ORDER DENYING MOTION FOR NEW TRIAL
Defendant Stephanie Jensen moves this Court for a new trial, arguing that there are five justifications for overturning the jury’s guilty verdict: (1) the Court’s jury instruction for “willful” was erroneous; (2) the Books & Records statute is void for vagueness; (3) Congress precluded conspiracy liability for a Books & Records charge; (4) the Court failed to instruct the jury that, to be convicted, Jensen had to know the backdated documents affected Brocade’s financial statements; and (5) there is a reasonable probability that newly discovered evidence would lead to a different outcome on retrial. For the reasons set forth below, Jensen’s motion is DENIED.
Background
On December 5, 2007, a jury convicted Stephanie Jensen of falsifying Brocade’s books, records, and accounts in violation of 15 U.S.C. § 78m(b)(2)(A), id. § 78m(b)(5), id. § 78ff(a), and of conspiracy to falsify books, records, and accounts in violation of 18 U.S.C. § 371.
Federal Rule of Criminal Procedure 33 empowers the Court to “vacate any judgment and grant a new trial if the interest of justice so requires.” “The district court need not view the evidence in the light most favorable to the verdict; it may weigh the evidence and in so doing evaluate for itself the credibility of the witnesses.”
United States v. Alston,
Discussion
I. Jury Instructions for “Willfully” & “Knowingly”
Jensen’s primary argument for a new trial is that the Court erred when it instructed the jury that “[t]o prove that Ms. Jensen acted willfully, the government must prove beyond a reasonable doubt that Ms. Jensen intentionally falsified or caused to be falsified books, records or accounts, knowing the falsification to be wrongful.” According to Jensen, “willfully” should have been defined as “knowing one’s conduct is unlawful,”
Ratzlaf v. United States,
A. Meaning of ‘Willful” as Used in § m
Willful is a word of many meanings and its construction is often influenced by its context.
See, e.g., id.
at 141,
Section 78ff(a), the penalty provision of the Securities Exchange Act of 1934, provides:
Any person who willfully violates any provision of this chapter (other than section 78dd-l of this title), or any rule or regulation thereunder the violation of which is made unlawful or the observance of which is required under the terms of this chapter, or any person who willfully and knowingly makes, or causes to be made, any statement in any application, report, or document required to be filed under this chapter or any rule or regulation thereunder or any undertaking contained in a registration statement as provided in subsection (d) of section 78o of this title, or by any self-regulatory organization in connection with an application for membership or participation therein or to become associated with a member thereof, which statement was false or misleading with respect to any material fact, shall upon conviction be fined not more than $5,000,000, or imprisoned not more than 20 years, or both, except that when such person is a person other than a natural person, a fine not exceeding $25,000,000 may be imposed; but no person shall be subject to imprisonment under this section for the violation of any rule or regulation if he proves that he had no knowledge of such rule or regulation.
(Emphasis added). As with any other exercise in statutory interpretation, the Court must “look first to the statutory language and then to the legislative history if the statutory language is unclear.”
Thankfully, the Court’s task is made easier by the fact that the Ninth Circuit has already interpreted the meaning of “willfully” as Congress used that term in § 78ff(a). In
United States v. Tarallo,
The Ninth Circuit’s reasoning was based on the structure and language of § 78ff as a whole. The court observed that § 78ff(a) consists of three distinct parts. See id. at 1187, 1188; see also William B. Herlands, Criminal Law Aspects of the Securities Exchange Act of 1931, 21 Va. L.Rev. 139, 141 (1934). First, the statute contains a “general provision” that governs violations of “any provision” of the Securities Exchange Act, or “any rule or regulation” the violation of which is made unlawful or the observance of which is required by the express terms of the Act. This general provision — which governs in this case, as in Tarallo — imposes criminal liability on a finding of willfulness. Second, the statute .contains a “specific provision” that governs false or misleading misstatements of material facts contained in documents, applications, or reports which are required to be filed under the Act or any rule or regulation. The specific provision imposes criminal liability upon a finding of willfulness and knowledge. Third, § 78ff contains a provision concerning punishment upon conviction, which precludes imprisonment in the case of a violation of any rule or regulation if the defendant proves that he had no knowledge of such rule or regulation.
Putting these three provisions together, the Ninth Circuit concluded that the general provision can be triggered even where the defendant does not know that his actions were unlawful. According to the logic of
Tarallo,
the general provision’s use of the word “willfully”
cannot
mean “with knowledge that one’s conduct violated a provision or rule or regulation,” or else “there would be no need to proscribe imprisonment ... for someone who acted
without
knowing that he or she was violating a rule or regulation. Such a person could not have been convicted in the first place.”
