNY.15
44
Consequently, venue did not exist in EDNY for the extortion counts charged
against Mr. Elgindy.
POINT III
MR. ELGINDY’S CONVICTIONS MUST BE
REVERSED AND THE CHARGES DISMISSED
BECAUSE THE GOVERNMENT’S THEORIES
OF CRIMINAL LIABILITY FOR THE SECURITIES
AND WIRE FRAUD CHARGES WERE INVALID
In its Brief, at 89, the government mischaracterizes Mr. Elgindy’s position,
seeking to convert it from one of legal insufficiency to one of factual insufficiency
– the transparent purpose, of course, being to take advantage of the more exacting
standards for challenging factual sufficiency, not only with respect to the standard
of review, but also with respect to the rule in Griffin v. United States, 502 U.S. 46,
56-57 (1991), which holds that factual sufficiency necessitates insufficiency as to
all prosecution theories, while legal insufficiency results in reversal if even one
theory of liability is found invalid.
As set forth clearly in Mr. Elgindy’s Initial Brief, at 88-109, his point in this
regard is that the government’s invalid theories, endorsed by the District Court’s
instructions, improperly allowed the jury to convict Mr. Elgindy of manipulation
and/or insider trading based on his dissemination of public and/or truthful
information, respectively. Thus, Griffin does not apply, and if either theory is
16 Also, contrary to the government’s suggestion, in its Brief at 113, merely
“shorting in order to cause share prices to fall” is not a manipulation in and of
itself. See Mr. Elgindy’s Initial Brief, at 103-104.
45
defective, Mr. Elgindy’s convictions on the securities fraud counts must be
vacated.
A. The Government’s Theory of Manipulation Is Invalid
1. Taking Credit for Prior Price Moves for Which Mr. Elgindy
Was Not Responsible Does Not Constitute Manipulation
The government repeatedly claims that Mr. Elgindy lied to his site members
and “investing public” so he could reap personal profits, see, e.g., at 111-12, but
fails to show how that constituted manipulation. In fact, the government devotes
considerable space to arguing that Mr. Elgindy inflated his capacity to influence
the market (in order to attract more subscribers to his sites), rather than focusing on
conduct of his designed to move prices themselves.
For example, in its Brief at 113, the government cites Mr. Elgindy’s backdating
of reports in order to claim impact on a price move that had already
occurred. Thus, in essence, the government argues that Mr. Elgindy was not
responsible for securities movements for which he claimed credit. Thus, he could
not have been responsible for any “manipulation” of those securities’ prices, since
his back-dating meant his actions occurred after the changes in price.16
46
Similarly, in its Brief at 114, the government contends that Mr. Elgindy
“used this misinformation to fabricate a reputation for being an influential crusader
for stock market integrity, all with the purpose of affecting the markets for his own
benefit.” Yet that conduct – “fabricat[ing] a reputation” in order to make profits –
does not describe manipulation.
Ultimately, because it lacks case support, the government resorts to reliance
on a law review article by proponents (two SEC attorneys) of a particular theory of
liability. Government’s Brief at 115-16. Other authorities cited by the
government are simply inapposite. For example, both United States v. Charnay,
537 F.2d 341, 351 (9th Cir. 1976) and Crane Co. v. Westinghouse Air Brake Co.,
419 F.2d 787 (2d Cir. 1969) (party to tender offer made substantial undisclosed
trades to deceive shareholders of another party to the transaction), arose in the
specific and peculiar context of tender offers.
2. Dissemination of Truthful Information
Does Not Constitute Manipulation
In its Brief, at 121, the government does not claim that the charge to the jury
did not permit conviction on the basis of truthful information, but only that “[t]he
clear import of the charge that the release of truthful information standing alone
17 Contrary to the government’s claim in its Brief, at 121, Mr. Elgindy did
interpose an objection to the jury charge on this issue. T. 7930-34.
18 The Wall Street Journal, in its November 1, 2004, edition (recounting the
first day of Mr. Elgindy’s trial), featured a story about the case, with the headline
reading: “When Telling the Truth is a Crime, Elgindy Faces Charges that He
Manipulated Stocks with Accurate Information,”available at
online.wsj.com.
