United States v. Cuti
720 F.3d 453
| 2d Cir. | 2013Background
- Defendants Anthony Cuti (former CEO/Chairman) and William Tennant (former CFO) of Duane Reade were convicted after a jury trial for securities fraud and related offenses based on schemes (2000–2004) that inflated reported earnings by fabricating sales of real-estate lease concessions and repaying counterparties through sham fees.
- The principal counterparty was Winick Realty Group (WRG); WRG paid large sums for concession rights that were essentially valueless, and Duane Reade returned payments via padded brokerage fees and sham consulting agreements.
- PwC (outside auditor) and John Henry (in-house accountant) were deceived because defendants concealed side agreements and payments; PwC required disclosure that no side agreements existed in SEC filings.
- The government called Kevin Hallinan (PwC partner) and John Henry to testify how the transactions were and would have been accounted for under GAAP and SEC guidance, including answering "what-if-you-had-known" hypotheticals about withheld facts.
- Cuti challenged admission of those non-expert accounting witnesses’ hypothetical testimony as improper expert opinion or lacking personal knowledge; Tennant challenged sufficiency of evidence of his knowledge and objected to a conscious-avoidance jury instruction.
- The Second Circuit affirmed: the district court did not abuse its discretion admitting the lay-accountant testimony, the evidence supported Tennant’s knowledge, and the conscious-avoidance instruction was properly given.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Admissibility of non-expert "what-if-you-had-known" accounting testimony | Government: testimony was factual or permissible lay opinion based on witnesses’ personal knowledge and established accounting rules | Cuti: questions elicited inadmissible expert opinion or testimony beyond personal knowledge | Testimony admissible as fact and alternatively as lay opinion under Fed. R. Evid. 602 and 701; district court did not abuse discretion |
| Rule 701/702 boundary (specialized accounting knowledge) | Gov: witnesses applied undisputed rules to newly revealed facts; reasoning was transparent | Cuti: accounting is specialized; testimony required expert qualification under Rule 702 | Court: testimony not rooted exclusively in specialized expertise; it addressed impact of known rules and was within lay-opinion limits |
| Sufficiency of evidence that Tennant knew of fraud | Government: Tennant signed/approved sham documents, set sham values, devised return-payment vehicles, and participated in meetings—supporting knowledge inference | Tennant: lacked proof he knew or was present at meetings; evidence as consistent with innocence | Viewing evidence in the light most favorable to the Government, the totality of facts permitted a rational juror to find Tennant knew (or was willfully blind) of the fraud |
| Appropriateness of conscious-avoidance instruction | Government: evidence supported either actual knowledge or conscious avoidance; charge proper where knowledge disputed | Tennant: insufficient factual predicate for conscious-avoidance instruction; prejudicial | Charge appropriate because evidence permitted inference of awareness of a high probability of wrongdoing and deliberate avoidance; district court did not err |
Key Cases Cited
- United States v. Robinson, 702 F.3d 22 (2d Cir.) (deference to district court evidentiary rulings)
- Bank of China, N.Y. Branch v. NBM LLC, 359 F.3d 171 (2d Cir.) (specialized knowledge doesn’t automatically make testimony expert if based on investigation)
- United States v. Rigas, 490 F.3d 208 (2d Cir.) (accountant’s testimony about accounting impact admissible as lay opinion)
- United States v. Ebbers, 458 F.3d 110 (2d Cir.) (standards for conscious-avoidance charge)
- United States v. Kozeny, 667 F.3d 122 (2d Cir.) (same-evidence inference for actual knowledge and conscious avoidance)
- Kotteakos v. United States, 328 U.S. 750 (U.S.) (harmless-error standard)