Tarallo,
Jensen argues that Tarallo’s logic is flawed because it misreads the intent standard established by § 78ffs imprisonment provision. According to Jensen, the imprisonment provision only precludes imprisonment where the defendant proves they lacked knowledge of “a
specific
rule or regulation.” Motion at 15 (emphasis in original). By contrast, Jensen reads the general provision as requiring proof that the defendant knew her “conduct was
unlawful.” Id.
(emphasis in original). Under Jensen’s interpretation, it would be consistent to require proof that the defendant knew her conduct was
unlawful
for
conviction
and to require the defendant to
Jensen is correct that her interpretation would resolve the conflict identified by
Tarallo,
and the interpretation is at least plausible. Of course, the problem is that her argument is directed at the wrong court. The Ninth Circuit has unambiguously held that “willful,” as used in § 78ff s general provision, requires merely proof that the defendant knew her conduct was wrongful and this Court cannot avoid that plain dictate absent en banc review at the circuit. Although Jensen is welcome to pursue this issue on appeal, the
Tarallo
court’s interpretation of “willful” is consistent with the unanimous view of other circuit courts, as well as the view set forth in the leading treatise on the meaning of § 78ff.
See, e.g., United States v. O’Hagan,
Since this Court cannot overturn Tarallo, Jensen retreats to the position that the Tarallo standard should not be applied to her circumstances for two reasons. First, Jensen argues that the Tarallo standard applies only to cases in which the intent requirement is willful alone, not willful and knowing, and in this case, Jensen was convicted of a substantive charge — falsification of books and records — that requires a showing of knowledge. Second, Jensen asserts that Tarallo’s “wrongful” willfulness standard can only apply to charges that are inherently nefarious. Neither argument is persuasive.
B. Application of Tarallo to Nom-Inherently Nefarious Charges
Where conduct at issue is “not inevitably nefarious,” courts must pay special attention to the meaning of “wilfulness” as used in criminal statutes.
See Ratzlaf,
This case is unique — and distinguishable from cases like
Ratzlaf
and Henderson— because Jensen was convicted under a statute that sets forth the mens rea applicable to a wide variety of conduct — violations of
any
provision of the Securities Exchange Act — some of which is inherently nefarious, some not. Despite the wide variety of conduct governed by § 78ff, Congress created only one intent standard — willfulness. For the reasons explained in
Tarallo.,
the Ninth Circuit has concluded that when Congress drafted § 78ff, it did not intend to require knowl
It may be, as Jensen argues, that Congress intended for the meaning of the word “willful” to vary depending on the underlying substantive offense. Under this view, Congress intended for “willful” to mean one thing when the defendant was charged with falsifying books and records, and an altogether different thing when the defendant was charged with making false statements to accountants. Presumably, the meaning of “willful” would turn on the judge’s view of whether the underlying offense was or was not inherently nefarious.
While theoretically possible, Jensen’s version of § 78ff finds little support in logic or legislative history. There is no indication in the legislative history that when Congress drafted the Securities Exchange Act, it intended for § 78ff to include a flexible mens rea that would vary depending on the underlying offense. As noted above, scholars and courts have interpreted the legislative history to support only one interpretation of willful, the interpretation reached in Tarallo.
Nor are there persuasive reasons for believing that Congress would have wanted the kind of scheme offered by Jensen. The drawback is obvious: the mens rea standard in a criminal case controlled by the Securities Exchange Act would turn on a judge’s determination of whether the underlying offense was nefarious or not. Therefore, in different cases involving the same conduct, certain judges might only require a showing of wrongfulness, whereas others would require a showing of knowing illegality.
Put simply, there is no basis- — either in caselaw, legislative history, or logic — for concluding that Congress intended for the willfulness standard to vary depending on the underlying offense.
C. Application of Tarallo Where Underlying Offense Includes Knowledge Requirement
Jensen’s stronger argument is that the Tarallo wrongfulness standard applies only in cases in which the intent requirement is willful alone, not willful and knowing. According to Jensen, where both willfulness and knowledge are required, courts have demanded proof of knowledge of illegality. Therefore, since both wilfulness and knowledge were required in this case, it was inappropriate not to include knowledge of illegality in the jury instructions.