19 In its Brief, at 130-31 & n. 59, the government disavows reliance on the
NASD’s decision (in Mr. Elgindy’s own case) that was ultimately reversed; still,
the government has not provided a single additional case supporting its theory of
liability. See Mr. Elgindy’s Initial Brief, at 92-93.
47
was not manipulative conduct.” (Emphasis in original).17 However, as set forth in
Mr. Elgindy’s Initial Brief, at 97-100, the jury charge nevertheless permitted
conviction on an invalid theory of manipulation: publication of truthful
information.18
The government also argues, in its Brief at 121, that cases establish that “a
finding of manipulation may be based upon deceptive market conduct that created
a false impression of trading activity or market demand for a stock wholly apart
from the release of any information at all.”19 Yet it was authentic trading activity
by persons in the marketplace, regardless their motives (like every other investor’s:
to make a profit by correctly guessing the direction of a stock).
In trying to substantiate its claims that Mr. Elgindy “coordinated trading by
his site members specifically to influence the price of stocks[,]” see Government’s
48
Brief, at 123, the government resorts to absurd examples that only prove the
opposite. For example, the government alleges that Mr. Elgindy “instructed AP
site members to stop ‘hitting’ (i.e., short-selling) SEVU stock because he wanted to
maintain the price at around $7 per share and threatened to cut off inside
information if his site members did not follow his directions.” Id.
The government relies solely on Mr. Cleveland’s testimony, in which
interpreted a December 12, 2000, chat excerpt – “Are we putting SEVU stock into
a nose dive now?” [Mr. Elgindy:] “No we shouldn’t be. SEVU should be about
7" – as Mr. Elgindy instructing site members to stop “hitting” SEVU to maintain
its price at $7 per share. T. 339-340.
Of course, no such language or motivation appears in that excerpt, and when
the statements are examined in context, an entirely different meaning emerges.
There was discussion on the site that day regarding whether SEVU constituted a
potential scam, and conducting due diligence. Consequently, Mr. Elgindy called
Home Depot in an attempt to confirm or disprove a public claim made by SEVU
regarding a major sale. The call was broadcast to site members in real time. A site
member then asked if the information being revealed was causing the stock price to
fall. Mr. Elgindy merely stated his opinion that the stock was not falling, and that
the stock should be in the $7 range – which in fact it was at the time. There is no
20 In Regan, unlike here, there was a tape-recorded conversation in which
one defendant explicitly directed another defendant to “step on” a stock (sell it
short) because, in relation with the issuance of a convertible bond in that security
that day based on the closing price, the former did not want the stock to close
above a certain price. 937 F.2d at 829.
49
mention of trading, shorting or not shorting, “hitting” or not “hitting” SEVU, or
“wanting” SEVU at $7. JX 28. In addition, the government doe not provide any
logical reason why Mr. Elgindy would want to prop up SEVU’s stock at $7 per
share.
The notion that Mr. Elgindy controlled a coterie of traders that moved
markets clandestinely is at the heart of the government’s claims. Thus, the
government asserts that “this conduct distorted the integrity of the market by
creating the misleading appearance that many separate investors were making
independent investment decisions about when and what prices to trade whereas in
fact their transactions were being secretly orchestrated by Elgindy.” Government’s
Brief, at 129, citing United States v. Regan, 937 F.2d 823, 829, amended 946 F.2d
188 (2d Cir. 1991) (“artificial” depression of prices without disclosure is an
omission of material fact).20
There are several problems with that theory of manipulation in this and other
contexts: (1) the government describes conduct that occurs every day in the
securities markets: brokers, analysts, and others, operating with the consent of
50
their clients, execute trades based on one person’s or one institution’s
recommendation. Those trades might to the outsider reflect independent decisions
by each individual investor, but in fact they reflect merely a group of investors’
decision to defer to an expert in the field. To the extent site members traded in
accordance with Mr. Elgindy, that conduct was no more misleading or
manipulative; (2) the site members were making independent decisions. Mr.
