United States v. Gaines
2:21-cr-00266
D. Ariz.Jan 24, 2022Background
- Defendant Ira Gaines was subject to a 2004 SEC injunction barring certain securities transactions and is indicted for a 2017 scheme involving microcap stocks (CURR, GRNH, LVVV, ADMQ).
- Alleged scheme: Gaines used nominees to conceal true ownership, had an attorney ("Attorney 1") issue opinion letters converting restricted shares to unrestricted, and hired promoters to inflate prices.
- Alleged proceeds exceeded $800,000; indicted on conspiracy (18 U.S.C. § 371), securities fraud (15 U.S.C. § 78j(b); Rule 10b-5), wire fraud, money laundering, and aggravated identity theft.
- Gaines moved to dismiss the indictment for lack of specificity and other defects; the Government opposed.
- The court reviewed the four corners of the indictment, accepted its allegations as true for the motion-to-dismiss posture, and denied the motion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Specificity of indictment | Indictment alleges purpose, overt acts, and factual detail sufficient to notify defendant | Indictment fails to identify specific misrepresentations (relying on Curtis) | Denied — indictment is sufficiently detailed and reads as whole to give notice |
| Applicability of Exchange Act (domestic transaction) | Some transactions are domestic because sellers/nominees or purchasers were in the U.S. | Some alleged sales (e.g., GRNH) were overseas, so §10(b) does not apply | Counts tied to domestic sellers/purchases survive; allegations that sales were overseas may fail for those specific transactions |
| Identification of wire-fraud victims | Victims are market participants (investors) harmed by deception in the market | Indictment does not identify specific victims | Denied — indictment adequately alleges object was to obtain money from market participants |
| Materiality of misstatements | Indictment alleges material misstatements/omissions and courts accept allegations at this stage | Indictment fails to plead materiality with specificity | Denied — materiality adequately alleged; evidentiary detail not required on dismissal motion |
| Conspiracy under 18 U.S.C. § 371 | Government charges conspiracy to commit offenses against the U.S., alleges agreement, overt acts, and intent | Defendant argues government pursued a §371 "defraud the United States" theory or failed to plead elements | Denied — indictment alleges an agreement to commit offenses, overt acts, and requisite intent (proper §371 charge) |
Key Cases Cited
- United States v. Buckley, 689 F.2d 893 (9th Cir.) (indictment sufficient if it alleges elements and notifies defendant)
- Hamling v. United States, 418 U.S. 87 (U.S. 1974) (indictment must state facts and circumstances to inform the accused)
- United States v. Cochrane, 985 F.2d 1027 (9th Cir.) (government need not plead theories or evidence in indictment)
- United States v. Curtis, 506 F.2d 985 (10th Cir.) (indictment insufficient when it leaves scheme and false representations speculative)
- Morrison v. National Australia Bank Ltd., 561 U.S. 247 (U.S. 2010) (Exchange Act applies only to domestic transactions)
- Stoyas v. Toshiba Corp., 896 F.3d 933 (9th Cir.) (adopted Absolute Activist test for domestic transactions)
- Absolute Activist Value Master Fund Ltd. v. Ficeto, 677 F.3d 60 (2d Cir.) (transaction domestic if irrevocable liability incurred in U.S. or title transferred in U.S.)
- Kelly v. United States, 140 S. Ct. 1565 (U.S. 2020) (wire fraud protects money/property of victims; scheme must target a victim)
- McNally v. United States, 483 U.S. 350 (U.S. 1987) (wire fraud defined as schemes to deprive victims of money or property)
- United States v. Lew, 875 F.2d 219 (9th Cir.) (must allege intent to obtain money/property from victim)
- United States v. Boren, 278 F.3d 911 (9th Cir.) (district court bound by four corners of indictment on pretrial dismissal)
- United States v. Johnson, 297 F.3d 845 (9th Cir.) (elements required for conspiracy to commit an offense against the U.S.)
- United States v. Caldwell, 989 F.2d 1056 (9th Cir.) (elements of conspiracy to defraud the United States)
- United States v. Jensen, 93 F.3d 667 (9th Cir.) (motion to dismiss is not a substitute for trial evidence)