Jensen’s argument has cosmetic appeal, but fails under closer scrutiny. What is enticing about Jensen’s position is that § 78ff contains a “specific provision,” which requires proof of wilfulness
and
knowledge in particular cases, to wit, where the defendant is charged with making a false or misleading misstatement of material fact in a document, application, or report that is required to be filed under the Securities Exchange Act or any rule or regulation. In his seminal law review article, Judge Herlands interpreted § 78ffs knowledge element as requiring proof of “ ‘knowledge’ of the precise illegality of the act.”
See
Herlands,
Criminal Law Aspects of the Securities Exchange Act of 198k,
21 Va. L.Rev. at 149. Circuit courts, including the Ninth Circuit, have implicitly endorsed that view.
See United States v. Chamay,
However, the government did not bear the burden of proving “knowledge” as that term is used in §
ISff
since this case did not involve misleading misstatements of material fact in a document required by SEC rule or regulation. Rather, the government bore the burden of proving “knowledge” as that term is used in 78m.
The “normal rule of statutory construction” is that “identical words used in different parts of the same act are intended to have the same meaning.”
Dep’t of Revenue of Ore. v. ACF Indust., Inc.,
readily yields whenever there is such variation in the connection in which the words are used as reasonably to warrant the conclusion that they were employed in different parts of the act with different intent. Where the subject-matter to which the words refer is not the same in the several places where they are used, or the conditions are different, or the scope of the legislative power exercised in one case is broader than that exercised in another, the meaning well may vary to meet the purposes of the law, to be arrived at by a consideration of the language in which those purposes are expressed, and of the circumstances under which the language was employed.
Sun v. Ashcroft,
There are persuasive reasons for concluding that Congress did not intend “knowingly” to mean the same thing in both § 78m and § 78ff Whereas the knowledge requirement in § 78ff dates back to the original Securities Exchange Act legislation from the early 1930s, Congress did not add a knowledge requirement to the Books & Records statute until 1988. See H.R. Conf. Rep. 100-576 (1988), reprinted in 1988 U.S.C.C.A.N. 1547 (1988). Moreover, Congress added the knowledge requirement to the Books & Records statute for a particular reason: “to codify current Securities and Exchange Commission enforcement policy that penalties not be imposed for insignificant or technical infractions or inadvertent conduct.” Id. at 917, 1998 U.S.C.C.A.N. at 1950. Congress’ concern with protecting individuals from criminalization of “inadvertent conduct” is not necessarily the same concern that motivated Congress in the 1930s when it drafted § 78ff s mens rea requirement.
Starting with the plain language of the statute, it is not immediately clear what “knowing” as used in § 78m(b)(5) was intended to mean. Although it is clear that Congress intended to require a mens rea of “knowingly” with respect to
some
act, it is uncertain whether “knowingly” applies merely to the falsification of books and records or whether the statute requires both knowing falsification and knowledge that the falsification is proscribed by law. In a similar context, the Supreme Court concluded that “[e]ither interpretation [of the word knowingly] would accord with ordinary usage.”
Liparota v. United States,
Because the plain language of § 78m(b)(5) is not unambiguous, the Court turns to legislative history. Unlike in
Liparota,
where the Supreme Court concluded that “the legislative history of the stat
The Congressional Record reflects that in adding a knowledge requirement to the Books & Records statute, Congress intended “to ensure that criminal penalties would be imposed where acts of commission or omission in keeping books or records ... have the purpose of falsifying books, records or accounts.... This would include the deliberate falsification of books and records.... ” H.R Conf. Rep. 100-576, at 916-17 (1988), reprinted in 1988 U.S.C.C.A.N. 1547, 1949-50. This account resolves the ambiguity and proves that Congress merely intended to add a mens rea requirement that would protect defendants who acted “inadvertentfly]”. 1 Id. The Court’s jury instruction accurately reflected congressional intent by requiring that the jury find that Jensen “was aware of the falsification and did not falsify through ignorance, mistake, or accident.” Jury Instruction at 17.
In sum, Jensen is correct that when a defendant is charged with violating § 78ffs “specific provision,” then proof of knowledge of unlawfulness is required. However, when Congress inserted a knowledge requirement into the Books & Records statute more than 50 years after enactment of the Securities Exchange Act, it did not intend to impose a knowledge of unlawfulness mens rea. Rather, Congress merely intended to protect parties who inadvertently violate the Books & Records statute. As a result, a person can be criminally convicted for a Books & Records violation if the government proves that they acted willfully — that is, knowing the falsification to be wrongful, 15 U.S.C. § 78ff(a) — and acted knowingly — that is, deliberately and not by accident. The jury instructions provided in this case accurately reflected the appropriate mens rea standard.