Elgindy did not make their trades. Site members did, and Mr. Elgindy did not have
any means to make those trades for the site members, or monitor the trades they
did make. Thus, like with any other investor paying for advice from a securities
analyst, site members were free either to follow Mr. Elgindy’s lead, or exercise
their own judgment – a judgment that Mr. Elgindy lacked any ability to halt or
monitor.
The government’s assertion that Mr. Elgindy instructed his site members on
how and when to trade stocks is refuted by testimonial record, and certainly
appears nowhere in the trading records. For example, government witness Robert
Hansen, the site administrator, testified that he made “own decisions,” that site
members “shorted and covered at their own pace,” and “whether or not someone
followed the call was completely up to them and they could cover when they
wanted to.” T. 2726. See also T. 2112-13.
51
Similarly, Peter Michaelson testified that he believed in the trades he was
making, and believed that the site members that he knew and interacted with
believed in the trades they were making. T. 5377. The government did not call a
single witness who claimed Mr. Elgindy had any power or control over any of their
trading decisions. Nor does the government offer any evidence or any explanation
as to how Mr. Elgindy could have known if anyone traded along with his trading
calls or ignored them.
At one point, the government goes so far as to contend that not trading
constitutes manipulation: Mr. Elgindy “interfered with trading that his site
members would otherwise have conducted and used the power of the site, as
opposed to natural forces, to set the price of the stock.” Government’s Brief, at
125 (emphasis added). Of course, there was no way Mr. Elgindy could determine
what trades his site members were – or were not – making (or whether they were
buyers or sellers in a particular stock), or stop them from trading as they wished.
B. The “Honest Services” Wire Fraud Counts
Require a Duty of Loyalty That Is Absent Here
The government’s contention that “honest services” mail fraud under 18
U.S.C. §1346 does not require a duty of loyalty akin to a fiduciary duty misstates
the law of this Circuit as set forth en banc in United States v. Rybicki, 354 F.3d
124, 140-42 (2d Cir. 2003) (en banc). See Mr. Elgindy’s Initial Brief, at 104-
21 This Court’s opinion in United States v. Szur, 289 F.3d 200, 209 n. 5 (2d
Cir. 2002), does not hold differently. Not only was it decided prior to this Court’s
en banc treatment of the issue in Rybicki, but in Szur this Court noted that “honest
services” fraud nevertheless required breach of a duty (such as an employee owes
an employer or an agent owes a principal). Mr. Elgindy did not owe any such duty
in this case.
52
105.21
Moreover, a conflict of interest becomes a denial of an intangible right to
honest services when it materially affects the caliber of the services rendered. See
United States v. Miller, 997 F. 1010, 1020 (2d Cir. 1993). See also Mr. Elgindy’s
Initial Brief, at 107.
Thus, the government’s citation to the duty owed in a broker-customer
relationship regarding “those matters entrusted to the broker[,]” is inapposite
because no such relationship, understanding, obligation here existed between Mr.
Elgindy and the site members. Similarly, the government’s assertion at 135 of its
Brief invalid as a matter of law: “[t]he jury could thus reasonably find that, by
undertaking to direct his subscribers’ investment decisions in exchange for large
fees, Elgindy assumed the obligation to act for the subscribers’ benefit and
therefore to provide them with his honest services.”
Miller and other cases establish otherwise: the scope of such a relationship
is case-specific and defined by the parties. Nothing in record suggests that type of
53
relationship, and site disclaimers in fact establish the opposite: Mr. Elgindy
affirmatively disavowed such an obligation.
Also, the government’s implication that the size of the fee somehow defines
the scope of the relationship or the obligation is specious and without any
foundation – factually (nothing in the record suggesting that site members thought
their “large fees” were purchasing that type of relationship with Mr. Elgindy) or
legally (no case law).
Accordingly, because the government’s theories of liability were invalid, the
securities fraud and wire fraud counts must be reversed and those counts
dismissed.
54
POINT IV
MR. ELGINDY’S CONVICTIONS ON THE
INSIDER TRADING CHARGES SHOULD BE
REVERSED AND DISMISSED BECAUSE
THE PROOF WAS INSUFFICIENT AS A
MATTER OF LAW, AND/OR BECAUSE THE
JURY INSTRUCTIONS WERE ERRONEOUS
A. The Government’s Definition of “Non-Public Information” Is
Too Expansive and Represents a Misconstruction of Case Law
In its Brief, at 104, the government, relying on SEC v. Mayhew, 121 F.3d 44,
50 (2d Cir. 1997), argues that Mr. Elgindy “disseminated nonpublic information to
a select group of persons – his subscribers – in order to further the conspiracy of
which he was convicted. He disclosed certain information to his probation officer.
That simply is not the type of disclosure that converts nonpublic information into
public information.” The government then cites Mayhew’s language that
nformation becomes public when disclosed “to achieve a broad dissemination
to the investing public generally and without favoring any special person or
group,”Dirks v. SEC, 463 U.S. 646, 653 n. 12, 103 S.Ct. 3255, 3261 n. 12, 77
L.Ed.2d 911 (1983) (citing In re Faberge, Inc., 45 S.E.C. 249, 256 (1973))[.]”
However, that ignores the prior sentence in Mayhew: : “[o]f course, trading
based on public information does not violate § 14(e).” See United States v.
Libera, 989 F.2d 596, 601 (2d Cir.1993). In addition, Mayhew involved
22 Indeed, in the very next sentence, the context becomes altogether clear:
“‘[t]o constitute non-public information under the act, information must be specific
and more private than general rumor.’” 121 F.3d at 50, quoting United States v.
Mylett, 97 F.3d 663, 666 (2d Cir.1996). See also id., (“[o]n the other hand,
information may be nonpublic within the meaning of the 1934 Act even though it
does not reveal all the details of a tender offer”). Ironically, if that principle
applied in this case, any information Mr. Elgindy received from Mr. Royer (as
opposed to that which Mr. Elgindy generated by his own investigation) would not
rise to that level, since it was predominantly not “specific or more private than
general rumor,” since that is what the SEC and FBI investigations were premised
upon.
55
information communicated by corporate insiders in the specific context of a
suspected tender offer.22
Accordingly, in Mayhew this Court did not in any way intend, or hold, that
persons exercising due diligence in research and analysis, and thereby obtaining
information available to anyone else exercising the same, are trading on inside
information when they either (a) trade on such information; or (b) communicate
it to a select group. Otherwise, all Wall Street analysts at the major brokerage
firms would be violating the law with each recommendation to their specific
paying customers.
The entire securities research business endeavors daily to gain information
which can be turned into market advantage by anticipating price moves. For
instance, analysis and research firms perform “channel checks” in which they call
customers of target companies’ products in order to assess the strength of a
56
company’s future business, the accuracy of its projections, and ultimately
challenge or confirm its value as reflected by the market. The research firms visit
retail stores and count customers, as well as size of inventory. They then provide
this research exclusively to their clients for their and their clients’ financial
advantage.
Application of the Mayhew principle outside its peculiar context of tender
offers would make the legitimate gathering of information – what is undeniably
lawful – a crime. In utilizing this jury charge the District Court failed to allow for
an investor or securities professional honestly and legitimately to discover
information that is not widely known.
In addition, the instruction in the context of this case ignores the fact that
there is no requirement for an investor who, through his own lawful hard work,
research and due diligence, learns of a “material” fact not known or disclosed by
the company, to share that information nor abstain from trading the related
security, even if he is the only person with that information.
Moreover, there is no restriction with whom that investor may or many not
share that information. Nor is there any requirement imposed on that investor,
before he can trade on that information, to publish it and then wait for the
information to become impounded into the price. As a result, the jury charge had
23 The government also backs off any categorical assertion that Mr.
Elgindy’s information was all nonpublic (see, e.g., Government’s Brief at 113):
“Elgindy never disclosed to the public that at least a portion of information
included in his InsideTruth reports was misappropriated from the FBI and SEC.”
(Emphasis added). See also id., at 115 ( “[w]hile much of the information about
particular stocks that Elgindy disseminated was, in itself true, Elgindy used
deceptive means to exaggerate the affects [sic] of that information in the
marketplace”).
57
the effect of converting all the information Mr. Elgindy and his site members
legally obtained into “non-public” information, and failed to take into account the
realities of the public stock market.23
Accordingly, the government’s insider trading theory, abetted by the District
Court’s incorrect instruction, was invalid, and Mr. Elgindy’s convictions on those
counts must be reversed and/or vacated.