II. Void for Vagueness
Jensen’s second argument is that the Books & Records statute is void for vagueness as applied to the facts of her case.
2
Vagueness may invalidate a criminal law either because it fails to provide the kind of notice that will enable ordinary people to understand what conduct it prohibits, or because it authorizes or even encourages arbitrary and discriminatory enforcement.
See City of Chicago v. Morales,
In
Village of Hoffman Estates v. The Flipside,
In essence, the defense argues that a person of ordinary intelligence could not predict that Jensen’s conduct would trigger the Books & Records statute because the law does not “say
anything
about the date or dates on which the value of stock options must be measured.” Motion at 14. But “most statutes must deal with untold and unforeseen variations in factual situations, and the practical necessities of discharging the business of government inevitably limit the specificity with which legislators can spell out prohibitions. Consequently, no more than a reasonable degree of certainty can be demanded.”
United States v. Guterma,
Congress cannot be expected to proscribe with absolute clarity all forms of unlawful conduct. It is enough for Congress to set forth a statute with sufficient clarity that a person of ordinary intelligence could measure their own particular conduct up to the general language and determine whether there is a substantial risk that their conduct crosses the line of legality. In this case, a person of ordinary intelligence would be able to determine that helping to create false committee meeting minutes that have the effect of understating corporate expenses constitutes the falsification of a record that “re-fleet[s] the transactions and dispositions of
III. Conspiracy Liability
Jensen argues that a new trial is warranted because the Books & Records statute does not permit a conspiracy charge. Jensen’s argument hinges on the fact that § 78m(b)(4) provides that “[n]o criminal liability shall be imposed for failing to comply with the [books and records provision] except as provided in paragraph (5) of this subsection.” Because § 78m(b)(5) does not criminalize conspiratorial conduct, “no criminal liability shall be imposed,” argues Jensen.
Section 78m does not
expressly
repeal the federal conspiracy statute, 18 U.S.C. § 371, and therefore Jensen’s argument turns on whether the conspiracy statute has been
implicitly
repealed by § 78m’s language. Repeals by implication are not favored. Accordingly, “[i]n the absence of an affirmative showing of an intention to repeal, the only justification for an implied repeal is when the earlier and later statutes are irreconcilable.”
Morton v. Mancari,
The Tenth Circuit persuasively rejected an identical argument in
United States v. Lake,
TV. Knowledge of Effect on Financial Statements
Jensen contends that a new trial is warranted because the jury instructions did not state that, to be convicted, Jensen had to know the backdated documents affected Brocade’s financial statements. See Motion at 18. Because the Books & Records statute is part of the federal securities laws, Jensen believes that the government must establish some nexus between falsification of a company’s books and that company’s securities filings.
The gist of Jensen’s argument is that although her conduct may fall within the letter of the Books & Records law, a conviction would violate the spirit of that statute. It is a “familiar rule that a thing may be within the letter of the statute and yet not within the statute, because not within its spirit nor within the intention of its makers.”
Holy Trinity Church v. United States,
Jensen argues that unless the government is required to prove that a defendant intended to impact a securities filings of some kind, the Books & Records statute will reach conduct that Congress never intended to criminalize. However, as a careful review of the Foreign Corrupt Practice Act’s (FCPA) legislative history reveals, Jensen’s interpretation of the books of records statute is too miserly and would unduly restrict the reach of the Books & Records provision.
The impetus behind the enactment of the FCPA — of which the Books & Records provision is just one part — was evidence that American corporations were bribing foreign government officials. See S. Rep. 95-114, at 1-2 (1977), reprinted in 1977 U.S.C.C.A.N. 4098, 4099. Congress received evidence that corporations were concealing “questionable or illegal corporate payments” and failing to disclose such payments on their books, thereby degrading “public confidence in the integrity of the system of capital formation.” See id. The Books & Records provision was designed to “impose[] affirmative requirements on issuers to maintain books and records which accurately and fairly reflect the transaction of the corporation,” and Congress believed that public confidence would be enhanced “by assurance that corporate recordkeeping is honest.” Id. at 7, 1977 U.S.C.C.A.N. at 4105.