POINT VI
MR. ELGINDY’S SENTENCE MUST BE VACATED
AND REMANDED FOR RE-SENTENCING
BECAUSE THE SENTENCE IMPOSED BY THE
DISTRICT COURT WAS UNREASONABLE, AND
BECAUSE THE FORFEITURE JUDGMENT
IMPOSED UPON HIM WAS ERRONEOUS
Regarding Mr. Elgindy’s sentence, the government fails to confront directly
Mr. Elgindy’s two principal points: (1) that the sentence on the false statements
indictment was unreasonable because it was ten times greater than the appropriate
Sentencing Guidelines level, and was imposed without any explanation why it was
58
higher than the Guidelines level at all, much less ten times that; and (2) that the
District Court failed to articulate any basis for the gain figure it ultimately
employed in calculating Mr. Elgindy’s Guidelines level for the RICO and
securities fraud indictment. Those computation errors also infect the District
Court’s forfeiture computation. See Mr. Elgindy’s Initial Brief, at 139.
A. The Sentence the District Court Imposed in
the False Statements Case Was Unreasonable
While the District Court complied with 18 U.S.C. §3147, as the government
notes in its Brief, at 159, by sentencing Mr. Elgindy to a consecutive term of
imprisonment in his false statements case, it failed to explain, either under the
Guidelines or 18 U.S.C. §3553(a), how it arrived at a figure of 27 months.
The sole explanation provided for the District Court’s sentence of 27 months
is that it used the “one book” rule and calculated the difference between the
sentence the for the securities fraud indictment, 108 months, and the bottom of the
Guidelines range, 135 months. However, the District Court never explicitly stated
that reason. In fact, at one point the District Court even stated that the “one book
rule” was not applicable:
[w]e have this other rule . . . so-called One Book Rule
which, I think, has been, to a large extent, modified of
necessity, in this case may be one of those unusual cases
where the One Book Rule doesn’t really have a lot of –
make a lot of sense frankly.
59
Transcript, March 22, 2006, at 7.
Also, Mr. Elgindy’s two cases are completely unrelated for Guidelines
analysis purposes. They are not groupable and were completely distinct in time,
kind and harm. As a result, the government’s claim, in its Brief at 168-169, that
Mr. Elgindy ignores U.S.S.G. §5G1.2, is simply incorrect, and is refuted by the
government’s own positions previously advanced in the District Court.
The government even conceded below that the securities fraud offenses and
false statements offenses are not groupable (Government Sentencing Memo at 78-
80; Pre-Sentence Report [hereinafter “PSR”] at ¶ 142), thereby leaving only one
category of relevant conduct that is even potentially applicable in this
circumstance. See §1B1.3(a)(1) (relevant conduct includes conduct “that occurred
during the commission of the offense of conviction, in preparation for that offense,
or in the course of attempting to avoid detection or responsibility for that offense”);
§1B1.3(a)(2) (relevant conduct includes conduct that was “part of the same course
of conduct or common scheme or plan as the offense of conviction . . . solely with
respect to offenses of a character for which §3D1.2(d) would require grouping”).
However, the securities fraud conduct simply does not fit within this
framework, and those sections are inapplicable. Also, unlike the securities fraud
case, in the false statements case Mr. Elgindy pleaded guilty and accepted
60
responsibility. The District Court never indicated there was any reason or unusual
factor warranting sentencing Mr. Elgindy to anything greater than what the
advisory Guidelines prescribed. Nor did the District Court ever articulate any
reason or explanation justifying such an excessive sentence. As a result, Mr.
Elgindy’s sentence of 87 months for the false statements case is clearly
unreasonable.
1. The District Court Erred in Failing to Explain Its Reasons for Such
a Dramatic Departure from the Recommended Guidelines Range
Even the government agreed below with Mr. Elgindy’s Guidelines range
calculation of 2-8 months, and the PSR’s recommended a range of 4-10 months for
the false statements sentence, with the understanding that some portion of that
sentence was to run consecutively to the sentence in the securities fraud case.
However, without explaining its reasoning, the District Court disregarded all three
recommendations and fashioned a sentence that was multiples of any of the
proposed ranges – in excess of seven years, or nine times the high end of the
highest recommended range.
In United States v. Lewis, 424 F.3d 239 (2d Cir. 2005), this Court held that a
cursory statement of reasons for an enhancement is insufficient to provide “an
opportunity for understanding both the system in general and its workings in the
particular case.” Id. at 247. A complete statement of reasons is also necessary for
61
“adequate appellate review and to assess whether the sentence imposed was plainly
unreasonable.” Id. at 246 (internal quotations omitted).
Therefore, it is respectfully submitted that Mr. Elgindy’s sentence on the
false statements case was procedurally and substantively unreasonable, and, as a
result, the matter must be remanded for re-sentencing.
B. Mr. Elgindy Vigorously and Comprehensively
Challenged the Government’s Calculation of Gain
In its Brief, at 161, the government makes the stunningly inaccurate claim
that “at no time did Elgindy . . . argue that the government’s calculation was
incorrect or unsupported by relevant trading records.” In fact, without Mr.
Elgindy’s comprehensive objections to the calculations, which involved hundreds
of pages of briefing related to sentencing, there would not have been any reason for
the government to continue revising downward its initial gain calculations. See
Mr. Elgindy’s Initial Brief, at 139-142.
At the conclusion of the initial sentencing hearing (which occurred March
22, 2006), the District Court itself recognized the concerted effort Mr. Elgindy
made to refute the government’s figures, calculations, and conclusions. Noting the
numerous issues that remained contested, the District Court stated it would make
its own guideline calculations:
I’m certainly not going to complete the proceedings
62
today, but I thought I would have these discussions
before we recess. I think it’s important that I write on
some of these issues, at least because they’ll be
scrutinized carefully, as they should be, on appeal. Leave
to sentencing day arguments related to 3553(e), which
I’ve already read of course, so that the next time we
convene, you’ll have my views on what the I believe to
be the correct calculation of the advisory guidelines, and
we’ll proceed then to the statutory issues and sentencing
at our proceeding.
Transcript, March 22, 2006, at 50.
The District Court also acknowledged that it was Mr. Elgindy’s counsel who
had provided the most detailed analysis of the computation:
MR. BERKE: We think that the number of four conviction stocks are
the right stocks. And the government has not presented,
really any evidence that satisfies, even at a
preponderance standard to go beyond those four. We’ve
identified a variety of reasons why I believe we could go
through what the proof – and some of these stocks were
barely mentioned. There was a search. They are the
principal stocks, which you know, are the conviction
stocks and the acquittals-acquittal stocks and I believe
they were identified in specific counts for a reason. But
we can go through more, but I think we've just
highlighted, Judge, certainly over half of the 32. – And I
think there is similar arguments that apply to other of
these, why the only proper stocks to look at are the four
conviction stocks.
THE COURT: It’s rather painstaking, as your arguments demonstrate.
I’m not inviting any additional submissions, but I may
solicit from you both information from the trial record
about specific stocks.
24 Last month, in United States v. White, 503 F.3d 487 (6th Cir. 2007), the
panel noted that in the absence of another opinion in that Court rendered two
months earlier, in United States v. Mendez, 498 F.3d 423 (6th Cir. 2007), it would
63
Transcript, March 22, 2006, at 50-51.
However, three months later, when Mr. Elgindy was sentenced, the District
Court did not issue any opinion, or provide any basis for its ultimate conclusions
why it adopted the particular gain amount it chose. Instead, the District Court
simply adopted the government’s latest revised total, $1.5 million, without any
additional explanation or analysis. While the government’s set of revised figures
was not accompanied by any breakdown by securities, or trading records, or any
other documentary support, the District Court nevertheless found that it reflected
the “big-picture” of the case. A1141.
The government itself concedes that the inclusion of the 28 additional stocks
beyond the four securities related to counts of conviction, and the gains reaped by a
variety of other traders, was designed to “capture the scope of Elgindy's role in
leading the racketeering conspiracy.” For obvious reasons, the government ignores
the fact that the $1,568,000 figure includes more than $1,400,000 in gains that Mr.