In essence, Congress was concerned not just that corporations were failing to adequately record transactions that would end up in public securities filings, but that public confidence in the capital markets was being degraded by improper record-keeping of various sorts. The purpose of the Books & Records statute was not merely to ensure accurate SEC public filings, but to reassure investors that, at the least, all books and records reflecting the economic events and activities of the corporation were accurate and honest. See Bus. Law Monographs: Int’l § 6.03 (Matthew Bender & Co.2006). In light of the legislative history, there can be little doubt that the statute was designed to prohibit the forging of committee meetings to reflect falsely the authorization of an expenditure, even if the defendant had no knowledge that the forging would affect financial statements. See id. 3
V New Evidence
Jensen argues that a new trial is warranted by Elizabeth Moore’s alleged recantation. The Court set forth in detail and on the record its reasons for rejecting an identical argument in United States v. Reyes, 06-0556-1, and therefore will set forth its rationale here in a summary fashion.
A defendant seeking a new trial based on new evidence must establish that: (1) the evidence relied on is, in fact, newly discovered; (2) the movant acted diligently in discovering the new evidence; (3) the evidence relied on is not merely cumulative or impeaching; (4) the evidence is material to the issues involved; and (5) the evidence would probably produce an acquittal on retrial.
See United States v. Krasny,
The Court believes that in light of Moore’s FBI Form 302, the statements at issue are not “new.” Further, even if Moore testified at a retrial that Brocade financial officers knew or suspected that Reyes was backdating, there is not a “reasonable probability” that the retrial would result in acquittal. That is so because Moore’s testimony would not undercut the government’s evidence demonstrating that: (1) Jensen falsified books, records, or accounts; and (2) did so intentionally and knowing her conduct to be wrongful. Even with Moore’s testimony, there remains substantial evidence that Jensen knew her role in the alteration of committee meeting minutes was wrongful. It is not probable that in light of this evidence, the jury would conclude — based on the mere fact that other Brocade employees were aware of the backdating — that Jensen believed her conduct was righteous. Accordingly, Moore’s alleged recantation does not justify a new trial.
Conclusion
None of the five arguments forwarded by Jensen warrant a new trial: (1) the
IT IS SO ORDERED.
Notes
. Although of limited persuasive value, it bears noting that when Congress originally drafted the Foreign Corrupt Practices Act in 1977, the Senate’s version contained a knowledge requirement that made it unlawful "for any person knowingly to falsify or cause to be falsified any book, record, or account of a reporting company which has been made or is required to be made for any accounting purpose.” S. Rep. 95-114, at 16 (1977), reprinted in 1977 U.S.C.C.A.N. 4098, 4114. Although the knowledge requirement was excised for reasons of no import here, the Senate clarified that "the term ‘knowingly’ connotes a ‘conscious undertaking.’ Thus these paragraphs proscribe and make unlawful conduct which is rooted in a conscious undertaking to falsify records or mislead auditors through a statement or conscious omission of material facts. HThe committee believes that the inclusion of the 'knowingly' standard is appropriate because of the danger, inherent in matters relating to financial recordkeeping, that inadvertent misstatements or minor discrepancies arising from an unwitting error in judgment might be deemed actionable. The committee does not, however, intend that the use of the terming ‘knowingly’ will provide a defense for those who shield themselves from the facts. The knowledge required is that the defendant be aware that he is committing the act which is false— not that he know that his conduct is illegal.” Id. at 9, 1977 U.S.C.C.A.N. at 4107 (emphasis added). If Congress intended to alter the meaning of “knowingly” from the version of legislation proposed in 1977 to the 1988 amendment when the knowledge requirement was finally inserted, there is a surprising lack of explanation for that change in the legislative history.
. Because this case does not involve the First Amendment, Jensen's void for vagueness must be analyzed in the context of whether
. The Court is aware that in a speech by then-SEC Chairman Harold M. Williams, a speech that the SEC agreed would be a formal statement of policy. Chairman Williams stated that "[t]his provision is intimately related to the requirement for a system of internal accounting controls, and we believe that records which are not relevant to accomplishing the objectives specified in the statute for the system of internal controls are not within the purview of the recordkeeping provision.” 46 Fed.Reg. 11544, 11545 (1981). Even assuming that this interpretation required the Court to provide an instruction on the nexus between Jensen's conduct and Brocade’s financial statements, the Court does not find the interpretation persuasive. Chairman Williams' speech is an informal policy statement that lies "beyond the Chevron pale.”
United States v. Mead Corp.,