Elgindy earned legitimately. Yet the District Court merely accepted the
government’s numbers without requiring that they be proved by any standard,
preponderance or otherwise.24 See Mr. Elgindy’s Initial Brief, at 151-153.
have reversed a 14-year upward adjustment of a sentence based on acquitted
conduct. The panel in White did “strongly recommend[] that counsel for the
defendant file a petition for en banc rehearing on the question of whether the
continuing use of acquitted conduct as a sentencing enhancement violates United
States v. Booker, 543 U.S. 220 (2005), particularly in light of the language in Judge
Stevens’ opinions at pages 240 and 278 and Justice Breyer’s opinion in Booker at
page 251.” 503 F.3d at 487-88. The panel also stated it would “strongly
recommend” rehearing en banc should such a petition be filed. Id., at 488. It is
respectfully submitted that this Court should also consider this important issue en
banc.
64
That renders Mr. Elgindy’s sentence both procedurally and substantively
unreasonable. See Mr. Elgindy’s Initial Brief, at 143. The government’s attempt
in its Brief to provide a post hoc rationale for how the District Court might have
explained its calculations does not suffice.
C. The Government Mischaracterizes Mr. Elgindy’s
Position Regarding Disparity Between Him and Mr. Daws
In its Brief, at 167, the government disingenuously miscasts Mr. Elgindy’s
argument. He is not seeking, and has never asked for, the same sentence as Mr.
Daws. However, nothing the government (or the District Court, or Mr. Daws’s
counsel) has proffered provides any justification for the drastic difference in their
sentences. The disparity that is unwarranted is the vast gulf between their
sentences: probation for Mr. Daws, without any forfeiture, and 108 months for
Mr. Elgindy (for the RICO and securities case, with an additional 27 months
consecutive for the false statements case), and a $1.56 million forfeiture judgment.
65
The government’s attempts, in its Brief, at 167, to minimize Mr. Daws’s
conduct (and thereby distinguish it from Mr. Elgindy’s) are belied by the record
created by the government itself. For example, contrary to the government’s
claims, Mr. Daws repeatedly disseminated on RC Chat information that he
received from Messrs. Royer, Cleveland and Elgindy, without Mr. Elgindy’s
knowledge.
For example, on March 1, 2001, at 16:36, Mr. Daws reports on RC Chat,
“OK, I got news for this site only. No one repeats this OK, just talked to FBI
agent, OSIN under investigation by SEC.” See Mr. Elgindy’s December 23, 2005,
Sentencing Memorandum, at 78. Thus, rather than merely being a “passive
recipient” of information, Mr. Daws was an active disseminator. He also directed
trading on the information: “I am going to encourage him to short a little OSIN
tomorrow.” Id. See also Mr. Elgindy’s Initial Brief, at 147-150.
Moreover, as the government argued to the District Court in its second
pretial in limine motion, Mr. Daws, “known on the RC Site as ‘Archer,’
‘Trebuche[t]’ and ‘Trebear,’ offered a variety of manipulative suggestions” and
discussed using Mr. Elgindy and other members of the Anthonypacific.com site
without their knowledge. Government’s Second In Limine Motion, at 29-39. In
addition, it was RC Chat, not Anthonypacific.com, that discussed manipulative
66
tactics such as “carpet bombing,” “price walls,” and “painting the tape.” Id. Yet
all are erroneously referenced in Mr. Elgindy's PSR as devices in which Mr.
Elgindy engaged. PSR, at ¶¶ 37-39.
Even accounting for Mr. Elgindy’s Criminal History Category of III, and
without any adjustment for acceptance of responsibility because he chose to go to
trial, if Mr. Elgindy were otherwise treated the same as Mr. Daws (despite the fact
that his gain from the offense was significantly less than Mr. Daws’s), Mr.
Elgindy’s Guidelines range would be 33-41 months. Even accounting for the
extortion conviction, if Mr. Elgindy were otherwise treated the same as Mr. Daws,
his Guidelines range would be 41-51 months. Consequently, the disparity between
probation and 135 months is precisely the unwarranted type that 3553(a)(6)
proscribes. See also Mr. Elgindy’s Initial Brief, at 132-134.
D. The Forfeiture Judgment Imposed on Mr. Elgindy Was Erroneous
1. Gains Related to BGII Should Not Have Been Included
As set forth in Mr. Elgindy’s Initial Brief, at 144-145, a particular security,
BGII, which was not the subject of a substantive count in the Indictment, accounts
for more than one-third of the total gain attributed to Mr. Elgindy for Guidelines
and forfeiture purposes. However, gains related to BGII should not have been
included for Guidelines or forfeiture purposes.
67
The government’s evidence regarding BGII was limited to Mr. Cleveland’s
testimony that he learned of “raids” by the “Texas Rangers,” and of an SEC
investigation into BGII, from Mr. Royer in December 2001, and that he forwarded
that information. T. 908-10. The government did not introduce any evidence of
telephone calls with anyone at the SEC or with the Texas Rangers.
The full picture establishes that Mr. Cleveland’s testimony regarding BGII
cannot be credited, and fails even when evaluated by a preponderance standard.
According to GX-JL-1 Mr. Royer did not perform any searches related to BGII.
Also, other documents demonstrated that the information about the Texas Rangers
came from an October 2001 newspaper article that was available on the internet.
DX 3534. In fact, DX 5322 is an email from Mr. Elgindy to SEC attorney Brent
Baker containing that article.
In addition, Mr. Cleveland’s testimony that Mr. Royer had told him that the
SEC investigation had become an “official investigation” in December of 2001
was directly and dispositively contradicted by SEC Attorney Douglas Gordimer,
who testified at trial that the formal investigation into BGII was based on the
InsideTruth.com report about BGII that Mr. Elgindy wrote and then published in
January 2002. T. 3640; DX 12120. Mr. Gortimer further testified that nobody at
the SEC had been looking at BGII until he read Mr. Elgindy’s report. Id.
68
As a result, the inclusion of BGII in Mr. Elgindy’s Guidelines calculations
and forfeiture judgment was clearly erroneous.
2. The Government Still Refuses to Address the Imclone Amounts
Imclone (IMCL) is another stock that accounts for a significant portion of
the $ 1.56 million forfeiture judgment. However, Mr. Elgindy never shorted
IMCL, never made a trading call on IMCL, never discussed IMCL, and never
possessed any non-public information regarding the stock. Mr. Elgindy presented
a detailed analysis of the evidence regarding IMCL in his August 8, 2005, Memo
of Law opposing forfeiture, at19-20, demonstrating that he clearly did not receive
or trade on any law enforcement information about IMCL, and could not have
foreseen anyone else trading on such information. See also Mr. Elgindy’s Initial
Brief, at 146 n. 53.
There is no evidence anywhere in the record anywhere that Mr. Royer
provided anyone else any confidential information about IMCL. The government
did not address IMCL in any of its submissions below, and fails to do so in its
appellate Brief. In fact, IMCL is conspicuously absent from the government
sentencing memorandum’s list of stocks about which Mr. Elgindy allegedly
received law enforcement information. Government Sentencing Memo, at 13 n. 3.
Consequently, the amount attributable to IMCL should be removed from the
69
gain and forfeiture amounts, as its inclusion was clearly erroneous. Accordingly,
the matter should be remanded for re-sentencing and reduction of the forfeiture
judgment against Mr. Elgindy.
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Conclusion
Accordingly, for the reasons set forth above, as well as in Mr. Elgindy’s
Initial Brief, it is respectfully submitted that Mr. Elgindy’s convictions should be
reversed and the charges dismissed, or that the convictions should be vacated and a
new trial ordered, or that Mr. Elgindy’s sentencing and forfeiture judgment be
vacated, and the matter remanded for re-sentencing.
Dated: November 28, 2007
New York, New York
Respectfully submitted,
JOSHUA L. DRATEL
JOSHUA L. DRATEL, P.C.
2 Wall Street
Third Floor
New York, New York 10005
(212) 732-0707
jdratel@joshuadratel.com
Attorneys for Defendant-Appellant
Anthony Elgindy
– Of Counsel –
Joshua L. Dratel
Meredith S. Heller
Message 24093765
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